Most people comfortably use debit cards nowadays, but the benefits they offer are not always clear. Here’s a breakdown of how debit cards work and the rewards programs frequently offered with them.

Debit Cards

Believe it or not, people used to carry around cards that only allowed them to withdraw money from ATMs. These cards, called ATM cards, didn’t enable the holders to make purchases with their card. In 1975, Visa released its first debit card. Nowadays these cards allows card holders to make both debit and credit-style purchases.

At the end of the day, debt and credit-style purchases do the same thing — move money from your account to whoever you’re paying. But they get there in different ways, with potential different effects to you, the card holder.

Debit-Style Purchases

The debit-style purchase, also called a “point of sale” purchase when made in person, is the more direct style of purchase. The money is transferred out of your checking account and your balance is updated almost immediately. When you make these purchases, you need to enter in your PIN and accept the charges. Generally, you can make this style of purchase at grocery, retail, and convenience stores — anywhere the act of purchasing is close to the register.

Credit-Style Purchases

These purchases are like debit-style purchases that get sent through the credit card system. After your card is swiped, you must sign for the purchase. The impact of a credit-style purchase on your account balance doesn’t occur until the vendor declares the purchase. The vendor — that is, the business where you make the purchase — might report the purchase immediately or wait until the end of the day to close all credit purchases. Either way, your account balance may not automatically update, and your “available balance” may not be reduced by the amount of the credit-style purchase. Some restaurants and other businesses only accept credit-style purchases.

Be aware that some vendors place holds on an amount of your balance larger than the actual purchase. These holds happen most frequently when you purchase gas at the pump, rent a car, or stay at a hotel. If you’re afraid this will happen, ask the vendor if a hold will be placed on your funds before you make a purchase.

Debit Rewards Programs

As with credit cards, banks and credit unions often offer rewards programs to their debit card holders. While most of these programs are offered free, a few will have annual fees, usually commiserate with the benefit of the program. Rewards programs may be limited to specific accounts or specific cards offered at an financial institutions. Here’s a quick breakdown of these programs:

Cash Back

You receive a small percentage of your purchase credited back to your account. The cash bonus often applies only to purchases made at participating retailers.

Savings Program

A small amount of money is added to your savings account when you make a purchase. Some banks transfer this money from your checking account, while others just credit your savings account as a bonus.

Points for Prizes

Much like a credit card program, your purchases earn you points which you can use toward prizes that your bank or credit union offer. These prizes may include gift certificates, household items, or air miles. You earn points through debit card purchases about half as fast as you do with a credit card. VISA has the most frequently offered points program called “VISA Extras.”

Something Else

Banks and credit unions often get creative with their rewards programs in order to become attractive to customers or members they want to acquire. You can find some (relatively) exciting rewards programs out there!

Some Advice

Keep in mind: When considering a checking account with a rewards program, it may be worthwhile to estimate what you’ll earn. But don’t forget that you don’t often get a “free lunch” with rewards programs. That is to say, perhaps a little bluntly, that reward programs are a bonus feature aimed to make accounts more attractive, but they don’t make the account fundamentally better. Make sure the checking account’s basic features fit your checking needs first — if you have a bad fitting account, the fees you accrue will very easily out-weigh the benefits of a rewards program.