You don’t have to use a credit card to earn rewards on your daily purchases. Some banks reward debit card users with cash back, miles or points.
Discover recently beefed up its debit card rewards offering and expanded its program so that any customer could participate. Customers who open a cashback checking account can earn 1 percent cash back on up to $3,000 in qualifying debit card purchases every month. Previously, customers earned 10 cents for every debit card purchase, online bill payment and written check, up to $10 per month.
“Discover saw an opportunity to allow customers to earn rewards while using debit cards for their everyday purchases and is just another way that we help our customers save and build a brighter financial future,” says Arijit Roy, vice president of deposits at Discover.
Few people would complain about making extra money just for using a debit card. Despite the allure of debit card rewards, however, they may not be as valuable as you think they are.
Debit card rewards, a rare bird
Few banks reward customers for using debit cards. These programs were more popular before the Dodd-Frank Act of 2010 was passed. The law—which Congress is currently reconsidering—included an amendment, the so-called Durbin amendment, that reduced debit card interchange fees that merchants pay financial institutions whenever a customer swipes a debit card issued by a big bank.
The Durbin amendment cost banks money. They ultimately made up for their lost revenue by taking steps like charging customers higher fees. Some institutions also ended their debit card rewards programs.
“Before the recession, there were more banks introducing debit card rewards,” says Jim Miller, senior director of the banking practice at J.D. Power. “When the interchange rates went down for debit cards, that made it much less attractive for banks.”
Of course, vanishing debit card rewards was never something worth crying about. “Even before Dodd-Frank, the reward incentive programs and loyalty programs still weren’t all that rich,” says Kevin Morrison, a senior analyst at Aite Group.
Better off using a credit card
Debit card rewards often pale in comparison to what consumers can gain from using a rewards credit card. Customers typically earn 1 percent cash back on debit card purchases. With some of the best rewards credit cards, cardholders can potentially earn as much as 6 percent cash back.
Similarly, it’s possible to earn two points or miles for every dollar spent with a rewards credit card. In a number of debit card rewards programs offered by banks, you might have to spend several dollars in order to earn a single point or mile. At Key Bank, for example, customers earn 1 point for every $6 spent on qualifying debit card purchases.
Brian Kelly, founder and CEO of The Points Guy, notes that there are other ways to earn rewards outside of the programs at banks—without using a credit card.
“Just keep in mind that you don’t necessarily need a specific debit card or checking account to get cash back on these purchases—you can go through a cash-back shopping portal like Ebates and potentially earn an even higher return on your spending (though the rewards wouldn’t be deposited immediately into your checking account),” Kelly says.
Look beyond the rewards
Opting to participate in a debit card rewards program involves a more important decision: Choosing where and how you want to bank, Miller says. Making debit card rewards your primary justification for opening a checking account may not be the best way to choose your bank.
Whether a bank offers a debit card rewards program is something you might consider when comparing checking accounts. But you should really focus on other factors, like fees, minimum balance requirements, branch access and the quality of other products like CDs and savings accounts.
“Consumers should think about these debit card rewards incentives as a cherry on top—if you find a checking account that makes sense for you based on where you do most of your banking and the account features it offers, having the ability to earn cash back or other rewards is another nice-to-have feature,” Kelly says.
Before you get excited about a debit card rewards program, read the fine print. Find out whether there’s a cap on the amount of rewards you can earn. And check to see whether there are any fees that could reduce the value of your rewards.
Access to a debit card rewards programs could be beneficial, especially if it offers relationship rewards for shopping at your favorite stores. At Bank of Internet USA, for example, all debit card holders can earn exclusive cash back offers from local and national retailers.
“Relationship rewards are probably the most sensible because that’s really talking about you being rewarded for not just your debit card, but your relationship with a financial institution,” Morrison says.