PIN-Based Debit Cards vs. Signature Debit Cards

Did you know that there are two types of debit cards?

Nope, I’m not talking about prepaid cards vs. traditional cards (although those are also two forms of debit cards). I’m talking about “direct debit cards” vs. “deferred debit cards.”

Never heard of these? Don’t worry. Here’s a primer explaining the two types of cards. This information will help you understand the pro’s and con’s of each type of debit card, and may also help you avoid unnecessary fees.

Direct Debit

Direct debit cards work using a Personal Identification Number (PIN). The bank either issues you a PIN number or you choose it yourself. Every time you make a purchase using the card you must enter the PIN. Direct debit cards take money out of your bank account the moment you make a purchase.

Retailers prefer PIN-based transactions because it costs the merchant less to process. In return, many banks recoup their losses by passing the fee onto the consumer. Some banks charge between 25 cents to $1.50 for every PIN-based direct debit purchase. Some banks may not notify you either before making these charges (it’s disclosed in the fine print). Review your checking account statement to see if your bank is charging you a transaction fee for your debit card purchases.

Despite the hidden fees of using direct debit, they tend to be a safer choice than deferred debit. The PIN entry makes it difficult for a thief to use. Because of this, it is generally considered safer to use direct debit cards online.

Deferred Debit

Deferred debit cards are a hybrid between traditional credit cards and direct debit cards. They take money out of your checking account within two to three days. These cards require a signature instead of a PIN number.

The main issue with deferred debit is the potential for getting hit with an overdraft fee. Because it operates like a credit card, the purchase “goes through” (gets approved) whether or not you have enough money in the bank. If you come up short, you’ll face a hefty overdraft fee that could top $30 or more. Direct debit cards don’t carry this risk, unless you opt into overdrafting when you create your account.

Security is another potential issue. Because deferred debit cards require a signature, they are not as safe as direct debit. If a card gets stolen, time is of the essence. Most banks cap liability at $50 if the card is reported as stolen within two days. Wait three days, and you’ll get stuck with $500 liability. And if you wait too long, your liability is “potentially unlimited.” For all these reasons, deferred debit cards are generally not considered highly secure for online purchases.

The good news about deferred debit cards, though, is that they generally don’t carry a hidden transaction fee. You can use it as often as you like without worrying that you’re getting nickel-and-dimed.


Direct debit cards may be safer from identity theft because of its PIN system, and you may also be less likely to incur an overdraft fee when you use one. However, you may pay a transaction fee. Deferred debit cards tend to lack transaction fees, though your potential liability may be higher. Neither card is inherently “better” or “worse,” as long as you understand the risks, limitations and fees.

Monitor your accounts with BillGuard, which can help protect you from grey charges.