Though debit cards look like a credit card, their link is directly to your business checking account. The funds for transactions made with your debit card come directly from your account. Basically, the debit card functions as a check, with faster processing and more security. The amount of funds in your checking account determines how much you can spend on debit card purchases.

Debit card providers, typically MasterCard or Visa, often issue debit cards through a bank in association with a checking or savings account. Before you agree to accept the debit card incentives of a new checking account, make sure you’re aware of the following debit cards basics:

1. When used correctly, a debit card will keep you out of debt, unlike a credit card.

2. Most merchants will accept debit card payment online but won’t accept a check.

3. Other options similar to debit cards in simplicity and security include reloadable prepaid debit cards or a prepaid credit card for business.

Action Steps
The best contacts and resources to help you get it done

Avoid debt by using debit cards

Debit cards may function for many merchants like a credit card, but there are no added expenses tied into their use. Most banks provide a free debit card as an incentive for opening a checking account. Typically, the only fees associated may be transaction fees if you use the debit card at an ATM to withdraw checking account funds, and those fees are often less than $3. You can only spend as much money as there is in your business account, so there is no debt owed after a purchase and no interest charges or annual fees.

I recommend: ClearPoint Financial Services provides pros and cons to debit card use and information on how to protect the funds in your account. Apply online with a debit card provider such as MasterCard.

Use a debit card at merchants that don't accept checks

It has become more and more common for merchants to refuse the acceptance of personal or business checks as payment for a purchase, due to the fact that it is far too easy for an individual to write a check whether there are funds available or not. However, most merchants that accept credit cards will also accept your debit card because a debit card transaction will not go through if the funds aren't available in the checking account. Thus, merchants avoid losing money. Additionally, most Internet merchants accept debit card online payment just like a credit card but likely don't provide the option for you to enter a checking account number.

I recommend: Visit National Consumers League for thorough information on debit cards, including facts you should know before you use one. The article provided by Credit.com mentions typical vendors that won’t accept debit cards as well as other basic debit card information.

Try a prepaid credit card for business

Another option that works much like a debit card but also helps to build your business credit is a prepaid credit card for business. You deposit funds with the credit card company and use the prepaid credit card until those funds run out and you deposit more, just like a debit card. Additionally, you can use a prepaid credit card with some merchants that won't accept debit cards, due to an undetermined final bill amount, such as with hotel reservations or car rentals.

I recommend: WiseGeek explains prepaid credit cards in more detail. Visit the Federal Citizen Information Center for more information on debit cards. Click on Wallet Watcher for a printable sheet that will help you keep track of your credit and debit card supplier contact information, should your wallet get lost or stolen.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Prepaid debit cards make a great alternative to gift cards from a specific merchant. They give the recipient the option to use the card at a location of their choosing. Be sure you choose free prepaid debit cards in which providers don't charge an activation or usage fee.

The reason to consider debit cards for your business is the same reason you got one for your personal accounts: to keep better track of the money in your checking account. Debit cards – also called check cards and bank cards – work with either a personal identification number (PIN), grabbing money directly from the account, or with a signature like a credit card, with the withdrawal deferred by two or three days. Some debit cards offer both features.

You'll never pay interest on a debit-card purchase, and you won't have to manage petty cash. Here are other advantages over checks and credit cards:

1. PIN-based cards protect against identity theft; they can't be used by a thief who doesn't have the number – unlike a credit card, for which a signature could be forged.
2. In some areas, debit cards are accepted although checks are not.
3. By entering transactions immediately in your ledger – electronic or paper – you know exactly where your finances stand.

Action Steps
The best contacts and resources to help you get it done

Take the business debit card advantage

Banks and traditional credit-card companies offer a variety of debit cards. Shop for the features that meet your business needs.

I recommend: Visa check cards and the Debit Business Card from Mastercard offer a helpful small business financial tool that's faster than cash and safer than checks and can be used with a signature wherever the companies' credit cards are accepted.

Know the limitations and the risks

Debit cards aren't usually accepted for car rentals or other situations where the amount owed could balloon. Also, linking a debit card to bank accounts containing large amounts of money could be a risk if the card is stolen.

I recommend: The Myvesta Foundation offers a side-by-side comparison of credit and debit cards.

Think: small purchases

Experts say it's best not to make big purchases or to buy by phone or Web with debit cards. That's because it may be difficult to return items that don't meet your satisfaction – and there's no way to withhold payment, such as you have with a credit card or by putting a stop-hold on a check.

I recommend: The federal Electronic Fund Transfer Act gives debit-card holders some protections, such as the right to dispute an error on a bank statement and $50 liability if you notify your bank within two days of discovering your debit card is missing.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Mistakes happen and you have less protection with a debit because the money is already gone from your account, so keep good records and reconcile your accounts monthly. Also, paying attention is important because the monthly and per-use fees for debit cards can add up quickly.
• •  Debit cards lack some of the flexibility of credit cards. For example, there is no 'float,' the interest-free period of up to 40 days between purchase and payment.
• •  Debit transactions can be completed only if funds are available in the account – an advantage when accepting customers' debit cards, too.

Debit card incentives, such as a free card with a new checking account, make the idea of having a debit card sound great, but there is risk involved and you must know how to use them properly. If someone else gets their hands on your debit card and you don’t take the right precautions to protect your business funds, someone could empty your accounts very quickly.

However, there are a number of steps you can take to assure the utmost protection of your assets. Successfully using debit cards involves the following:

1. Use a PIN for debit card transactions as often as possible.

2. Make sure that your PIN is a number is difficult to figure out.

3. Watch your accounts regularly through statements, online and by mail to avoid overdrafting through debit card use.

Action Steps
The best contacts and resources to help you get it done

Make secure purchases using debit cards

While there are always risks, debit cards are one of the safest ways of making purchases with your business checking account. Most providers of debit cards give you the option to use your debit with a personal identification number (PIN), signature or both. For added security, you can assure no unauthorized purchases by requiring PIN approval only. Then the only person that can use the card is you. Using your PIN with debit card transactions means that the merchant automatically withdraws funds from your account through an online processing system. If you sign a receipt, like with a credit card, the withdrawal may take two to three days to process instead.

I recommend: Wells Fargo offers debit card security tips for responsible use. Search, compare and apply for debit cards, a prepaid credit card for business or reloadable prepaid debit cards from various debit card providers on CreditCards.com.

Choose an appropriate PIN for your debit card

It's best to choose a PIN for your debit card that isn't associated with any other important numbers in your life. Therefore, don't use birthdates, anniversaries, the last four digits of your social security number, address or phone number. A smart thief with the right resources can obtain enough information about you to try these numbers and access your account. Remember to never write your PIN on your card or keep it in the same place. If you can't memorize it, write it down somewhere safe as a reminder only, far away from the actual card.

I recommend: U.S. Public Interest Research Groups (PIRG) provides information on security risks and precautions you should take when using a debit card. If your debit card is lost or stolen, the Federal Trade Commission provides the steps to help recover lost funds.

Take care not to overdraft with your debit card

While the funds in your checking account limit the amount of transactions you make with your debit card, you can still overdraft if you don't watch your account balance carefully. Just like bouncing a check, a delay in depositing funds combined with too many transactions over a short period of time could mean extra fees charged by your bank and the merchant. These overdraft fees typically range from $25 to $50, which the bank will charge to your account automatically.

I recommend: For further explanation on how overdraft fees occur and how to avoid them, visit The Federal Reserve Board. Apply for a debit card online through a debit card provider like Bank Midwest.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  You can prevent the possibility of overdraft with prepaid debit cards. You can only spend the amount you deposit in the account, with no exceptions. Be sure to choose free prepaid debit cards that don't require activation or deposit fees.

Debit cards are a convenient way for consumers to pay for purchases without using cash, checks or credit cards. Debit cards offers the convenience of a credit card without charging fees and interest on a consumer's purchase. These fees are avoided, because a debit card takes the money directly from a checking or savings account, working much like a check would. Debit cards can also double as ATM cards in many cases, making banking more convenient wherever the consumer needs to be.

Action Steps
The best contacts and resources to help you get it done

Automated teller machine (ATM)

An ATM is a machine that allows people with debit cards to access their bank accounts to check balances, deposit money and withdraw cash.

I recommend: How Stuff Works provides a step-by-step guide on how ATMs work to provide automatic banking services for debit card holders.

Issuer

An issuer is the bank or financial institution that provides a debit card for the consumer.

I recommend: The State of New York Banking Department offers guidelines for best practices concerning issuers of debit cards.

Overdraft

Overdraft is a term used to describe an account that has 'spent more' than the funds available. Most debit card holders have the option of overdraft protection-for a monthly fee paid to the issuing financial institution.

I recommend: The Federal Reserve Board has published information for consumers on how to protect themselves from bouncing checks and overdrafts on their accounts.

Personal identification number (PIN)

The personal identification number, or PIN, is a four-digit code issued to all debit card holders. This PIN is a way for ATMs to validate the identification of the cardholder.

I recommend: APG Federal Credit Union offers tips on how consumers can protect their ATM and debit card PINs from identity theft.

Personal identifier (PID)

A personal identifier is one of a number of identification numbers that can be used to validate a person's identity when trying to access financial or personal accounts. A debit card account number and the card's PIN are two types of personal identifiers.

I recommend: The Anti-Phishing Working Group provides advice on what to do when a consumer gives out a PIN, debit card number or other financial personal identifier to a phishing website.

Electronic Fund Transfer Act

This act, created and regulated by the FDIC, provides protection for consumers using debit cards so they can safely deposit or withdraw funds.

I recommend: The FDIC has posted the complete Electronic Fund Transfer Act for the protection of debiting or crediting an account using electronic means.