Years ago, the idea of a debit rewards card was rare.
If you want cashback, you needed to use a credit card. The economics were better. Whenever you use a credit card at a store, it charges the store a fee to process that transaction. The fee starts at 30¢ + 2.9%. Credit cards can pass along 1%-2% cashback rewards from that fee structure.
Debit cards are usually much cheaper. The Durbin Amendment limits debit card fees to 21¢ + 0.05%!
As you can see, when you only charge twenty-one cents and then a fifth of a percent, there isn't much there for rewards. So for years, to get cash back, you had to get a credit card. Debit cards don't earn enough in fees.
Fortunately, some banks have figured out a way to get rewards. As the point of sale, you have to tell the scanner to process your transaction as a credit or signature transaction. It's quirky but it just means your sale is processed on the credit card network and thus the higher fees. It stinks for the merchant but it's better for you.
Now, there are a few cashback debit rewards accounts available so you get the best of both!
Discover Cashback Debit – up to $360 a year
I've always had a soft spot for Discover because it was one of the first credit cards I ever had. I used it so much that I memorized the number!
Nowadays, Discover has been one of the leaders in the debit rewards space because they offer an online checking account and a debit card that offers $1 cashback on all purchases, up to $3,000 a month. That's $30 of cash back each month or $360 a year. This NOT a promotional offer, you get this standard.
The checking account itself is solid with no monthly fees and no minimum balance. You can also open a Discover online savings account and earn a nice welcome bonus of $200.
Some other perks of the account:
- No monthly fees or minimum balance requirements
- Uses the Allpoint ATM network (60,000 free ATMs)
- Earn 1% cashback up to $3,000 in purchases/month
- Free online bill pay
- Free check reorders (not common)
- Free incoming wires (very rare)
ACE Flare™ Account by Metabank
The ACE Flare Account by Metabank is a prepaid Visa debit card offered by Ace Cash Express and issued by MetaBank. MetaBank is FDIC insured (#30766).
The best benefit of the ACE Flare Account is that you can associate it with an ACE Flare Savings Account that pays up to 6.00% APY on balances under $2,000. It's one of the rare cards that actually pays you a high level of interest, which is why we included it in the list of debit rewards accounts despite not paying any kind of cash back rewards. The interest from the savings account is more attractive because it doesn't require you to spend money to earn it!
The account does have a monthly fee of $9.95 if you do not get a qualifying direct deposit, it's only $5 if you get a direct deposit totaling $500 or more. There is no fee for a direct deposit.
If you want to learn more, we have a full review of the ACE Flare Account.
Radius Bank Rewards Checking
Radius Bank has a rewards checking account that offers 1% cashback on online and signature-based “credit” transactions with their debit card. We mentioned earlier that the Durbin Amendment limited the fees on a debit transaction, Radius Bank will give you the 1% if you get the card reader to do a “credit” transaction.
In addition to the cashback, the checking account offers a 1.00% APY on balances of $2500 to $99,999.99 and 1.20% on balances over $100,000. While that's nice, you shouldn't be putting that much of your savings in a checking account! It should be invested or, at worst, into a certificate of deposit.
Radius Bank also offers free ATMs worldwide (they refund all other bank's ATM fees) and doesn't charge you to use another ATM.
STASH is an investing app that has helped over 3.5 million investors set aside over 1.5 billion in savings. The main product is a micro-investing app that lets you invest starting with as little as $5.
One of the added products is their Stash debit account and it offers some great perks, including a program known as Stock-Back rewards. With Stock-Back rewards, cashback is in the form of stock. It's called Stock-Back Rewards because you get those rewards when you make a purchase at one of 11+ million locations. If you make a purchase at an eligible publicly-traded company, you get shares in that company. If you make a purchase at a private company, like a local coffee shop, you Stock-Rewards in a diversified ETF. The base cashback is 0.125% but there will be promotional periods where you can get up to 5%.
For example, if you buy a burrito at Chipotle, you get 0.125% cashback on that purchase in the form of Chipotle stock into your STASH account.
The STASH debit account has no monthly fee, no minimum balance fees, no overdraft fee, and no set-up fee. Since you have to have a Stash account, you will have to pay the Stash advisory fee, which starts at $1 per month.
They even give you $5 to start!
American Express Serve Cash Back
American Express Serve Cash Back is a prepaid debit account that gives you 1% cash back on purchases. If you can't get a traditional debit card, a prepaid card is one that offers rewards but at a higher cost. The card has a $7.95 monthly fee (unless you live in NY, TX, or VT) with reload fees of up to $3.95 if reloaded at a retailer. It's free to reload with a direct deposit or from another bank account. Prepaid cards are generally more expensive than a regular debit card but they're for different customers.
Many prepaid card customers are folks looking to build credit, which is why paying extra is something unavoidable. If you have the option, it's best to go with one of the other accounts on this list.
Are Debit Reward Cards Worth It?
Debit reward cards are rarely better than credit card rewards. Credit cards charge merchants a lot more than debit cards do so they can offer higher rewards.
The benefit of a debit card is that you will never go into debt. You are spending out of your checking account. For those who struggle with debt or refuse to go into any kind of debt, debit cards offer the best option available. It's just unfair to compare debit cards to credit cards.
If you are going to use a debit card, one of the reward cards on this list will give you the best of both worlds. You get the convenience of using a card, some of the cashback rewards, but none of the risks you'll fall into a debt cycle.