debit card

What is a debit card? Learn how to avoid fees and maximize benefits

Money.ca / Money.ca

Christine Smonk

By Christine Smonk

🗓️

Updated: November 27, 2024

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A debit card is a card that lets you access the money in your bank account to make purchases or withdraw cash. While they often have fewer bells and whistles than credit cards, debit cards can promote good spending habits. 

When you use a debit card, you’re only spending the funds you already have in your account. Unlike a credit card, which relies on borrowed money, a debit card lets you spend confidently without the risk of overspending or accumulating debt. 

I’m sure we’ve all had those shocking moments when reading our credit card statements at the end of the month (How did I spend $500 on sushi!?). A debit card can help prevent those experiences and improve your financial health. 

There are several types of debit cards available in Canada, from standard debit cards to co-branded debit cards. Keep reading to find out which one may be best for you.

Related: Best debit cards

What is a debit card and how does it work?

Your debit card is directly linked to your bank account. This means your purchase power is limited to the funds you have saved. When you spend using your debit card, the balance in your account will automatically be reduced by the amount you spent. 

In other words, there will be no impulse purchasing flight tickets to France when you only have $20 in your account. 

There are several different ways you can use your debit card. You can use it to make purchases in-person, from buying espresso martinis at a cocktail bar to cleaning supplies at the dollar store. For these types of purchases, you may be required to enter your personal identification number (PIN) to authenticate the transaction.

Some debit cards support contactless payment. You can simply hold your card to the payment terminal to make your purchase. Just be aware that purchases over a certain amount will often still require you to enter your PIN.

Co-branded debit cards (the ones with either the Visa or Mastercard logo on the front, sometimes called prepaid cards) can be used to make purchases online. In these cases, you’ll be required to enter your card information into the online purchase form.

Related: Best prepaid credit cards

In those rare instances when you need cash (for the neighbourhood kid’s lemonade stand), simply go to an ATM and use your debit card to withdraw money. 

Advantages and disadvantages of debit cards

Advantages Disadvantages
No debt: Since you can only spend what’s in your account, you don’t risk overspending and accumulating debt. More importantly, you avoid paying interest on debt – which can snowball to unmanageable levels. Limited purchasing power: With a debit card, you can only spend what you’ve already saved. This can be problematic in emergencies or when making large purchases.
Security: A debit card is a safe alternative to carrying cash. They come with fraud technology that protects your funds in case your card is lost or stolen. Risk of being locked-out: While fraud technology has advanced, there’s always the risk of your bank locking your debit card when it detects unusual activity.
Ease of use: Debit cards are widely accepted for in-store and online purchases. You can also use them at ATMs when you need cash. Fewer rewards and perks: Unlike credit cards, debit cards won’t commonly offer you points, cash back and insurance for using them.

Types of debit cards

  • Standard debit cards: A standard debit card is linked to your bank account, allowing you to spend the funds available. It can be used for everyday transactions like making purchases in stores or withdrawing money from an ATM.
  • Visa Debit and Debit Mastercard: Co-branded cards work the same as a standard debit card, but they’re more widely accepted. Since they’re processed by the Visa or Mastercard network, you’ll be able to use them in places that accept Visa or Mastercard. This means they will be accepted internationally and online. 
  • Prepaid debit cards: Unlike the two types above, a prepaid debit card is not linked to a bank account. Instead, you’re required to load funds directly onto the card itself. Common usages for these types of cards include gift cards or using them to travel. 

Some of our favourite debit cards

EQ Bank Card

Apply now

3.0

Fair

Suggested credit score

to receive the latest news, tips and offers by email

Apply now

Pros

  • No FX fees (up to 2.5%)

  • Earn 0.5% cash back on every purchase

  • Free ATM withdrawals in Canada (EQ will reimburse you)

Cons

  • ATM fees charged abroad (EQ will not reimburse)

Eligibility

Recommended Credit Score

Fair

Required Annual Personal Income

$0

Required Annual Household Income

$0

Pros

  • No FX fees (up to 2.5%)

  • Earn 0.5% cash back on every purchase

  • Free ATM withdrawals in Canada (EQ will reimburse you)

Cons

  • ATM fees charged abroad (EQ will not reimburse)

Eligibility

Recommended Credit Score

Fair

Required Annual Personal Income

$0

Required Annual Household Income

$0

Cash back on purchases

0.5%

Interest on your balance

2.00%

Annual Fee

$0

Foreign Transaction Fee

0%

KOHO Essential

Apply now

3.9

Poor

Suggested credit score

to receive the latest news, tips and offers by email

Apply now

Pros

  • A no-fee account option

  • Earn up to 5% cash back on your purchases

  • Accepted worldwide, wherever Mastercard is accepted

  • Three account tiers, so there’s something for everyone

  • Earn interest on your account

  • RoundUps feature helps you save

  • Financial coaching is available

  • Features like Credit Building (to help you build your credit history) and Cover (to protect you from overdrawing your account)

  • Compatible with Apple Pay

  • Joint account option for families and couples

Cons

  • No physical branches or tellers

  • No RRSP, TFSA or RESP accounts

  • Customer service not on par with the big banks

  • Missing some banking features, like wire transfers, currency exchanges and multiple lines of business like financial planning, mortgages and insurance

Eligibility

Recommended Credit Score

Poor

Required Annual Personal Income

$0

Required Annual Household Income

$0

Pros

  • A no-fee account option

  • Earn up to 5% cash back on your purchases

  • Accepted worldwide, wherever Mastercard is accepted

  • Three account tiers, so there’s something for everyone

  • Earn interest on your account

  • RoundUps feature helps you save

  • Financial coaching is available

  • Features like Credit Building (to help you build your credit history) and Cover (to protect you from overdrawing your account)

  • Compatible with Apple Pay

  • Joint account option for families and couples

Cons

  • No physical branches or tellers

  • No RRSP, TFSA or RESP accounts

  • Customer service not on par with the big banks

  • Missing some banking features, like wire transfers, currency exchanges and multiple lines of business like financial planning, mortgages and insurance

Eligibility

Recommended Credit Score

Poor

Required Annual Personal Income

$0

Required Annual Household Income

$0

cash back on groceries, eating & drinking, and transportation

1%

interest earned on your account balance

3.5%

extra cash back at selected merchants

up to 5%

Annual Fee

$48

Foreign Transaction Fee

1.5%

Neo Money™ Card

3.0

Good

Suggested credit score

to receive the latest news, tips and offers by email

Pros

  • No account fee

  • Competitive cash back rates with high balance in Neo Everyday account

  • Cash back potential with Neo partners

  • Tiered cash back system

Cons

  • Low cashback rates when low balance in Neo Everyday account

  • Foreign transaction fee

  • Low interest rate earnings on account balance (0.1%)

  • ATM withdrawals are charged like a cash advance

Eligibility

Recommended Credit Score

Good

Pros

  • No account fee

  • Competitive cash back rates with high balance in Neo Everyday account

  • Cash back potential with Neo partners

  • Tiered cash back system

Cons

  • Low cashback rates when low balance in Neo Everyday account

  • Foreign transaction fee

  • Low interest rate earnings on account balance (0.1%)

  • ATM withdrawals are charged like a cash advance

Eligibility

Recommended Credit Score

Good

Up to 3% cashback on gas and grocery

3%

everywhere else

1%

Earn up to $460 in cashback annually

$460

Annual Fee

$0

Debit card features: CVV code, expiration date and daily limits

  • CVV code: The Card Verification Value (CVV) is the number found on your debit card that acts as an additional layer of security when making online or phone transactions.

    Typically, it’s a three-digit code on the back of your card, although American Express cards have a four-digit CVV.
  • Expiration date: Similar to credit cards, co-branded debit cards (i.e. Visa Debit and Debit Mastercard) come with an expiration date. This date is printed directly on the co-branded debit card and indicates when the card must be replaced. The purpose of the expiration date is to ensure your card is regularly updated with newer security features. After the expiration date passes, your card issuer will send you a new card as a replacement. Standard debit cards, however, do not have an expiration date and will only need to be replaced when lost, stolen or damaged. 
  • Daily limits: Debit cards will come with daily limits for withdrawals, spending and sometimes even online purchases. These limits help control spending, plus they provide additional security. For example, if your card is stolen, the thief will not be able to drain your account. Limits vary by financial institution and can often be adjusted upon request.

Common debit card fees

  • ATM transaction fees: Most banks provide free ATM withdrawals when the debit card is used with an ATM within their network. However, when accessing out-of-network ATMs, you will likely be charged a fee from your bank ranging from $2 to $5. On top of that, the ATM itself may hit you with a fee, so you’re being double charged. 
  • Overdraft and insufficient funds fees: If you accidentally spend more than the amount of money in your account, you may be hit with an overdraft fee. It’s important to keep an eye on your spending so that this doesn’t happen. It’s also worth calling your bank if it’s your first time being charged this fee. Banks will sometimes reverse the charge if you’re not a repeat offender. 
  • Foreign transaction fees: When using your debit card abroad, you will be charged a foreign transaction fee on your purchases. This fee covers the currency conversion service and ranges from two to 3.5% on the transaction amount. You may also be charged a set fee per transaction when spending in a foreign country. 
  • Replacement card fees: If you’ve lost your card, you may be charged a fee to replace it. Typically there’s a set fee for replacing lost, stolen or damaged cards. Banks may waive the fee for a first time offence or for long-standing customers. Some banks may charge an extra fee for an expedited replacement.

Here’s an overview of the best chequing accounts offered by Canadian banks. When you open a chequing account, the bank will send you a debit card to access your funds. 

Chequing account Cost per month Learn more
BMO Performance Chequing Account $17.95, or $0 with daily balance of $4,000. Up to $600 cash bonus for new customers. Go to site
Simplii Financial no-fee chequing $0, earn $500 with a direct deposit or at least $100 for 3 months Go to site
Scotiabank Preferred Package $16.95, or $0 with daily balance of $4,000. Up to $800 cash bonus for new customers Go to site
RBC Signature No Limit Banking $16.95 RBC Chequing accounts review
CIBC Smart™ Account $6.95 - $16.95 CIBC Chequing accounts review
TD Unlimited Chequing Account $16.95 TD Chequing accounts review

Related: Best no-fee chequing accounts

How to use and activate your debit card

  • Activation process: There are several ways to activate your debit card in Canada. One method to activate a debit card is online, by visiting the bank’s website and following the card activation instructions. Alternatively, you can call the bank’s phone number and follow automated voice prompts to activate your card. Some debit cards can be activated by visiting an ATM and entering your PIN. Finally, a few banks provide the option to activate your card in a branch with the support of a customer service representative. 
  • Using the card for purchases and withdrawals: To use your debit card in person, you will either need to insert it into the payment terminal or tap it using contactless payment. When you insert your debit card, you will be prompted to enter your PIN. When tapping your card, your PIN is not necessary – however, you may risk your payment being rejected if the cost of the purchase is over the accepted limit. 
  • Online transactions: If you have a Visa Debit card or Debit Mastercard card, you can use your debit card online. Simply fill your card details out in the payment form, the same as you would with a credit card. Unlike with in-person purchases, you will be required to enter your card’s CVV. 

Common issues with debit cards and how to fix them

  • Declined transactions: If your card is declined, it could be for a few different reasons. First, check your account to see if you have sufficient funds in your account for your attempted purchase. Next, check your daily spending limit to see if you’ve exceeded your permitted spend. After that, you’ll want to contact your bank. Sometimes the bank may automatically lock your card if they suspect fraudulent activity on the card. 
  • Stolen or compromised cards: If your card has been stolen or you notice an unusual transaction, contact your bank immediately. Some banks allow you to lock your card from their mobile app – which is a great first step if they offer this option. Once you’ve contacted your bank, they will begin a fraud investigation. Once the investigation is complete, if fraud was found to have occurred, the stolen money will be deposited into your account. 
  • Blocked cards when travelling: Due to advances in fraud notification technology, the Big 6 banks no longer require you to notify them when you travel. However, you should still be prepared in case your card is blocked. It’s a good idea to carry a back-up debit or credit card to use in case something happens to your main card. 

Related: Best banks in Canada

What to do if you lose your debit card

  • Lock your card: Once you’ve noticed your card is missing, immediately lock your card to prevent unauthorized spending. Some banks allow you to lock your account on their mobile app or on their website. If not, you will have to call into your bank to lock your card. 
  • Report fraudulent activity: Review your online statement to determine if there is any activity on your account that you don’t recognize. If so, call your bank to start a fraud investigation and report these transactions. 
  • Order replacement card: A replacement card can often be requested online, through the bank’s app or on the phone. Use the method most convenient for you to get a new debit card. 
  • Fraud protection: Fraud technology has advanced to better detect unauthorized activity, so your debit card may automatically lock itself when suspicious transactions are made. 

Debit card vs. credit card: What’s the difference?

  • Financing: When you spend with a debit card, you are spending your money. With a credit card, however, you are spending money belonging to a financial institution that you are obliged to pay back. 
  • Interest and fees: The main fee associated with a debit card is the monthly account fee. Similarly, many credit cards come with an annual fee. The key difference between these two cards is that, since credit cards use borrowed money, you’ll be charged interest on any outstanding balance.  This amount is often more than 20% – which can add up quickly if you’re not careful. 
  • Rewards and protections: Since credit cards are lucrative for financial institutions, they lure you in with rewards and perks. You earn points or cash back for spending with a credit card. Plus you’ll often get perks like insurance, lounge access, superior fraud protection and discounts. While debit cards have fewer perks, they can be better for budgeting as you don’t risk overspending. If you’re a person who has a hard time tracking their spending, it may be better to ignore the enticing credit card perks and opt for a debit card. 

FAQ

  • What is a Visa Debit Card?

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    A Visa Debit Card functions the same as a standard debit card. The difference is that the payment is processed on the Visa network, meaning you can use it wherever Visa is accepted. This makes this card better to use internationally and online, compared to a standard debit card.

  • Does a debit card have an expiration date?

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    Yes, similar to credit cards, debit cards come with an expiration date. When your expiration date is reached, you will no longer be able to use your card. Your bank should automatically send you a replacement before this occurs so you can continue accessing the funds in your account.

  • What is the difference between a debit card and a prepaid debit card?

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    A regular debit card is linked to your bank account, while a prepaid debit card is preloaded with a set amount of money. With a prepaid debit card, you aren’t required to have a chequing account.

  • How do I get a replacement for a lost debit card?

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    Banks offer several ways to replace a lost debit card. You can submit a replacement request through their mobile app or online form, or call their customer service line to make the request.

  • Can I use my debit card internationally?

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    Yes, you can use your debit card internationally as long as the location accepts debit payments. Co-branded debit cards are best for international transactions as they use the Visa or Mastercard network. Just be aware of foreign transaction fees when spending abroad.

Christine Smonk Freelance writer

After years as a product manager at TD Bank and Ratehub.ca, Christine now expresses herself with words, especially in credit cards and personal finance.

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