How Can Debit Cards Be Linked to Investment Accounts?
Debit cards are a great alternative to credit cards. Along with wide acceptability of debit cards comes another advantage, that of direct withdrawals from investment accounts. Find out how debit cards can be linked to investment accounts.
Debit cards are incredibly handy for daily expenses and general cash withdrawal needs. They offer all the benefits (such as wide acceptability) of credit cards as long as the card provider is Visa or MasterCard. Traditionally the use of debit cards was confined to transaction accounts and savings accounts, but now we are starting to see even investment accounts with a corresponding debit card.
To see how this is so special (i.e. a debit card linked to an investment account) we need to trace the history of different types of bank accounts. Transaction accounts were created for someone who requires instant access to their money, and will need to make a lot of transactions (deposits and withdrawals) every month. They usually carry little to no interest, and have fees attached. Savings accounts on the other hand were for the purpose of having an interest earning investment that can still be accessed at any time.
Unlike term deposits which carry penalties for withdrawals before the maturity date, current accounts can be transacted upon without any charges. They will earn interest on the balance maintained, but in most cases they are restrictive than transaction accounts. The number and volume of withdrawals that can be made each month is limited, and the customer typically has to provide notice before withdrawing a substantial portion (more than 50%, some banks have lower thresholds) of their balance.
Investment accounts are a completely different beast, though. Their sole purpose is to provide for the buying and selling of investment securities, by way of a brokerage account or a third-party bank account. They are more specialised than transaction accounts, and usually provide no interest.
Recent innovations in the structure and operation of investment accounts has led to the arrival of interest bearing accounts, by way of a special cash account (where any excess funds in the brokerage account gets transferred to an interest bearing short-term account) which is linked to the main account. This also means that the lines between the different types of accounts have become blurry. Just as transactions accounts, and then later savings accounts, automatically came to carry debit cards, so does investment accounts these days.
When you consider that debit cards pay for themselves (via the merchant fees paid by retail merchants) and have no costs for the bank, it seems only natural that they would come to be linked to investment accounts. After all, when you have cash lying around in your brokerage account it is your money, and therefore yours to withdraw whenever you wish. Debit cards simply make the process more convenient, without the additional complications of credit cards (such as overdrafts and credit approval processes).
A debit card linked to a brokerage account cannot be used to buy or sell shares (or any other investment security) though. The only advantage is that a debit card obviates the need for a two step withdrawal process (investment account -> savings/transaction account -> cash withdrawal), and allow direct withdrawals (investment account -> cash withdrawal).
Debit cards are incredibly handy for daily expenses and general cash withdrawal needs. They offer all the benefits (such as wide acceptability) of credit cards as long as the card provider is Visa or MasterCard. Traditionally the use of debit cards was confined to transaction accounts and savings accounts, but now we are starting to see even investment accounts with a corresponding debit card.
To see how this is so special (i.e. a debit card linked to an investment account) we need to trace the history of different types of bank accounts. Transaction accounts were created for someone who requires instant access to their money, and will need to make a lot of transactions (deposits and withdrawals) every month. They usually carry little to no interest, and have fees attached. Savings accounts on the other hand were for the purpose of having an interest earning investment that can still be accessed at any time.
Unlike term deposits which carry penalties for withdrawals before the maturity date, current accounts can be transacted upon without any charges. They will earn interest on the balance maintained, but in most cases they are restrictive than transaction accounts. The number and volume of withdrawals that can be made each month is limited, and the customer typically has to provide notice before withdrawing a substantial portion (more than 50%, some banks have lower thresholds) of their balance.
Investment accounts are a completely different beast, though. Their sole purpose is to provide for the buying and selling of investment securities, by way of a brokerage account or a third-party bank account. They are more specialised than transaction accounts, and usually provide no interest.
Recent innovations in the structure and operation of investment accounts has led to the arrival of interest bearing accounts, by way of a special cash account (where any excess funds in the brokerage account gets transferred to an interest bearing short-term account) which is linked to the main account. This also means that the lines between the different types of accounts have become blurry. Just as transactions accounts, and then later savings accounts, automatically came to carry debit cards, so does investment accounts these days.
When you consider that debit cards pay for themselves (via the merchant fees paid by retail merchants) and have no costs for the bank, it seems only natural that they would come to be linked to investment accounts. After all, when you have cash lying around in your brokerage account it is your money, and therefore yours to withdraw whenever you wish. Debit cards simply make the process more convenient, without the additional complications of credit cards (such as overdrafts and credit approval processes).
A debit card linked to a brokerage account cannot be used to buy or sell shares (or any other investment security) though. The only advantage is that a debit card obviates the need for a two step withdrawal process (investment account -> savings/transaction account -> cash withdrawal), and allow direct withdrawals (investment account -> cash withdrawal).
