Understanding debit cards

contactless payment

25 Oct 2018 | 4 min. read

A debit card lets you draw directly from your bank account when you make a purchase. Find out how it works, what to watch out for and how it compares to ATM and credit cards.

Key takeaways

  • You can use a debit card to withdraw money from an ATM.
  • You can also use it like a credit card for Point-of-Sale (POS) transactions.
  • Unlike credit cards, the amount is immediately deducted from your bank account, so you can't spend more than what you have in your account.

What is a debit card?

Debit cards are like ATM cards. You can use it to buy goods and services. You can also use your debit card with your personal identification number (PIN) to withdraw cash from your bank account at your bank’s ATMs.

How it works

When you shop with your debit card or ATM card, the transaction amount is immediately deducted from your bank account. You can't spend more than what's in your account.

Unlike ATM cards, debit cards have a VISA or MasterCard branding. More often, you may not need to sign the receipt for purchases below a certain amount at some merchants.

While this may seem similar to credit cards, do note that when you use credit cards, you are paying on credit. When you use a debit card, the purchase amount is drawn from your own bank account.

Fees may be charged for debit cards. There may be an annual fee, a replacement fee for lost cards and a fee for withdrawals made abroad.

See also: Understanding credit cards

Risks and safeguards

Although banks in Singapore have replaced magnetic stripe-only debit cards with chip cards, magnetic stripes are still used overseas.

Here are a few ways to protect yourself:

Activate transaction alerts

Chip technology can reduce the risks of cloning, but the magnetic stripe part on your debit card can still be cloned or skimmed. Make sure you've activated transaction alerts.

Check if the correct amount is debited

Some small-value purchases do not need a signature. Ask for a receipt to check if the correct amount is deducted. If the amount is wrong, alert the merchant immediately to ask for a refund. If you are not at POS, contact your bank quickly to see if it can help to reverse the transaction.

Be careful when transacting online

Your debit card details may be captured by intercepting your online transactions. Criminals will then use the details to perform card-not-present transactions such as online or mail-order/telephone-order transactions.

Shop on 3D Secure websites

A One-Time Password (OTP) is needed before completing the purchase. This step ensures that the person making the purchase is the rightful owner of the debit card used. Notify your bank immediately if you received an OTP but didn't make the transaction.

Lost or stolen cards

If you lose your debit card, let the card issuer know immediately. If it is stolen, make a police report and inform the card issuer. The maximum liability for unauthorised charges before reporting the loss to the card issuer will be capped at $100.

This cap applies provided you have not acted fraudulently, or you were not grossly negligent or did not fail to inform the card issuer as soon as you became aware that the card was lost or stolen.

Do check with your bank on its policy for lost or stolen debit cards.

Debit cards versus other cards

Here's a comparison between debit cards, ATM cards and credit cards.

ATM card Debit card Credit card
Purchase/withdrawal Immediately debited from your bank account. Immediately debited from your bank account. All transactions are made on borrowed money that must be repaid to the bank.
Payment mode You need to:
  • Provide your PIN to make purchases at merchants
  • Provide your PIN to make withdrawals at ATMs
You need to:
  • Provide your PIN to make withdrawals at ATM
You may not need to sign the receipt for purchases below a certain level at some merchants.
Main risks Risk of cloning/card skimming arising from the use of magnetic stripe technology.

The banking industry has taken active steps to address this risk like:
  • Migrating ATM cards to the more secure chip technology
  • Providing SMS alerts when transaction exceeds a certain amount.
Risks arising from the payment convenience of the card over POS terminals, e.g. wrong amount debited for smaller value purchases that do not need signature.

Risk of cloning/card skimming arising from the use of magnetic stripe technology.

  • The banking industry has taken steps to address this risk like: replacing magnetic stripe-only cards with chip cards and providing transaction alerts.
  • However, the risk persists as long as the magnetic-stripe is activated.
Risk of card details compromise through intercepted card-not-present transactions, like online or mail-order/telephone-order transactions.
Fees There may be a fee for replacement card.

There may also be fees for making withdrawals at overseas ATMs.
Fees include:
  • Annual fee
  • Replacement card fee
  • Fee for making withdrawals at overseas ATMs
Fees include:
  • Annual fee
  • Replacement card fee
  • Fee for making withdrawals or cash advances at local and overseas ATMs.
Note: Cash advance is a form of borrowing that you must repay the bank. Interest and late payment charges will apply.

Things to watch out for

You should:

  • Never leave your debit card or documents containing its details lying around.
  • Sign the back of your debit card with permanent ink as soon as you receive it.
  • Keep a record of your card numbers, expiration dates, and the phone number and address of the bank in a secure place.
  • Keep all card-related information such as your PIN, separate from your card.
  • Safeguard your card details. Do not disclose your PIN for cash withdrawals to anyone. Memorise your PIN.
  • Only shop at reputable and legitimate merchants (including online stores). Do not shop online using shared devices such as computers in cybercafes.
  • Ask the merchant for a receipt when you make small value purchases. This is to ensure the correct amount is deducted.
  • Check regularly that your cards are with you.
  • Call the bank immediately if your card or card information is lost or stolen. Note the time and date when you do so.

Last updated on 02 Nov 2018