Cash Back Debit Cards: How to Choose

Written by Banks Editorial Team
5 min. read
Written by Banks Editorial Team
5 min. read

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What happens when you spend all of the money in your wallet? Some people have to rush to a nearby bank or ATM to withdraw funds, but most people use a debit or credit card. These financial products let you tap into an existing supply of cash instead of keeping paper money at hand. You will need a credit or debit card to buy products and services online, but consumers can choose from many cards. Cash back debit cards have presented themselves as an attractive option for people who want to get rewarded for spending without getting deep into debt. We will share some factors to consider before choosing a cash back debit card and how they compare against credit cards.

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What are Cash Back Debit Cards?

Cash back debit cards provide rewards on every purchase. You can receive a percentage of cash back on every purchase, just like you would with a credit card. Many people use credit cards for the rewards, but cash back debit cards provide the same perk, giving people more incentive to use debit cards for their finances. 

How Do Cash Back Debit Cards Work?

Cash back debit cards pay you every time you use them for a purchase. Most cash back debit cards let you receive 1%-2% cash back on purchases. Some programs give the same percentage of cash back on every purchase. Other rewards programs have a tiered structure where some expense categories provide more cash rewards than others. With any debit or credit card rewards program, you should assess the rewards structure and look for hidden fees. 

Cash Back Debit Cards vs. Credit Cards

Both cards reward you for spending money. You can receive cash or points back on every purchase, and you don’t have to carry spare change with you. However, while they have some similarities, they have crucial differences. For example, debit cards draw funds from your bank account, which can trigger overdraft fees if you spend too much money without replenishing your bank account. 

Credit cards draw their funds from a credit line. You can spend more money with your credit card than you have in your bank account. This dynamic gives you more flexibility to buy what you want now and pay the debt as more paychecks arrive. However, it’s easier to misuse credit cards and end up in debt. Low minimum payments make it easier to spend without immediate consequences. The debt snowball can accumulate over time, and high-interest rates won’t make things any easier. It’s essential to track your spending regardless of which card you use, but a credit card can be more punishing for overspenders.

While debit cards are better for controlling your finances and not overspending, credit cards have a significant advantage over debit cards. This is because the payment history on your credit card gets reported to the major credit bureaus. Pristine payment history will improve your credit score, and having no debt on your credit card also results in a favorable credit utilization ratio. Healthy credit card activity can improve your credit score and help you qualify for better loans. However, bad credit card history will hurt your score and make it more challenging to qualify for a competitive loan. You don’t need a credit card to improve your score, but if you use the card well, it will help.

What are the Benefits of Cash Back Debit Cards?

Cash back debit cards foster financial stability while providing rewards for every purchase. Credit cards can create negative money habits that hurt your wealth and put you deeper into debt. Cash back debit cards reinforce financial control because you can only spend the money you have already made. You also get cash back on qualifying purchases. It won’t make much of a difference on the first purchase, but if you use a cash back debit card throughout the year, you can make back hundreds of dollars each year. 

Are There Drawbacks?

Cash back debit cards have several advantages, but no product is perfect. While cash back debit cards have drawbacks, they are nuanced and depend on the issuer. Some debit card issuers have hidden fees that minimize your cash rewards. Current does not have any hidden fees for its debit cards or banking, so you won’t have to worry about this disadvantage. You should also assess the reward program’s structure. Some rewards programs have tiered systems that incentivize spending in specific categories.

Debit cards rely on your bank account for purchases, and you can end up with overdraft fees. Many consumers frustrated about excessive overdraft fees for minimal overdraws have switched to Current to get Overdraft Protection through the company’s Overdrive feature. Current doesn’t charge overdraft fees until your account gets overdrawn by up to $200. You should also consider the opportunity cost of not building your credit with a credit card. If your score is high enough, you won’t have to worry about using a credit card, and you will avoid the risk of credit card debt. You should keep the pros and cons in mind as you assess if a cash back debit card is right for you.

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Earn 4.00% APY on your savings. No overdraft fees/hidden fees. Get paid up to two days faster with direct deposit. Earn up to 15x the points on swipes.

How to Choose a Cash Back Debit Card

Debit cards have become a popular way to buy goods and services, but with popularity comes competition. Consumers can select from a wide range of debit cards, but you can only use one card to pay for goods and services. You should consider these factors when deciding which cash back debit card makes sense for you.

Cost and Fees

Cash back debit cards have costs and fees as outlined in the terms and conditions. Banks may rush to penalize you for overdraft fees which would make cash back rewards less impactful. Other cards may have a monthly or annual fee.

Point Earning

You receive cash or points back on every qualifying purchase, but some rewards programs are more rewarding than others. If you shop around, you can find debit cards that have the best rewards based on spending categories that get the most of your attention. 

Minimum Balance and Deposit Requirements

Some banks have a minimum balance and deposit requirements for their accounts. These requirements can interrupt the flow of your debit card spending and result in additional fees if you fall below the requirement. Look for a debit card provider that does not have a minimum balance requirement. 

Any minimum balance or deposit requirement requires keeping some money in the bank. You can’t invest cash or make additional purchases without worrying about fees. You should check the interest rate to determine how much you will receive for storing cash. It will be hard to beat Current’s 4% APY they provide for their account holders.

ATM Network

ATM networks make it easy and convenient to get extra cash. Some merchants will not accept credit or debit cards, and it’s always good to have extra cash, just in case. ATMs pass fees onto consumers, and these costs can quickly add up if you frequently visit ATMs. 

A debit card provider’s ATM network is crucial for avoiding payments. Companies work to build ATM networks that give their customers free ATM withdrawals. Some companies also offer ATM fee reimbursement. While an ATM network is more important for people who use ATMs often, you should keep this detail in mind in case you have to use an ATM to withdraw money.

Rewards and Perks

Some cash back debit cards provide cash for every purchase, while others provide points. Each debit card provider has a different rewards program and incentivizes purchases in specific categories. Travel rewards programs have favorable points-to-miles comparisons that save more money than a cash back program. However, these same programs often have less favorable points for cash conversions.

Earn Cash Back and Other Rewards with Online Banking

You can get cash back and other rewards with every purchase. It’s practically free money you receive for making purchases you had to make anyway. Online banking can sweeten the rewards and provide advantages you won’t find with traditional banking. More customers have been switching to Current for their banking because of its perks and benefits. 

Current is a fintech company that lets you create bank accounts and store money. You can receive rewards with their cash back debit card and get overdraft protection of up to $200. They also have an attractive 4% APY on their savings accounts, more than 20 times the national average. You can create a Current account by visiting their website or downloading the mobile app today.

Sign up for Current - The future of mobile banking
Earn 4.00% APY on your savings. No overdraft fees/hidden fees. Get paid up to two days faster with direct deposit. Earn up to 15x the points on swipes.

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