As credit card issuers face a more competitive marketplace, banks are expanding offers and incentives in the debit card arena. Now, several debit cards are poised to offer rewards to users, including cash back.
There’s a lot of caution to consumers about the risks of reaching for a debit card instead of a credit card when making purchases – both in-person and online.
Most experts tout using a credit card rather than debit because it offers better protection against fraud and can give the cardholder access to comprehensive rewards programs. In general, debit cards can’t compete with these perks.
As credit card issuers face a more competitive marketplace, banks are expanding offers and incentives in the debit card arena. Debit cards, which draw money directly out of a checking account, are now poised to offer rewards to users, including points, price discounts and cash back.
For consumers with poor credit or limited credit card choices, a viable option is a cash back debit card.
How do cash back debit cards differ from rewards credit cards?
Cash back debit cards differ from typical cash back credit cards. One important distinction is that the money is liquid. Debit cards draw from money you already have in a bank account, while credit cards are a revolving credit line where you must make payments. Credit cards let you spend up to a credit limit and carry a balance month to month, while debit spending will be limited to what you have in the bank.
In addition, there are varying rewards-earning structures in place. With credit card programs, there’s more flexibility, particularly with regard to redemption options. Most rewards cards offer several different ways you can redeem cash or travel rewards. Debit cards with rewards are typically more limited.
It’s also important to be aware that there are pros and cons of choosing a cash back debit card over a rewards credit card.
A credit card usually offers better rewards and can help you build your credit, but some cardholders may be tempted into spending more than they can afford and rack up interest. Additionally, credit cards offer more protection against fraud and can offer extra perks like purchase protection or an extended warranty.
Best debit cards with rewards
For consumers with poor or limited credit card choices, a viable option is a debit card. There are several great options to consider. Here are three debit cards that are standouts for cash back and miles benefits.
Discover Cashback DebitWith the Discover Cashback Debit card, users can earn an impressive cash back benefit of up to $30 per month, thanks to a rate of 1% back on a maximum of $3,000 in purchases per month.
There is no minimum deposit required to open your Discover checking account, but cardholders must make a deposit into their accounts within 45 days from the opening date.
With this cash back debit choice, rewards don’t expire as long as the account is open and in good standing with Discover. This card’s redemption options include an auto-deposit to a savings account or credit in the checking, savings or money market account you hold with Discover.
You’ll also have access to over 60,000 no-fee ATMs.
SunTrust Bank Delta SkyMiles World Debit Card
For travelers who favor Delta Air Lines, the SunTrust Bank Delta SkyMiles World Debit Card offers additional opportunities to earn more miles. This standout card awards you with 5,000 bonus miles after your first signature-based or PIN-based purchase and up to 1 mile per dollar on all future PIN- or signature-based purchases (depending on your checking account).
A few caveats to keep in mind with this debit card: It caps your earning at 4,000 miles per month, and there is an annual fee of up to $95, which can be discounted based on your relationship with SunTrust Bank. Plus, how you’re rewarded can depend on the type of checking account you hold.
For a SunTrust Advantage Checking account, cardholders accrue 1 mile for every $2 spent on eligible purchases. For a SunTrust Exclusive Checking or Signature Advantage Checking account, the earning rate is 1 mile per dollar.
Be aware that a SkyMiles World Debit Card is available only to residents of Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and Washington, D.C.
American Express Serve Cash Back
The American Express Serve card is a bit different from others on this list, as it’s a prepaid debit card. Essentially, funds are not tied to a checking account; rather, the consumer loads funds onto the card, and spending is deducted from that preloaded balance.
Cardholders can earn 1% back on all their purchases, but the card has a $7.95 monthly fee. Additionally, there is a $3.95 fee to add more cash to the card.
You can earn cash back for both in-person and online purchases. Unlike some debit cards that may make you wait until the end of the month to access your earnings, this cash back prepaid card gives you access to your rewards immediately. To access your cash back rewards, log into your online account portal or the mobile app.
Plus, Amex is known for superlative fraud protection, and this card doesn’t disappoint. American Express Serve cards offer purchase protection benefits typically seen only in credit cards. If an item you buy with the card is damaged or stolen within 90 days of purchase, Amex may reimburse you up to $1,000 per incident.
Should you get a cash back debit card?
When deciding whether a cash back debit card is a good choice for your financial goals, consider the type of consumer you are. Are you a reward-seeker with no or poor credit history? It can be challenging to get approved for an unsecured credit card that offers benefits like points, miles or cash back rewards, especially with credit challenges. By opting for a cash back debit card, you can earn reward perks without relying on a spotty credit history.
If you are a consumer with a history of overspending, rewards credit cards can be a mixed blessing. If you carry a balance and can’t pay back what you owe, you’ll be subjected to hefty interest on revolving balances. As interest accrues, this extra cost cancels out any rewards that you could earn. But with a cash back debit card, you can’t spend more than you already have in the bank.