When I first heard about Zerocard, my initial impression was that it’s intended for an audience that’s just getting started with credit. But after digging in further and speaking with Zero’s founder and CEO, I now believe this card can serve a much savvier group of rewards chasers.
When I first heard about Zerocard and its “credit card that acts like a debit card” messaging, my initial impression was that this card is intended for a younger, less sophisticated audience that’s just getting started with credit.
After digging in further and speaking with Bryce Galen, Zero’s founder and CEO, I now believe this card can serve a much savvier group of rewards chasers.
By the way, there’s nothing wrong with catering to young people who are debt-conscious and looking to establish strong credit histories. That’s what the Petal® Visa® Credit Card is doing, and I like that card. It serves a different purpose, though. It’s for getting started, not racking up primo rewards.
Zerocard, I’ve learned, can offer high-end rewards if you meet certain criteria. For starters, it’s the only credit card that offers 3 percent cash back on all purchases. To qualify for the highest rewards tier, you have to get four friends to sign up, or you can spend $100,000 annually. Loneliness is expensive, so tap into your social networks, people!
How it works
During our conversation, Galen explained that he sought to build the kind of bank that he would want as a customer. He detailed his frustration as a savvy user of banking products and how hard it was to marry the best checking yields with the best cash back credit card rewards. I like to shop around for the best deals, too.
In addition to my cash back credit card strategy that returned 2.4 percent cash back on every dollar I spent in the first half of this year, I have an online savings account that earns 2.3 percent. That’s where I park most of my liquid money – my emergency savings.
I also have a checking account with one of the big brick-and-mortar banks that I use to receive direct deposits and pay bills. It doesn’t pay any interest, and I don’t usually keep much in this account beyond the $1,500 minimum required to avoid a monthly service fee.
If you have the Zero checking account, you can earn up to 2 percent interest on your average daily position (your Zero checking balance minus your Zerocard charges). And as Galen pointed out to me, this is tax-free. Typically, interest earned on bank deposits is taxable, but credit card rewards are not (the distinction is that credit card rewards are a rebate on spending, which is not taxable).
Because of the way Zero structures things, even the average daily position payout (essentially a high-yield checking account) is nontaxable. These are really competitive numbers, and the tax-friendly treatment makes them even more attractive.
See related: My take on the rumored Venmo credit card
What if I want to use this?
I think I would come out slightly ahead if I switched all of my banking and credit card relationships to Zero (at the highest rewards tier). I believe it’s an all-or-nothing proposition, though. I don’t think I would come out ahead if I just dip my toe in.
This is easier to define from a credit card standpoint. Getting 3 percent cash back on everything would match or exceed what I’m getting on three of my four current credit cards. I would still use the Chase Freedom for 5 percent cash back on up to $1,500 in spending (after activation) on quarterly rotating categories.
The banking side of things is less straightforward. Earning 2.3 percent before taxes on my current online savings account is roughly equal to Zero’s tax-free 2 percent. Because Zerocard doesn’t have a true credit limit – it’s more of a charge card with a spending limit that fluctuates in tandem with the checking balance – it would behoove me to keep more money in the Zero checking account.
It would also be inefficient to maintain a separate online savings account with a comparable yield, particularly since my online savings account is limited to six outbound transactions per month.
I’m probably not ready to upend all of my banking and credit card relationships, but for someone who wants to try something new and maximize their credit cards and bank accounts in one place, Zero is worth a look.