If you always find ways to save money on everyday purchases, you’re probably aware of cash back. You can earn rewards when you make purchases using a credit or debit card. But if you don’t want to use a credit card but still want to earn cash back on purchases, debit card rewards could be a great option.
Keep reading to learn how debit card rewards work, how they differ from credit card rewards, and whether you should get one.
Debit Cards: At-a-Glance
A debit card is a payment card that deducts money directly from your bank account balance when you use it. Also known as bank cards, you can use a debit card to buy goods and services or get cash from an automated teller machine (ATM).
When you use a debit card to make a payment, the funds are automatically deducted from your checking account. If you spend more than what you have, the transaction may be declined or accepted but leave you with a negative balance, which attracts an overdraft fee.
Unlike credit cards, debit cards won’t impact your credit score because there are no chances of going into debt. When you use a credit card to pay for something, your credit card issuer will pay the merchant on your behalf, and you later repay the card bill. However, you’ll pay interest if you don’t pay off the credit card balance in full before the due date. Even worse, your credit score may take a hit if you fail to pay down the balance.
While debit cards may seem like a good option, they don’t have the many perks credit cards have 一 rewards. Still, there are a handful of debit card rewards that allow you to earn rewards on qualifying purchases, much like credit cards.
Credit Card vs. Debit Card Rewards
Although some debit cards offer rewards, the perks are less attractive than credit cards.
For one, some debit cards require you to meet specific requirements to earn rewards. These requirements vary by financial institution but generally include the following:
- Minimum deposit to open an account
- Maintain a minimum balance in your checking account
- Spend a specific dollar amount per month
- Make a direct deposit each month
The debit card rewards system typically includes points, which you can redeem for cash back or gift cards. However, other debit cards offer different rewards, like an increased annual percentage yield (APY) on your savings. Some debit cards may also increase your APY if you refer a new customer.
On the other hand, credit card rewards are on every dollar spent. For instance, for every dollar you spend, you can earn miles or a certain percentage of cash back, depending on the card. In addition, some credit cards have tiered rewards where spending on specific categories earns higher rewards. For example, 2% back on restaurants, 3% on gas, and 1% on other purchases.
Generally speaking, debit card rewards are lower than credit cards. While credit cards offer attractive perks, you can easily go into debt if you’re a heavy spender. Plus, they may impact your credit score if you miss or fail to pay off your balance.
Are There Debit Cards That Have Rewards?
Most debit cards don’t offer rewards. But, there are a handful of debit cards on the market that offer perks, much like reward credit cards.
The primary reason why most banks and financial institutions don’t offer debit card rewards is that they’re not profitable. When you use a debit card to make a purchase, the bank will charge you an interchange fee. However, it won’t charge you interest, which is where it makes its money.
On the contrary, when you use a credit card, the bank earns both the interchange fee and interest. The average credit card interest is 24.08%, which can be very profitable for banks. Since banks can make a lot of money from credit cards, they offer lucrative rewards to consumers.
The Most Common Types of Debit Card Rewards
There are several types of debit card rewards in the market. But, the requirements for each card vary depending on the program and the financial institution. Here are the most common types of credit card reward programs and how they work.
Cash back
Cash back is one of the ways to get rewarded for using your debit card. You’ll earn a certain percentage of cash back on eligible purchases you make with the card.
The percentage you earn depends on the card. You may earn the same rate of cash back on all qualifying purchases or earn more on specific categories, such as groceries, gas, and restaurants. For example, if a card offers 2% cash back on groceries, you’ll earn $2 in cashback rewards if you spend $100.
Redemption options typically vary by bank. You can redeem your rewards for gift cards, a direct deposit to a bank account, or statement credits. Some issuers allow charitable donations.
It’s important to note that cashback debit cards are rare because financial institutions don’t have much incentive to offer lucrative rewards.
Points
Points debit cards reward you in points instead of cash for every transaction you make. The points reward system can be a fixed amount of points, or it could be based on every dollar spent. Each issuer has different reward rates, conversion rates, and redemption options.
When you use a points debit card to make eligible purchases, your issuer will automatically credit your account with points. You can redeem the points for things like gift cards, merchandise, cash back, or travel reservations.
With points debit cards, you must accumulate a certain number of points to redeem. For example, you may need to save up to 20,000 points to redeem for a $200 flight.
Retailers Discounts
Another debit card reward program is retailer discounts. You may be able to get a discount when you shop at select retail stores. Again, the specific discount depends on your card issuer and the retailer. Leveraging debit cards with retailer discounts is a great way to save money on everyday purchases.
Loyalty Rewards
Some banks may offer loyalty rewards as a way to attract and boost customer retention. These incentives may come in the form of high interest rates on savings accounts. For example, your bank can offer a standard 1% APY on debit cards, but the offer could increase to 2% APY if you use the card a specific number of times per month.
Other Perks
Depending on the financial institution, you may be eligible for other perks that come with debit card rewards. These benefits can vary significantly from one bank to another but can include things like:
- Bonus rewards
- Waived ATM fees
- Waived monthly fees for saving or spending a specific amount
- Enter prize draws
Most banks have all the information regarding rewards on their official websites. However, it’s always a good idea to read the fine print to determine if you’ll get what you expect. In addition, closely examine the terms and conditions of your bank’s reward program.
Should You Get a Debit Card?
This ultimately depends on your current financial situation and needs. A debit card may be a great option if you want to avoid credit cards.
Here are three reasons getting a debit card may make sense:
- You want to earn rewards: Even though debit cards with rewards have lower perks than credit cards, they’re a great way to earn rewards. Spending on everyday purchases you know you’ll make, like groceries and gas, can help you save money with cashback rewards, points, retailer discounts, and other rewards.
- You need to manage your spending better: If you want to keep your spending under a certain threshold, a debit card can help you achieve that. All you have to do is limit the available amount in your checking account.
- You want to avoid merchant fees: Some online retailers and restaurants impose a surcharge when you use your credit card to make a purchase. However, they’ll exclude debit cards from such fees.
