Debit card fees and features

Most of us use debit cards on a daily basis. They even seem to be becoming the norm over physical cash, with the takeaway shop lady reaching for the eftpos machine before she even asks me how I’d prefer to pay. 

We use them for all sorts of things: paying for coffees, tapping on to public transport, and even online shopping. 

They’re a great alternative to credit cards because they only let you spend the money you’ve got in your bank account, lowering the chance you’ll slip out of credit-control.

While you’re no doubt already familiar with what a debit card is, there’s also a lot you might not know, including security features, overdraft fees, and rewards schemes. It’s important to know what features your card comes with, so you can make the most of your debit card and avoid any expensive surprises.

Debit cards are the standard these days for personal bank account access, and you can even get one as young as your early teens.

Most debit cards function in more or less the same way – but that doesn’t mean they’re all created equal. The main difference often comes down to which features your bank decides to include.

One of the first things you’ll notice about your debit card is the brand of the plastic itself – usually Visa or MasterCard. But here’s the thing: they’re pretty well the same, as both are accepted globally and come with handy features like ‘tap and go’ for purchases under $200 (a temporary Coronavirus measure, brought forth in April 2020, that increased the $100 tap limit).

Unless you’re a dedicated Visa-head or a MasterCard fanboy, it probably won’t make a difference to the everyday use of your debit card, and will likely come down to who your bank has a contract with.

Since a debit card is essentially a tool for spending your own money, it needs to be linked to a transaction account. The number shown in this account is the actual money you have available to spend.

Often, you’ll open the bank account first and then get the debit card later - so choosing a great bank account will likely be your first priority. The key here is to look for an account with no monthly service fees.

But don’t bank on making any real interest gains from your everyday spending account. Instead, you can grow your savings by regularly shifting funds over to your savings account when you won’t need them for your everyday expenses.

Even if you haven’t embraced the plastic rectangle as your favourite payment method, a debit card is a handy item to have, because it gives you access to your own cash via ATMs.

Each bank usually has an ATM network you can usually access for free using your institution’s debit card, and many will also allow you to use other banks' machines as well - especially if you bank with a smaller institution who has partnered with one of the big four. 

However, some banks charge fees for using their ATMs without a debit card issued by them, and others charge these fees, then offer to refund them (in whole or part) if you meet specific criteria.

You probably know that contactless payment methods are on the rise. That includes things like PayPass, payWave and digital wallet technology (like Google, Apple and Samsung Pay). Contactless payments are quick and easy and most newer debit cards come with the option of using at least one of these methods, depending on your provider.

You can set your debit card up with an overdraft option, so that if you run short of savings at the worst possible moment (in the middle of buying the weekly groceries, maybe), you can still use it to pay for necessities. This might be a handy feature, but keep in mind you’ll essentially be switching over to a credit payment, usually paying for it with high fees.

It’s also an option to opt out of having access to an overdraft service, which is a great idea if you’re worried about racking up a debt. That way, if you try to spend money you don’t have, your card will be declined, rather than providing you with credit at a high price.

If you’re worried about getting caught without money when you need it, stick a low rate credit card in your wallet as well.

One of the problems with using a debit card is that the transaction is completed pretty much instantaneously. This means if something goes wrong, like a double payment or your online shopping not arriving, you don’t have a lot of time to dispute it.

But if this happens, you do have the option of a chargeback, which is a request to your bank or card company to get your money back. Get in touch with your bank to find out how.

Rewards on your debit card might not be as abundant as they can be on a rewards credit card, but you can cash in on some neat perks, including:

• Special offers on some retail products and event tickets
• Cash back on tap and go purchases
• Rewards points, usually attached to an existing rewards program, like Qantas Frequent Flyers.

Debit cards offering these kinds of bonuses aren’t exactly common, so you’ll have to do some searching if this is what you’re after. A good place to start is Mozo's debit card comparison table, where we’ve listed important details about each card.

Generally speaking, a debit card is a pretty secure way to access your money. It’s protected by your bank’s anti-fraud policy, so if it gets lost or if someone steals your details, you can have it cancelled or temporarily locked. You also generally need a PIN to access an ATM with your card, and even to make tap and go purchases over $200 (as of April 2020).

The only time your debit card might not be as secure as a credit card is when you’re shopping online, since they are a direct link to your bank account.

Your bank usually has security measures in place to deal with this, though, and you can also protect the bulk of your savings by limiting the amount in your bank account. Stick most of your money in your savings account, so it’s safe and out of reach.

When it comes to debit card fees, there are a few ones to be aware of. While having the card itself often won’t be the cause of fees, there are other charges associated with the linked account or how you use the card, which you’ll need to be aware of to get the best value out of using your debit card.

This is an extra fee you’re charged by some businesses when making a purchase on your credit or debit card. Some businesses were charging huge markups on these fees (airlines, we’re looking at you), but the good news is regulations came into force in 2016 limiting excessive surcharging on credit and debit card transactions.

You might still pay a surcharge for using your debit card, but the recommended amount is around 0.5% on debit cards.

A debit card doesn’t come with an annual fee, the way a credit card might. But remember, it does need to be linked to a transaction account, which might have a monthly service fee. But there are ways around this. If your linked bank account charges you a fee, you could:

• Switch accounts. Check out the other bank account options available and switch to a provider who isn’t charging a fee to hold onto your hard earned cash.
• Check out the conditions. Most bank accounts that come with a fee also come with a criteria to help you avoid it. For example, the monthly service fee might be waived as long as you deposit $2,000 per month into the account - like your salary. Just don’t forget to then transfer a bundle into your savings account so you don’t miss out on earning interest.

An overdraft seems like a handy feature, right? Well, it’s also one you should use with caution, because it usually comes with a whopping fee attached. A good way to avoid these fees is to either have a solid budget and make sure you stick to it, or contact your bank and opt out of the overdraft service entirely.

Some banks might also offer the option to set up an overdraft line of credit, which means you can skip the hefty fee - but you will pay steep interest on the overdraft instead.

If you’re using your bank’s ATM in Australia, a lot of the time you won’t pay a fee for getting cash out at all. You’ll mostly get hit with withdrawal fees if you’re overseas, or if you’re using a third party ATM. So check which ATMs you can use for free to avoid being charged when you go to grab some cash. Some providers also offer to reimburse ATM fees as a debit card perk.

When you head off overseas, you may get hit with extra fees for using your card. These include the foreign ATM fee, as well as a foreign exchange margin and occasionally, a foreign exchange fee.

The best way to avoid or minimise all these fees? Compare your debit card options and choose the best option to suit your needs.