How Do Cash Back Debit Cards Work?

Cash back debit cards function similarly to cash back credit cards. When you make an eligible purchase, you earn a rewards rate based on the card’s terms. For many cards, this means a flat 1% back on purchases, while others may offer higher rates with select retailers. However, there are some limitations to keep in mind:

• Monthly caps: Some cards limit how much you can earn each month by setting a cap on spending that earns rewards.
• Account requirements: Some cash back debit cards may require you to maintain a minimum balance to earn rewards.
• Activation: If a debit card offers cash back only with select merchants, you may need to activate those offers to earn the rewards.

As you compare your options, make sure you understand all the terms for earning cash back rewards and consider potential limitations before making a decision.

How to Earn Rewards With a Debit Card

The process for earning cash back rewards with a debit card can vary depending on the bank that offers the account. Generally, you can expect to earn rewards on purchases made with your debit card. However, peer-to-peer transfers, ATM withdrawals, and cash back from the cashier typically don’t qualify. Some banks may only offer rewards on purchases with certain merchants or place a cap on your monthly rewards earnings.

Before you get started, read the rewards terms and conditions to ensure you understand how the program works.

Are Cash Back Debit Cards Worth It?

If you’re considering a cash back debit card instead of a rewards credit card, it’s important to understand the main differences. Here are some factors to keep in mind:

• Rewards rates: Cash back credit cards typically offer better rewards rates compared to rewards debit cards. You may also enjoy a welcome bonus as a new credit card holder.
• Other perks: Cash back credit cards may offer other benefits, such as introductory 0% APR promotions, flexible redemption options, and perks with certain merchants. With a cash back debit card, you may enjoy ATM fee reimbursements, reduced fees, and other benefits.
• Credit score: There are cash back credit cards available to borrowers across the credit spectrum, but the best typically require good credit or better. However, you can use a cash back credit card to build credit with responsible use. In contrast, debit cards don’t require a credit check when you open an account, but they also can’t help you build credit.
• Fraud protection: Both credit and debit cards offer fraud protection in the event that someone steals your card information. However, credit card issuers typically offer more protection than banks. Additionally, if someone does use your card, you’d only have to worry about them draining your checking account with a debit card.
• Interest charges: If you pay your credit card bill on time and in full every month, you don’t have to worry about interest charges. However, carrying a balance can be expensive. On the flip side, cash back debit cards never charge interest.

As you consider both the pros and cons of each option, you’ll have an easier time determining which one is the better option for you.

Check Your Credit if Applying for a Credit Card

You typically don’t have to worry about a credit check when opening a checking account. But if you’re thinking of applying for a cash back credit card, check your credit score before you do so. With Experian, you can be paired with credit cards matched to your credit profile.

The best cash back credit cards tend to require a FICO® Score of 670 or higher. Meeting that threshold doesn’t guarantee approval, though. So if you’re right at that level or below it, consider working on improving your credit before you apply. In the meantime, you can still earn cash back through a debit card.

Contact O1ne Mortgage for Your Mortgage Service Needs

At O1ne Mortgage, we are dedicated to helping you navigate your financial journey. Whether you’re looking for mortgage services or financial advice, our team of experts is here to assist you. Call us today at 213-732-3074 to learn more about how we can help you achieve your financial goals.