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Banking

Debit Card Rewards Programs: Are They Worth It?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Just about everybody likes to get something for nothing, and that’s exactly what debit card rewards programs offer. Swipe your debit card to pay for everyday purchases, and rack up points that earn you extra interest on your account, cash back, travel rewards and other perks.

However, there may also be some minor downsides to these programs that you should understand before you swipe. Read on for the whole story on debit card rewards, and a list of programs that deserve your attention.

Everything You Need to Know about Debit Card Rewards

A brief history of debit card rewards

Every time you make a purchase with a debit card, the retailer has to pay a fee to the bank that issued your debit card. Before 2010, these fees were largely unregulated, and debit card reward programs were abundant. Then along came the Dodd-Frank Wall Street Reform and Consumer Protection Act, which put a cap on the fees banks could charge via the act’s Durbin Amendment.

This was good for merchants, as they payed lower fees, but it also meant banks made less money from debit card transactions. As a result, many banks got rid of their debit card rewards programs, and while some programs are still around, they’re not nearly as commonplace as they once were.

Are debit card rewards worth it?

Debit card rewards programs may be an easy way to earn cash back and other perks, but the rewards aren’t always as rewarding as they seem at first glance. Let’s take a look at the pros and cons:

Pros

  • Get debit card rewards for everyday purchases: If you’re using a debit card to pay for regular purchases all the time, you might as well get rewarded for it. Enroll in a debit card rewards program and just keep spending like before — it takes zero extra effort to start racking up rewards.
  • There are many fee-free debit card rewards programs to choose from: Generally there are no initial or recurring fees for debit card rewards (avoid the few programs that do charge fees). In most cases, you have nothing to lose by enrolling, although some accounts require a minimum balance to open an account.
  • Debit card rewards avoid the risk of racking up interest charges: Credit card rewards programs generally offer more attractive rewards, but interest accrues if you don’t pay off your balance each month. The cost of interest almost always outweighs any benefit you would get from rewards. With debit cards, you’re never at risk from interest charges.

Cons

  • They’re less common than they once were: Due to the Durbin Amendment regulatory reforms mentioned above, there are fewer debit card rewards programs to choose from these days. Fewer programs means fewer options, so it could be more challenging to find the one that’s right for you.
  • There are more credit cards rewards programs, with better rewards: Credit card rewards programs weren’t affected by the Durbin Amendment, so there are more credit card rewards programs, and they often offer more generous rewards.
  • It can take a lot of time to build up rewards: The rate at which debit card rewards programs accumulate rewards is lower than with credit cards. Because it takes more time to accumulate debit card rewards, you have to be more patient before you see material gains.
  • Debit card rewards may expire: In addition to being patient, you also should be persistent in staying on top of your rewards, as some may expire if you don’t use them within a certain window.

Find a debit card rewards program

While not as abundant as they once were, there are some solid programs still standing that are worth looking at.

The information related to these offers has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply.

BankAmeriDeals

Bank of America customers can participate in the BankAmeriDeals program, which provides cash back on deals from a variety of retailers, including hotels, restaurants and other merchants. You activate your deals online, then earn cash back (typically 10% to 15% of what you spend) when you use your BofA debit card or credit card.

Discover Cashback

This no-fee checking account from Discover allows you to earn 1% cash back on up to $3,000 in debit card purchases each month. That means you can earn up to $360 a year just by shopping as you normally would.

Chase Disney Visa Debit Card

This one’s for devoted Disney fans. You don’t earn rewards with the Chase Disney Visa Debit card, but you are rewarded with shopping, entertainment and vacation perks. For example, you save 10% when shopping at Disney.com, and when you visit the parks or take a Disney cruise, cardholders are privy to special savings on dining and souvenirs and get access to special character events.

American Express Serve Cash Back Card

This prepaid debit card from American Express rewards you with 1% cash back on all of your purchases. There are no fees, no minimum balance and no limit as to how much you can earn.

Axos Bank Rewards Checking

Formerly known as Bank of Internet USA, Axos Bank offers a Cash Back Checking account with up to 1% cash back on all signature-based purchases. There are no monthly fees nor minimum balance requirements; however, you will earn less (0.50%) if your balance falls below $1,500.

Delta SkyMiles World Debit Card

For those who like to travel, this SunTrust Delta SkyMiles World Debit Card may give you wings. You get 5,000 miles for your first purchase, then 1 mile for every $2 spent, up to 4,000 miles each month. Your miles never expire, and they can be used for travel and travel-related things, like seat upgrades and membership to the Delta Sky Club.

Redneck Rewards Checkin’ Account

This bank may have some quirky advertising, but it also offers a pretty serious rewards checking account. You need $500 to open an account, but once you do, you earn 2.75% on up to $10,000 (Note: This rate is subject to change). Any amount you spend over that, you earn 0.50%. You’re required to make at least 10 transactions each month to reap the rewards and need to open the account with at least $500, but there are no monthly service fees and no monthly minimum to maintain it.

Consumers Credit Union Free Rewards Checking

This Free Rewards Checking Account from Consumers Credit Union offers three levels of rewards, ranging from 3.09% to 5.09% in interest on balances up to $10,000, depending on which requirements you meet.

To qualify for the lowest tier of rewards, you must make 12 debit card transactions each month that add up to at least $100, and at least $500 in direct deposits or ACH credits must post to your account each month. Once your balance surpasses $10,000, the interest for all tiers drops to 0.20% for balances between $10,000.01 and $25,000 and to 0.10% for balances above that. There are no maintenance fees nor minimum balances required.

The final word on debit card rewards programs

If you qualify for a solid debit card rewards program, there’s usually no harm in enrolling, and you just might earn some great rewards along the way. But keep in mind that the rewards may not always be all that rewarding, and patience is required.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie Ryan Evans
Julie Ryan Evans |

Julie Ryan Evans is a writer at MagnifyMoney. You can email Julie here

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Banking

How Do Banks and Credit Unions Make Money?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Banks and credit unions share some broad similarities: They help their customers borrow money, build savings and invest for the future. Both credit unions and banks make money by charging interest on loans and charging fees for banking services. But their business models are very different in many ways, mainly in regards to what they do with their profits.

Banks are for-profit enterprises that serve all and any customers who come to them, and distribute profits to shareholders. Credit unions are not-for-profit institutions that only serve people who become members, often by requiring them to meet certain membership criteria. Credit unions reward their members with bonus dividends or lower-cost services, rather than redistributing earnings to investors.

How banks and credit unions make money

Banks and credit unions both make money by lending out a portion of their deposits, charging interest on those loans and collecting fees and charges for various financial services, such as investing and wealth management.

Interest on loans

The most significant source of profits for banks and credit unions is charging interest on loans to consumers. Common types of loans offered by banks and credit unions include mortgages, home equity lines of credit (HELOCs), auto loans and personal loans, said Ken Tumin, founder of DepositAccounts.com, a LendingTree company.

Banks pay interest on deposits — checking accounts, savings accounts and certificates of deposit — but the interest they earn from making loans is typically higher than what they pay for deposits. In the banking business, the difference between these two types of interest is known as the “spread.”

If a bank pays out 1% interest on $200,000 worth of CDs, and receives 4.5% interest on a $200,000 mortgage, the difference — the spread — is how the bank makes money. Banks have to comply with rules on how many loans they can make relative to their asset bases.

Fees

Another way that banks and credit unions make money is by charging consumers fees for a variety of services, Tumin said. Commonly charged fees include:

  • Overdraft fees: Overdraft fees comprise 60% of the fees charged by banks, and they tend to fall disproportionately on lower-income customers. Banks and credit unions charge these fees when you don’t have enough money to cover your payment or withdrawal. Fees can run as high as $36 per overdraft transaction.
  • Interchange fees: Banks and credit unions charge merchants fees when you use your credit or debit card, which are known as interchange fees. If a consumer makes a purchase, money is withdrawn from their account — and the merchant pays a fee to both the bank and the credit card company for the transaction.
  • Checking account fees: Monthly fees may be associated with a checking account, or fees may be levied if a consumer doesn’t maintain a minimum balance in the account.
  • ATM fees: If you use another financial institution’s ATM, you typically pay a fee to do so, which goes into that bank or credit union’s pocket.
  • In-branch service fees: If you need a cashier’s check, money order, notary or lock box storage, banks charge per-use or annual fees for these services.
  • Document fees: Banks may charge a fee to pull historical bank records pre-dating a certain time period or to provide print copies of cashed checks. Banks may also charge fees for check printing or paper statements.
  • Loan origination fees: Banks charge fees to “originate” loans, including home loans and personal loans. Loan origination fees may be a one-time flat fee or a percentage of a loan. They may sound low (1%, for instance) but can actually be substantial when considering the total size of the loan.
  • Late fees: Banks charge late fees when borrowers pay credit cards, mortgage loans, personal loans and other forms of debt past the bill’s due date (or past a grace period, which is a few days past the due date). When a checking account is overdrawn, there may be additional late fees if it is not brought back to or above $0 swiftly.
  • Early withdrawal fees: Those who open CDs at banks will pay early withdrawal fees if they withdraw funds before their certificate’s term expires. These fees can cut into earnings from a CD.

Financial services

Many banks offer financial advisory and wealth management services. Institutions charge either a percentage of assets under management or per-transaction brokerage fees.

Many banks offer private banking services to high-net-worth consumers, charging an annual management fee as a percentage of the assets under management. Banks also offer access to investment products for customers in lower wealth brackets.

Credit unions cannot offer financial advisory or wealth management services directly, so they provide them by affiliating with partner registered investment advisors or registered broker-dealers. Credit unions offer these services as a benefit to consumers who want investing advice, and they may make money indirectly through referral fees or other partnerships arranged with an investment advising company.

What do banks and credit unions do with their profits?

Credit unions do not have to pay taxes since they are not-for-profit organizations, which means they avoid one major expense that banks need to pay. Additionally, because credit unions are owned by their members rather than by shareholders, they aren’t focused on generating profits for shareholders like banks are. Often, credit unions return profits to their members as dividends, or they may offer reduced fees or better interest rates on loans or deposit accounts, which can, in turn, attract new members.

Banks, on the other hand, are owned by investors and operate as for-profit institutions. They use their profits to provide returns to shareholders (especially if they’re publicly traded, as most larger banks are), and to pay state and federal taxes, which they must pay as for-profit organizations.

How online banking impacts banks and credit unions

Brick-and-mortar banks and credit unions have been facing more and more competition from online banks. Online banks tend to charge lower account fees than credit unions and pay out higher interest rates on deposits, said Tumin.

While online banks don’t have physical branch locations, they nonetheless offer a compelling proposition to consumers. In response, brick-and-mortar banks are beating them by joining them, offering online banking services of their own to address competition from apps and other tools, which threaten to reduce payment-related revenue by as much as 15% by 2025, according to a report published by Accenture, a professional services firm.

Going forward, banks’ business models will have to change to accommodate the anticipated reduction in fee income. But while these tools may not add revenue for banks, they could potentially lower branch operation costs, which are substantial. By putting more power in consumer hands, a big bank could reduce its branch count, branch hours or individual branch teller staff hours.

“For banks, these tools may be more about cutting back on expenses than adding revenue,” Tumin said.

For credit unions, providing these tools offers the conveniences that banks, which typically have larger branch networks, present. Since credit unions aren’t driven to provide returns to shareholders on Wall Street and are instead driven to manage so that their members receive benefits and favorable rates, credit unions can choose which services are for benefit versus for profit.

Are banks or credit unions better for your money?

Now that you know how banks and credit unions make money, you may be wondering which option is best for your money. As with most financial questions, the answer largely depends on what’s most important to you.

Online banks offer the most compelling savings account rates, with the average savings account interest rising from 0.79% in mid-2017 to 1.52% by the close of 2018. During that time period, traditional banks and credit unions also increased rates, but only to 0.26% and 0.23%, respectively. Pair this with their low-fee checking accounts, and online banks are a compelling option for many consumers, although a lack of branches may deter some people.

Brick-and-mortar bank networks may be more convenient, offering more branches and more sophisticated online banking and investing options. These benefits are positives for some busy consumers, but the convenience comes at a cost — especially when it comes to overdraft and other fees.

“Credit unions may be more consumer-friendly,” Tumin said, citing their low account fees and balance minimums. Because credit unions are member-owned and locally driven, they may give back to their communities and their members. However, they are not open to everyone, as a consumer generally can’t join a credit union for aerospace or military members if they’ve never worked in those fields, for example.

The bottom line

No two consumers need the same things from their bank or credit union, so it pays to research how accounts and fees are structured and which additional services are available. While credit unions and banks make money in similar ways, including through interest on loans and fees that customers pay, they don’t handle profits in the same way.

Where that money is reinvested — in discounts to consumers, or in profits for shareholders — is a key differentiator between credit unions and banks. If you’re going to entrust an institution with your money, it pays to know how that institution ultimately makes money.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jane Hodges
Jane Hodges |

Jane Hodges is a writer at MagnifyMoney. You can email Jane here

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Banking

Credit Karma Savings Account Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Credit Karma is the latest fintech company to jump on the mobile banking bandwagon. The company is now offering a free high-yield savings account, which is somewhat of a departure from the product it’s most famous for: providing consumers with access to free credit checks.

Credit Karma joins a slew of firms—including SoFi and Betterment—that have recently rolled out cash management accounts of their own. Credit Karma Savings will offer a generous 1.90%  APY, and the company says it will leverage technology to keep its rates competitive. Credit Karma is partnering with a network of banks to hold your deposits and gain Federal Deposit Insurance Corporation (FDIC) insurance.

What is Credit Karma Savings?

Expected to launch later this year, Credit Karma Savings is a high-yield savings account that will be accessible through the company’s app. Credit Karma claims it will take consumers just “four clicks” to get started.

Once signed up, deposits will collect an APY of 1.90%. That’s 22 times more than the current national average of 0.09% for savings accounts. Credit Karma says it will leverage technology to keep that rate moving competitively, so that consumers won’t have to monitor rates themselves to ensure they’re getting the most for their money.

There are no fees or minimums required to open a Credit Karma Savings account, and deposits up to $5 million are insured by the Federal Deposit Insurance Corporation (FDIC). To achieve this, Credit Karma partnered with MVB Bank to provide banking services, and it will be utilizing a network of over 800 banks to hold deposits.

However, it’s important to note that the amount that is actually insured is dependent on whether you already have a balance in a partner bank and how much that balance is: “Actual insured amounts may be lower or adversely affected based on any balances you hold at a network bank,” Credit Karma said.

Credit Karma Savings vs. other cash management accounts

Credit Karma joins the ranks of other fintech companies that have recently launched high-yield savings accounts or cash management accounts for consumers, all boasting no fees and no minimum balance requirements. Here’s how Credit Karma Savings stacks up against companies with similar products.

Bank APYNumber of partner / network banks Amount FDIC insured

Credit Karma Savings

1.90%1 partner bank with network of 800+ banks$5 million

SoFi Money

1.60%7 program banks$1.5 million

Betterment Everyday Cash Reserve

1.60%11 program banks$1 million

Wealthfront Cash Account

1.82%9 program banks$1 million

Savings accounts with higher interest rates than Credit Karma Savings

Credit Karma Savings’ 1.90%  APY is certainly nothing to sneeze at, especially when looking at other fintech companies that offer similar high-yield accounts for stashing your cash. But other savings accounts—particularly those at online banks—boast even higher rates. Vio Bank, for example, currently has an online high-yield savings account with an impressive APY of 2.07% , while HSBC Direct Savings touts a 2.05% APY.

The bottom line on Credit Karma Savings

Credit Karma Savings offers a number of attractive incentives, like a competitive APY, no fees and a high maximum amount of $5 million that’s eligible for FDIC insurance. If you already have a Credit Karma account, the convenience and ease of being able to open a Credit Karma Savings account isn’t a bad perk, either. If your main goal is to rack up as much interest as possible on your savings, though, a number of online banks offer higher-yield savings account offerings.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Berger
Sarah Berger |

Sarah Berger is a writer at MagnifyMoney. You can email Sarah here