What Is a Bank Card?

Among the many decisions you're expected to make when you open a bank account is which type(s) of bank cards you want. But what is a bank card and why do you need one? Here, we'll tell you about the different types of bank cards, from ATM to debit cards.

What is a bank card?

Simply put, a bank card is any card issued by your bank. It may be a card that allows you to access your bank account when you're away from home, pay for items on credit, or even check your bank balance.

Five primary types of bank cards

Here are the main types of cards you can get from a bank.

1. Debit card

A debit card is one type of bank card. It's issued by your bank or credit union and is tied to one of your bank accounts, typically a checking account or money market account. Most debit cards carry the Visa, Mastercard, or Discover logo. When you use a debit card, the funds are withdrawn from the account to which it is tied. Let's say you're in your local department store and make a debit card purchase of $100. The store electronically runs your card and the funds are taken from your bank account and transferred to the merchant's bank account. The nice thing about a debit card is that it does not allow you to go into debt, since you're taking money from your own account to make the payment.

2. ATM card

Another type of bank card is an ATM card. Like a debit card, an ATM card is tied to your bank account. The difference is, an ATM card can only be used to take cash from an ATM or make deposits into an ATM. And unlike a debit card, an ATM card cannot be used to make purchases in a store or online. What makes this a bit confusing is that most banks offer a card that acts as both a debit card and an ATM card. In other words, you can use it to make purchases and then swing by an ATM machine to take out cash.

3. Credit card

Most banks also issue credit cards to customers who qualify. A credit card acts as a line of credit. For example, you may apply for a card and be offered a "spending limit" of $5,000. That means the most you can spend without being hit with an over-limit fee is $5,000. A credit card is not tied to your bank account and no funds are withdrawn from your account when the card is used. It's actually a type of loan. You either pay back the money in full at the end of the month or make monthly payments on the card.

Those who benefit most are cardholders who use a personal credit card to collect a specific type of reward. For example, they may collect miles for travel or cash back to help pay off their balance. They put expenses on the card and pay them off in full by the end of the billing cycle. That way, they get the benefits without paying interest.

While credit cards are great in an emergency and paying a card back in a timely manner can boost your credit score, using a credit card is not without risk. If you miss a payment or make a late payment, your credit score could take a hit. You must also pay interest on any funds accessed through a credit card, and that interest can be prohibitively high.

4. Prepaid debit card

A prepaid debit card is not typically issued by your bank, but rather another financial institution. Still, it is considered a type of bank card. A prepaid debit card works like this: You load funds onto the card before you can use it. For example, if you load $250 on the card, you have a $250 spending limit. The major downside of using a prepaid debit card is that you're likely to be hit with fees for using it. And yet, there are times a prepaid debit card may make sense. For example, a person who has trouble controlling their spending may load a prepaid debit card to keep their expenditures under control. A prepaid debit card may also make sense when someone is traveling and nervous about carrying cash.

5. Prepaid credit card

Like a prepaid debit card, you load a prepaid credit card with funds before you use it. The amount you load onto the card is your spending limit. This prepaid card can also carry high fees that eat into your budget. The primary reason someone might use a prepaid credit card is if the card issuer makes a monthly report to the credit reporting agencies. Let's say someone has poor credit and wants to build their score. By using a prepaid credit card they are able to ensure their on-time payments are reported to the credit reporting agencies, helping to build their credit score. A prepaid card is also one way to practice card control for those who have trouble with overspending.

A relatively recent phenomenon

While bank cards feel as though they've been around forever, they're a relatively new invention. Banks have been around since as early as 1800 BC in Babylon, and there have always been people willing to loan money with interest. That's why it's so interesting that it wasn't until the late 1950s and into the 1960s that credit cards became widespread in American society. Debit cards were introduced in the 1970s. By the way, it wasn't until 1974 that the Equal Credit Opportunity Act was signed into law and banks could no longer refuse to give a woman a credit card in her own name. And now, we have everything from online banking to 24/7 customer service.

21st-century stuff

A new type of bank card was recently introduced in Spain. Called Aqua, it's the first bank card that does not contain card numbers or expiration dates. Instead, there's a CVV code that reinforces security. Whether someone loads it to their smartphone or pulls out the plastic version, it is next to impossible for anyone to steal the card. Gone are the days of worrying about a store clerk copying a code or a pickpocket making off with a card. This takes bank card security to a whole new level.

As you make banking decisions, including where to park your cash and which types of cards to carry, you'll have a front row seat to changes in banking. Given the number of advances over the past few decades, it will be fascinating to learn what's next.