Before you can pay for something with a debit card, the store, website or other merchant may check with your bank to make sure your card is legit. This is called debit card preauthorization, and it takes place electronically, in an instant. Depending on the transaction, preauthorization may place a temporary hold on money in your bank account.
When you pay for something with a card — credit or debit — the merchant typically submits the transaction for preauthorization. During preauthorization, the merchant's card terminal or computer asks the bank that issued the card whether the card is valid for the sale. If the bank's computer responds that it is, the transaction moves forward. If the bank's computer says no, the merchant declines the card.
Credit vs. Debit Transactions
A key difference between credit card and debit card preauthorizations stems from how the cards work. When you use a credit card, the card issuer pays the merchant, and then you pay the issuer back later. So a credit card purchase essentially involves a short-term loan. With a debit card, though, the card issuer takes money directly out of your bank account. That affects what your bank does with a preauthorization involving a debit card.
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There are two ways a merchant can process a debit card transaction. One is to require you to enter your PIN. When you do this, it's the same as getting cash at an ATM: The money comes out of your account immediately. The second way for a merchant to handle a purchase with a debit card is to submit it like a credit card transaction through a network such as Visa or MasterCard. The money will still come out of your account, but it might take a couple days for the transaction to clear through the credit card system.
'Holds' on Debit Sales
When banks receive a debit card preauthorization request from a merchant, it's common for them to place a "hold" on money in the account — especially when the merchant is handling it like a credit card purchase. The preauthorization alerts the bank that a transaction for, say, $40 will be coming through soon, so the bank sets $40 aside so that it will be there when the final transaction goes through. When a debit card preauthorization doesn't include a dollar amount — which happens, for example, when you swipe your card at a gas station before pumping gas — the bank may place a hold for an arbitrary amount.
Clearing the Hold
Note that it is the bank, not the merchant, that places the hold when a debit card transaction occurs. When the final transaction posts to your account, the bank should lift the hold it had placed on the funds. Sometimes, if you check your account online, you might see an instance in which the final transaction has been posted but the preauthorization hold hasn't yet been lifted, in which case it would look as if you had been double charged. The hold should drop off soon.