When you think of “rewards,” your mind probably goes to credit cards. While credit cards can reward you for your regular spending, they can also damage your finances if you don’t use them properly. A convenient -- and less risky -- alternative could be to use a cash-back debit card.
Cash-back debit cards won’t earn as much as a credit card, but you’ll still earn a small return on your spending while avoiding debt and worrying about monthly payments. Cash-back debit cards are more rare than their credit card counterparts, but we found three that could be worth adding to your wallet.
The Discover® Cashback Debit earns 1% cash back for your purchases, up to $3,000 spent each month, meaning you could earn up to $360 in rewards annually (see website for details). It has fraud protections and can be added to your digital wallet. It charges no fees, and so long as you have funds in your checking account, you can use it and earn rewards for any purchase.
To get the Cashback Debit, you’ll first need to sign up for the FDIC insured Discover Cashback Debit checking account. It’s a checking account with no fees, no minimums and all the features you can expect from a modern checking account. That means early direct deposit, Zelle access and fee-free overdraft protection, to name a few.
The SoFi Money Mastercard has the potential to earn 15% cash back at local merchants and restaurants. The retailers and restaurants available change frequently, but you can keep track of them via the SoFi app. You’ll also use the app to link your debit card to SoFi’s cash rewards and claim the rewards you earn.
You’ll need to have a SoFi checking account to use its debit card. SoFi is known for its high-yield savings account, but you can also earn a 0.50% annual percentage yield, or APY, on your checking account balance. Similar to Discover, you can use the SoFi debit card with digital wallets, and it comes with fraud protections.
However, the debit card also includes purchase assurance, which may provide coverage against damage or theft for items purchased within 90 days, and extended warranty protection, which could double the manufacturer’s warranty. These two perks are common among credit cards, but it’s surprising to see them included with a debit card.
The Axos Bank Cashback debit card lets you earn 1% cash back for your purchases, with a few caveats. First, you’ll need to maintain a daily checking account balance of at least $1,500. Secondly, you can earn only 1% on up to $2,000 spent each month, which means it has a slightly lower limit than the Discover Cashback Debit card.
Again, you’ll need an Axos Bank checking account to use it. Axos checking account has many of the same features as the Discover and SoFi account (minus the high APY), only you’ll need to pay $50 to open an account. You do get unlimited domestic ATM fee reimbursements.
What’s the difference between a cash-back debit card and a standard debit card?
Standard debit cards won’t typically offer rewards for your purchases, whereas a cash-back debit card will let you earn a percentage of the purchase back as rewards. The standard rate is 1%, which is far lower than the best credit cards, but you’ll avoid any of the risks associated with credit cards such as credit card debt and credit score damage.
How to choose the right cash-back debit card
Remember you’re not just getting a debit card, you’ll also need to sign up for the issuing bank’s checking account. That means you’ll have to look at two things: The debit card features -- perks, rewards and restrictions -- and the checking account features -- fees, restrictions, minimum deposit requirements and APY.
Which features are most important to you will help you pick your card. If you want higher passive income, a checking account with a higher APY like SoFi might be more appealing to you.
If rewards are your focus, then Discover has the highest yearly earning potential. With the card’s spending limit, you can earn a maximum of $360 in rewards annually, compared with $240 with the Axios debit card.
SoFi’s card has the highest rewards rate -- up to 15% -- but only with select local merchants and restaurants. However, if you’re able to utilize its rewards program regularly, you’ll earn more than with either of the other cards.
None of the checking accounts listed above charge predatory fees like some larger banks do -- like overdraft fees and nonsufficient fund (NSF) fees.
How to get the most from your cash-back debit card
Getting the most from your debit card is as simple as making sure you have enough funds in your checking account to cover your purchases.
Using a debit card for your transactions pulls money directly from your checking account, so if you don’t have money in that account, you won’t be able to use the card. The cash back you earn will be added to your account.
Keep an eye on your monthly limit (Discover has a $3,000 monthly limit, and Axos has a $2,000 limit) before you stop earning rewards. There’s no rule that says you can’t have more than one account, either. If you had both, you could swap out cards when you hit one card’s limit.
Alternatives to cash-back debit cards
The primary alternative to a cash-back debit card is to use a cash-back credit card. Debit cards are usually easier to get since you won’t have to undergo a credit check. But credit cards are typically far more rewarding in terms of earning potential and have more features, like welcome bonuses and useful card perks.
However, even if you can get a cash-back credit card, you should treat your credit card as if it were a debit card. That means only spending money you can afford to pay back right away. That way, you’ll avoid interest charges that could cut into your rewards and send you into debt.
Since your purchases are deducted from your account, having a debit card also ensures you won’t miss a credit card payment, which could lead to serious financial headaches. However, if used responsibly, a cash-back credit card will offer greater value than what you’d get from a cash-back debit card.
The bottom line
Cash-back debit cards present a safer alternative to credit cards. While they won’t typically be as rewarding, build credit, or offer as many perks, you can still earn a small return on your spending without the risk of accruing credit card debt. To get a cash-back debit card, you’ll need to choose a checking account that offers one.
Credit cards are still worth considering if you’re looking to maximize your return or build credit, but you’ll need to use them responsibly -- meaning never overspending and always paying your bill on time -- to get the most value from them.
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