What Is an ATM and How Does It Work?

What Is an Automated Teller Machine (ATM)?

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit card can access cash at most ATMs, either in the U.S. or other countries.

ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash withdrawals, bill payments, and transfers between accounts.

Fees are commonly charged for cash withdrawals by the bank where the account is located, by the operator of the ATM, or by both. Some or all of these fees can be avoided by using an ATM operated directly by the bank network that holds the account. Using an ATM abroad can cost more than using one in the U.S. due to exchange rates or transaction fees.

History of ATMs

The first ATM appeared at a branch of Barclays Bank in London in 1967, though there are reports of a cash dispenser in use in Japan in the mid-1960s. The interbank communications networks that allowed a consumer to use one bank’s card at another bank’s ATM followed in the 1970s.

Within a few years, ATMs had spread around the globe, securing a presence in every major country. They now can be found even in tiny island nations such as Kiribati and the Federated States of Micronesia.

ATMs are also known automated bank machines (ABMs), cashpoints, or cash machines.

Types of ATMs

There are two main types of ATMs. Basic units only allow you to withdraw cash and receive updated account balances.

The more complex machines accept deposits, facilitate line of credit payments and transfers, and access account information. To access the advanced features of the complex units, you often must be an accountholder at the bank that operates the machine.

ATM Design Elements

The design of each ATM may be different, but they all contain the same basic parts:

• Card reader: This part reads the chip on the front of your card or the magnetic stripe on the back.
• Keypad: The keypad is used to input information, including your personal identification number (PIN), the type of transaction required, and the amount of the transaction.
• Cash dispenser: Bills are dispensed through a slot in the machine, which is connected to a safe at the bottom of the machine.
• Printer: If required, you can request receipts that are printed out of the ATM. The receipt records the type of transaction, the amount, and the current account balance.
• Screen: The ATM issues prompts that guide you through the process of executing the transaction. Information about accounts and their balances is also transmitted on the screen.

Full-service machines often have slots for depositing paper checks or cash.

How To Use an ATM

To use an ATM, you typically insert your bank cards and follow the prompts to withdraw cash, which is dispensed through a slot. ATMs require you to use a plastic card—either a bank debit card or a credit card—to complete a transaction. Your identity is authenticated by a PIN before any transaction can be made.

Many cards come with a chip, which transmits data from the card to the machine. These work in the same way as a bar code that is scanned by a code reader.

Banks place ATMs inside and outside of their branches. Other ATMs are located in high-traffic areas such as shopping centers, grocery stores, convenience stores, airports, bus and railway stations, gas stations, casinos, restaurants, and other locations.

ATM Fees

Account holders can typically use their bank’s ATMs at no charge, but an ATM owned by another bank usually charges a fee. According to MoneyRates.com, the average total fees to withdraw cash from an out-of-network ATM was $4.55 in 2022. Some banks will reimburse their customers for the fee, especially if there is no corresponding ATM available in the area.

ATM fees can add up for users who make withdrawals regularly. For example, if you make weekly withdrawals at an ATM that charges $4 and is not from your bank, you would pay more than $200 a year in ATM fees.

Using ATMs Outside the U.S.

ATMs make it easier for you to access your checking or savings accounts from almost anywhere in the world when you travel.

Travel experts recommend using foreign ATMs as a source of cash abroad, as they generally receive a more favorable exchange rate than they would at most currency exchange offices.

However, the accountholder’s bank may charge a transaction fee or a percentage of the amount exchanged. Many ATMs don't list the exchange rate on the receipt, making it difficult to track spending.

The Bottom Line

ATM, or automated teller machine, is a machine that lets you get cash from your bank account without visiting a teller. Some ATMs are simple cash dispensers, while others allow a variety of transactions such as check deposits, balance transfers, and bill payments. Before you make a withdrawal, make sure you understand what fees you will have to pay.