A debit card allows you to pay for goods instantly, both online and in stores. However there has to be enough money in the bank account to begin with. They can also be used to set up automatic payments which can be extremely convenient for paying monthly bills.
The cards can also be used to withdraw money from ATMs. When opening your bank account you should double check that you can use your card in all bank ATMs without incurring a charge.
The most common forms of debit card are Maestro (Switch or Solo) or Visa Debit.
Types of Payment
Direct Debits
A direct debit is a facility which allows a creditor to receive payment from your bank account automatically. It saves you having to write a cheque or even having to remember to pay. This can be used to pay for both fixed and variable bills.
The Direct Debit Guarantee ensures that the bank will be liable if any errors are to occur. Regularly check what direct debits and standing orders you have set up and whether they are still valid to your day-to-day spending.
Direct debits can attract savings in certain circumstances – for example there are discounts for direct debits set up in relation to home phone, broadband, gas and electricity bills.
Standing Orders
A standing order is an instruction for your bank to make regular payments to another account (yours or someone else’s). You tell the bank the amount you want to pay, on which date and they will debit this amount until you tell them to stop. It is a free service to install and can be cancelled whenever you ask the bank to do so.
Recurring Payments
A recurring payment is automatically taken from your account. You can't cancel the deduction by contacting your bank, canceling your card or closing your account. If you do close your account, it will still continue to be charged. You have to contact the company directly if you wish to stop the payment. It is mainly used for online subscriptions, i.e. adult entertainment, and is extremely hard to cancel.
It can also be usd by car insurance companies, so if you don't wish to continue your policy after the first year, contact the insurance company, and tell them you wish to cancel. If you don't there is a chance you will be charged for the second year's insurance.
Cheques
Cheques are simply another form of debiting. By writing a cheque you are promising to pay the person or company the stated amount. It usually takes a few days for the money to be debited from one account before it is credited to another.
It is worth noting that the bank can ‘bounce’ the cheque if there isn’t enough money in the account, meaning the goods are technically unpaid for. If the bank notices a repeat pattern they will charge you. As of November 2007:
- Cheques should now be earning interest within 2 days of being paid
- Withdrawal of cash written by cheque should occur within 4 days
- Cheques should be completely cleared within 6 days
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Overdrafts
An overdraft is the agreed cash-borrowing limit that your bank will allow. Overdrawing your account is when you take out more money than you actually have in the account. It gives you a flexible way of managing your cash flow and can provide you with short term funds if you don't have enough money.
Most student bank accounts offer interest free-overdrafts – which means they don’t cost anything provided you stay within your limit. The length of your student overdraft is also important as you are more likely to be more reliant on this facility towards the end of your degree.
Info about overdrafts
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Ideal for borrowing money short-term, when you know it will be replaced quickly (ie: when your wages or student loan is paid into the account)
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Not a good value in the longer term when you are borrowing huge sums of money or are attempting to clear your debts.
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The overdraft usually increases as you progress through university
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You must agree an overdraft limit before attempting to become overdrawn; this is called an authorized overdraft
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If you exceed the amount set by the bank, you will have to pay bank charges (This area is currently being examined in the High Court)
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You may not get the massive overdraft that the banks are advertising
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Find out the bank’s policy in relation to graduate overdrafts – some will allow the overdraft to continue for a year, others may introduce a charge
I don’t need an overdraft
If you are likely to be in credit, then experts suggest choosing an account with a 0% overdraft and making use of this 'free' money to make money. The idea is to take the free overdraft and place it in a high interest savings account .
This way you can earn interest on the bank's money and when you do need to repay the overdraft you can do so instantaneously. If you don’t want to do this by opening a current account with an overdraft facility it is also possible to do this with your student loan.
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Using your Card Abroad
Most banks charge high fees for using your debit card to withdraw cash from ATMs abroad. On average this charge is £4.12 for debit cards. Paying by card abroad is often the most convenient method, but the costs can add up. So if you plan to use your card abroad, you should try and find the best deal.
Nationwide have credit and debit cards, which don;t have a fee for using your card abroad. It means you can use your debit card as normal and don’t have to pay any conversion charges or cash withdrawal charges, saving you money.
The Post Office also offers the same rules for their credit card, which has no foreign exchange fee anywhere in the world.
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