Your Quick Guide To Cash-Back Debit Cards

The idea of a cash-back debit card might make you do a double-take. Sure, there are credit cards that offer cash back, but the concept of a debit card that gives you rewards might sound too good to be true.

Cash-back debit cards indeed do exist — and there are a lot of benefits that come with using them. Keep reading to learn all there is to know about cash-back debit cards.

What Is A Cash-Back Debit Card?

A cash-back debit card is linked to your checking account and offers rewards on your everyday purchases. The cash back is usually a percentage of your spending on eligible purchases.

Many cash-back debit cards offer 1% on eligible purchases, or up to 10% with partnering retailers. Some cards offer up to 10% cash back if you enroll in a premium banking account.

The perks of using a cash-back debit card are many:

• Avoid potential high-interest debt
• Lower monthly account fees
• Don't charge annual fees
• May offer ATM fee reimbursement
• Potentially waived overdraft fees
• Enjoy earning interest on money in checking account
  
  

How Debit Card Rewards Work

Debit card rewards usually offer a flat rate of cash back on qualifying purchases. What's eligible and not eligible depends on the particular bank and cash-back debit card. For instance, you might find that ATM transactions, purchasing money orders, payments over P2P platforms, and spending on sports betting or internet gambling don't qualify.

There also might be a cap on earned rewards. For instance, you can enjoy a flat 1% cash back of up to $2,000 a month, or perhaps 1% cash back up to $10,000 each quarter. Some cash-back debit cards partner with featured retailers with a higher cash-back rate of, say, 5% or 10%. As mentioned, some might offer a higher cash-back rate if you opt for a "premium" checking account.

Unlike credit cards, where you tap into a revolving line of credit to cover your purchases, when you use a debit card, money is pulled from your linked checking account. And any cash back rewards you earn will be deposited into your bank account.

Debit Cards With Rewards Vs. Cash-Back Credit Card

Next, let's see how debit cards with rewards stack up against cash-back credit cards.

At A Glance

	Cash-Back Debit Card	Rewards Credit Card
Credit Score Requirements		✓
Credit Inquiry	✓	✓
Minimum Balances	✓
Monthly Account Fees	✓
Annual Fees		✓
Other Fees	✓	✓
Building Credit		✓
Available Rewards	✓	✓
Incurring Debt		✓
Security	✓	✓
Fraud Protection	✓	✓

Credit score requirements. Especially if you're new to credit or have been burned with credit in the past, you might find the credit score requirements of a credit card to be quite a hurdle. If you get approved for a credit card with a poor or fair credit score, you're most likely looking at higher interest rates and fewer perks. A debit card, on the other hand, doesn't usually have a credit score requirement.

Credit inquiry. When you apply for a cash-back credit card, creditors will do a hard pull on your credit, which can negatively impact your score. A debit card typically requires a soft pull on your credit, which doesn’t affect your credit score; some debit card issuers may not check your credit score at all.

Minimum balances. With debit cards, banks and credit unions might require you to keep a minimum monthly balance. They might also require a minimum opening deposit. As credit cards are revolving lines of credit, that rule doesn't apply.

Monthly account fees. Some banks might have a monthly account fee, which might be waived if you keep a minimum opening deposit. On the other hand, credit cards don't usually have an account fee.

Annual fees. Some credit cards have yearly fees. The annual fee can vary, and typically hover between $95 and $500. The general rule is that the higher the annual fee, the more premium and robust the perks. Debit cards typically do not charge annual fees.

Other fees. Fees vary between cash-back debit cards and reward credit cards. For instance, cash-back debit cards might come tacked with overdraft fees and ATM fees. Reward credit cards might have foreign transaction fees, cash advance fees, and returned payment fees.

Building credit. Credit cards offer you the opportunity to build credit, while debit cards don’t. That's because your payment history is reported to the credit bureaus and shows up on your credit report. If you pay off your credit card balance in full each month, you won't owe any interest.

Available rewards. Cash-back debit cards are kind of a special perk in themselves, as cash-back debit cards aren't as common as credit cards with rewards. That being said, cash-back debit cards usually only offer flat cash back. Other perks might be unlimited ATM withdrawals, waived overdraft fees, and no account minimums.

Depending on the credit card, cash-back credit cards might offer more perks and rewards — think higher cash-back earning caps, travel protection, and rotating bonus cash-back earning categories with higher rewards rates.

Incurring debt. A major draw of cash-back debit cards is that you won't be digging a debt hole. The funds are pulled directly from your linked checking account, so you can't spend money you don't have. With credit cards, you run into the danger of racking up a balance, and potentially going into debt.

Security. Both cash-back debit cards and rewards credit cards have built-in security features. Debit cards require you to punch in your PIN at checkout, and credit cards require a three-digit CVV number.

More and more debit cards and credit cards feature a Europay, Mastercard, or Visa (EMV) chip technology, which creates a unique code for each transaction, thus boosting security.

Fraud protection. Credit cards typically have better fraud protection than debit cards. Most credit cards feature zero-fraud liability, meaning you won't owe anything on fraudulent transitions.

If an incident of fraud happens on your cash-back debit card, if you report the incident to your bank within 2 business days of the occurrence, the max you'll lose in fake charges is $50. If you report it past the 2-day mark, however, the max you'll lose is $500. Check with your bank to understand their fraud protection rules and regulations.

Tips For Choosing A Cash-Back Rewards Card

If you're enticed to get a cash-back debit card, it's important to shop around to find one that's a good fit for you. Consider the following features:

• Mobile check deposit
• Interest rate
• Minimum monthly balance requirements
• Initial deposit requirements
• ATM availability and fees
• Early payday
• Direct deposit
• Mobile app features
• Brick-and-mortar locations or online-only bank
• Card issuer's reputation
  
  

Customer service support availability and reputation

How To Get A Checking Account With A Cash-Back Debit Card

Before you shop around for a checking account with a cash-back debit card, know what's most important to you in a checking account.

What will you be using your checking account for? Will you use it to pay bills, make everyday purchases, or both? Besides offering a cash-back debit card, it's important to pick a checking account that offers perks and features that are most important to you.

Shop around. Look to see which banks offer checking accounts with a cash-back debit card. What are their fees, minimum balance requirements, ATM availability, and so forth? What is the interest rate on the checking account?

Apply for a card. Once you decide on which bank you'd like to open a checking account with, it's time to apply. The bank will ask for your basic personal information in the application, such as your name, date of birth, address, and identification number. You'll also need to provide a state-issued government ID.

Make an initial deposit. Once your application is approved, you'll be required to make an initial deposit, usually anywhere from $25 to $100 to open your account.

The Bottom Line: Rewards Debit Cards Can Offer Significant Perks

A rewards debit card can feature some robust benefits and perks that credit card rewards cards don't. To know which card is best for you, first understand the differences between a rewards debit card and a credit card, know what's most important to you in a checking account, and shop around.

You can also sign up for the Rocket Money^SM app to track your spending and remind you to pay your bills on time. That way, you can qualify for the best reward debit cards and scoop up the great perks.