Debit card rewards programs gaining acceptance
Just don't expect to rack up awards as quickly as with credit cards
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Attention credit card rewards junkies: It's now possible to get your beloved miles and points through your debit card, but if you're expecting the same terms that you get with your credit card programs, you'll probably be disappointed.
Debit card rewards programs are typically skimpier than their credit card counterparts -- for example, offering one mile for every $2 or $4 spent instead of the standard one-for-$1 ratio -- and there's often an annual fee of $25 or more. Still, while they're not likely to make you rich or a world traveler, you can make them work for you.
"It's all about keeping you as a customer and getting you to use their products," says Joe Ridout, a spokesman for Consumer Action in San Francisco. "What you have to ask yourself is, 'Do I really need them?'"
Banks hope you'll decide that you do. They see these programs as a way to make more money off of the cards, which generate much less money in fees for banks than do credit cards.
Most programs are contingent on you using the "signature" option of your card -- meaning the card is swiped, you sign for the purchase and the transaction is run through the merchant's Visa or Mastercard processing system -- rather than punching in a PIN code. "The bank picks up an interchange fee for that transaction from the merchant, which would be less if you paid with the debit option using your PIN," says Ridout. The bank then uses those fees to offset the cost of the rewards program, since, unlike with credit cards, banks don't make any money off interest on debit cards. And since the bank isn't making as much money, they're going to much more stingy about giving it away to you in the form of rewards.
"Of course, the rewards from a credit card program are going to be greater since the bank that owns it is making plenty of money off of interest charges," says Ridout. "Most people don't pay off their credit card balance each month, so they're paying quite a bit for those extra benefits."
5 debit card rewards tips
1. Many debit card programs charge an annual fee; others are free. Not sure if a program's worth the price? Call and ask the bank if they'll waive it the first year for a good customer.
2. If you'd like a card that earns airline miles, and you're already saving miles on a particular carrier, you may have to switch banks to keep focused on that dream vacation. Check to see if opening a credit card account or other relationships with the bank increases your miles.
3. Programs that pay you a reward for using them are great, but make sure you know when you're being paid. Some pay off a reward once a month. Others pay annually.
4. Check out how long your rewards points stick around before they expire. Try to save for something in particular to stay aware of them. If you forget you have points somewhere, there's a good chance you'll miss the expiration date.
5. Don't see any rewards you like? Some programs have "concierges" who can help you design a custom award to shoot for.
Building a 'total relationship'
A typical credit card company's rewards program has a simple aim: Get the cardholder to keep buying with their card. With a debit card program, it's that and a little something more. They want to keep you as a customer, but they also want to hook you into the bank's other services. It's called bundling or -- as it's known in industry-speak -- "total relationship banking."
"In short, the more accounts you have with the bank, the better your rewards package," says Kelly Hlavinka, managing partner for Colloquy, a Milford, Ohio, consulting firm that studies loyalty programs. "They're seeing that if you get hooked on collecting points, this is a way to draw you into their other services."
At Citi, for instance, the Thank You Network works by giving you points each month that can be redeemed for travel or merchandise. The amount of points you receive depends on the types of accounts you have -- from 25 points for a simple checking account to 300 for a CitiGold account with all of the bells and whistles. In addition, Citi gives you a point for every $2 charged on your debit as a signature and one point for every $3 when you use a PIN transaction.
National City Bank has featured a rewards program that upgrades a customer's points according to whether he or she has items such as a National City credit card or home equity loan through the bank. They also have a handy calculator on its website showing how many points you can earn per transaction or per month when you buy certain categories of items. However, with PNC Bank's recent purchase of National City, it's unknown how its debit cards rewards program will fare, especially since PNC's own program pales next to National City's.
So, given the current upheaval in the financial services industry, what is likely to happen to the rewards you've earned if your bank gets eaten by another entity or is closed altogether? "Like any other credit card or airline rewards program, it's subject to change without notice," says Ridout. "They made the program. They can change the rules at any time. That's why it's good to read those fine-print notices you get from the bank to see how it affects your use of their services."
Not just for the big boys
It's not just the big banks getting into the debit card reward business. Small banks and credit unions are also in the mix, although they usually have some help. "They don't have the infrastructure that a large bank would have so they bring in a program like Visa Extras," says Hlavinka. "This is a rewards program operated by Visa, not the bank, but it allows them to compete with the bigger institutions."
Banks are also getting creative about their rewards. Bank of America's "Keep the Change" program has picked up on a growing desire to save more money, which, of course, benefits the company. They deposit the amount it takes to round a transaction out to a whole dollar into a savings account for you.
For instance, if you buy a cup of coffee for $3.51 with your debit card, $4 is charged to your account and 49 cents is sent to your savings. And, for the first three months of the program, they'll match the savings 100 percent, and 5 percent thereafter up to a total of $250 per year. "There are customers who really work to make small purchases so they can hit the matching amount," says Ridout. "It's not a lot, but you can't scoff at free money nowadays."
With an eye toward environmental concerns, Citizens Bank pays customers in its Greensense program 10 cents for each debit or online transaction that doesn't involve the use of paper. Members can earn up to $120 per year, and they also receive a debit card made of recycled plastic.
Other banks are looking to so-called merchant-funded programs, which cost them little. "Basically, the bank pairs up with retailers, and instead of points, you might earn a discount at a particular store over a weekend using your debit card," says David Robertson, publisher of The Nilson Report, a credit card industry newsletter. "Ultimately, this is probably where debit reward programs are heading, since they're not going to compete with credit card programs on points, and it's the merchant, not the bank, that's giving the reward."
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