Review of the Discover Bank Cashback Debit Account

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Deal Summary: Cashback Debit account, 1% cash back on up to $3,000 in debit card purchases each month.

Availability: Nationwide (internet bank)

Discover Bank (Discover) is promoting its Cashback Debit account, which currently earns 1% cash back on up to $3,000 in debit card purchases each month. Instead of earning interest, you can only earn cash back rewards from your debit card purchases. For those who keep a small balance in their checking and prefer using debit cards, this checking account might be for you. Even if you don't plan on using its debit card, it can be a convenient account if you have the Discover Online Savings account.

Unlike the vast majority of other cashback reward checking accounts, Discover’s Cashback Debit account has no qualifying requirements – no minimum number of transactions, no required ACH transactions, no required number of logins. Nothing.

This is a fee-free account. The Cashback Debit landing page spells out everything that’s free:

  • Monthly maintenance
  • Withdrawals at over 60,000 ATMs nationwide
  • Replacement debit card
  • Standard checks
  • Official bank check
  • Online bill pay
  • Expedited delivery for debit card replacement
  • Expedited delivery for official bank checks
  • Deposited item returned
  • Stop payment order
  • Insufficient funds
  • Account closure

Cashback Debit History

I first wrote about the Cashback Debit account in 2013, in anticipation of the account finally being launched. Discover had been hinting that a new checking account was in the pipeline for about two years. Existing Discover customers received a preview (albeit premature) of the Cashback Debit in January 2013 when logging into their accounts. The launch was delayed for almost another two years and was initially available only to Discover credit card and deposit customers. The Cashback Debit account originally offered 10¢ bonus on up to 100 transactions per month for each debit card purchase, online bill pay, and check written. The 1% cash back on up to $3k in monthly debit card purchases went into effect in February 2018; at the same time, the Cashback Debit account became available to everyone.

In the past, Discover offered sign-up bonuses (up to $300) when opening a new Cashback Debit account. It’s been a while since I’ve seen one mentioned, but it never hurts to ask, as DA reader, Carpline, mentioned in a 2015 Forum post. If you come across a bonus, please leave a comment or Forum post.

Discover Credit Card

Discover is probably best known for its credit cards. Unfortunately, if you have a Discover Bank account, you don't receive any extra benefits from having a Discover credit card. When Ally Bank offered a credit card, you could qualify for slightly higher cash back rewards when you deposited the cash back earnings into your Ally Bank account. That's not the case with Discover. Nevertheless, Discover credit cards do have some nice cash back features.

Discover’s credit cards offering three different ways to earn cashback:

  • Unlimited 1% cash back on all purchases
  • 5% cash back at different places each quarter, when activated
  • New cardmembers get an automatic, unlimited dollar-for-dollar match on all of the cash back earned at the end of the first year

Discover offers four different ways in which to redeem credit card cashback earnings

Turn your rewards into cash in any amount, any time. Deposit into your bank account or apply to your Discover bill as a statement credit.

Pay with your Cashback Bonus at checkout at Amazon.com and with PayPal.

Get gift cards starting at only $5. Plus get an added bonus on every card!

Make a difference and donate to a charitable cause.

Online Savings Account

Earnings from a Cashback Debit account can be automatically transferred into a Discover Online Savings Account every month.

Discover has offered bonuses when opening a new Online Savings account in the past, but there’s not any mention of a current bonus on Discover’s website. But once again, it never hurts to ask.

The Online Savings account has no minimum opening deposit requirement. It also has no monthly maintenance fee or minimum balance fee. While there is no Excessive Withdrawal Fee for any withdrawal beyond the six allowed per month,

If you exceed these transaction limitations during any calendar month, we may refuse to pay each transaction in excess of the limitations. If you exceed these limits on more than an occasional basis, we reserve the right to close your Account.

BUT,

We are currently not enforcing the monthly transaction limit on savings and money market accounts. Therefore, exceeding these limitations on more than an occasional basis will not result in the closure of your account.

Overdraft Protection – Discover offers free overdraft transfers from a savings or money market account to a checking account to cover transactions that cause the checking account to go negative. This service makes it easier to keep a higher balance in a savings account (rather than in a checking account) so it can earn more interest. There’s one difference between this service and the one offered by Ally: Discover does not cover debit card purchases. According to Discover’s Overdraft Protection Service Agreement Addendum, they deny debit card purchases if the checking balance isn’t large enough.

5. TRANSFER REQUIREMENTS

b. The Overdraft Protection service does not cover ATM withdrawals, or, POS debit transaction. POS debit transactions and ATM withdrawals will not be completed if sufficient funds are not available.

Discover Bank’s ACH Transfer Features

ACH bank-to-bank funds transfer service can be a deal maker or breaker for opening an account at an internet bank. Discover Bank does allow large ACH transfers to be initiated from its online account center. According to the Account Center Banking agreement,

  • Incoming limit is $250,000 per 30-day rolling period for each Account Center registered owner.
  • Outgoing limit is $250,000 per 30-day rolling period for each Account Center registered owner.
  • The limits above are subject to a combined incoming/outgoing limit of $300,000 per 30-day rolling period for each Account Center registered owner.
  • Availability

    Headquartered in Greenwood, Delaware, Discover Bank is a “pure” internet bank with no brick-and-mortar branches. To qualify to open an account of any kind with Discover Bank,

    each Account owner must be a U.S. citizen or other U.S. person, be at least 18 years old, have a valid Taxpayer Identification Number, have a valid physical U.S. address and provide an electronic consent and signature.

    Applying for a Discover Cashback Debit account must done online or by phone (1-800-347-7000).

    Bank Overview

    Discover Bank has an overall health grade of "A+" at DepositAccounts.com, with a Texas Ratio of 5.32% (excellent) based on December 31, 2020 data. In the past year, Discover Bank has increased its total non-brokered deposits by $9.58 billion, an excellent annual growth rate of 17.91%. Please refer to our financial overview of Discover Bank (FDIC Certificate # 5649) for more details.

    As one of the largest financial services firm in the country, Discover Bank traces its roots back to the Greenwood Trust Company, which was established in 1911. Discover Bank came into being following the purchase of the Greenwood Trust Company in 2000. As one of the largest internet bank in the country, with assets in excess of $111 billion, Discover Bank is also currently the 30th largest bank in the country.

    Cashback Debit Account Bottom Line

    With no fees, no qualifying requirements, and maximum potential annual earnings of $360, this is the most lucrative cashback debit card account from a major online bank that I’m familiar with.

    Axos Bank also offers CashBack Checking that allows you to earn 1% cash back with your debit card for up to $2,000 per month in spending. It does have a minimum balance requirement of $1,500 to qualify for the cash back.

    Radius Bank (now LendingClub Bank) offers a Rewards Checking in which you can earn unlimited 1% cash back with your debit card. To qualify for the cash back, you must either receive $2,500 worth of direct deposits into your account or keep an average balance of $2,500 or more.

    The above information and rates are accurate as of 3/26/2021.

    Related Pages: savings accounts, nationwide deals, Internet banks

    Comments
    Buckeyes
      |     |   Comment #1
    I really do not understand the allure of a debit card unless you are participating in an introductory bonus like I am with Capital One. Spend $1500 with them you get a free $250. Spend $1500 with this bank and you get $15 and maybe a toaster. If you can be responsible you can get way more that 1% using a credit card and pay it off. In most cases debit cards are not a good deal, at least not in my world. Charge everything, pay if off and not be a doofus 20% interest payer, get bonuses, enjoy life. Feel free to correct me if I'm missing something.
    deymond
      |     |   Comment #14
    I don't do any debit card spending except for fulfilling my RCA requirements, but I think there are (or at least used to be) scenarios where paying with a credit card would incur an uncapped percentage fee, while paying with a debit card would incur a flat fee or capped fee. A cashback debit card would often be advantageous in this situation.
    111
      |     |   Comment #2
    Outside of debit card promos (as Buckeyes mentioned), or in some cases rewards checking accounts, those with decent credit will do much better with credit cards. The Citi Doublecash and Fidelity Rewards Visa credit cards both offer 2% cashback on all purchase. Others offer slightly more on all purchases but with an annual fee, while still others offer 5%, but primarily on certain purchase categories that change every quarter. (Discover, by the way, offers one of these 5% quarterly “category” credit cards that is pretty good, as mentioned in the article. BTW, for 2nd quarter one of the 5% cashback categories for this card is gasoline, so if you've seen gas process recently...)

    Additionally, Federal anti-fraud protection is clearly better for credit cards vs. debit cards.
    P_D
      |     |   Comment #3
    "Additionally, Federal anti-fraud protection is clearly better for credit cards vs. debit cards."

    You're not kidding about that 111. With a credit card you have at most trivial and in most cases no liability for fraud at all. With a debit card your fraud liability is potentially UNLIMITED. That can happen if you don't report the fraud within a couple of statement cycles.

    Uncharacteristically, I'm currently playing 6 different FI bonus games at the moment. It's not really something that is going to have any effect on my lifestyle, but I'm sort of hooked on the challenge of the game. It's a nice hobby and distraction when your life is as boring as mine these days. And the money makes it feel like something useful.  Some of them are about opening savings accounts and they send a debit card. I never activate them. I don't even like to touch them! I treat them like they are Covid infected! That's some scary plastic. The number of bonus games I can play is very limited because I don't do any that need a direct deposit or debit card charges... which the great majority require.

    Also uncharacteristically I applied for the first new credit card I've had in at least 20 years. I've always had just one card... really didn't care about having any others. But...they made me an offer I couldn't refuse at Chase... including preapproval and a bonus. So I added it to my bonus game roster, and this one I will actually keep and use. What clinched it is that this card compliments the features of the other one I have (which is also a Chase by the way!) so now, between the two cards I have all the bells and whistles in terms of rewards if I care to work them.

    What I find funny is that this will INCREASE my credit score, which is already over 800. That's actually kind of funny. All the credit reporting sites kept telling me that my only FICO weakness was that I didn't apply for enough credit. Not that I ever cared because I never borrowed a penny in my life. But either way, this should put me at the highest level possible (after the hard pull comes off the record.)  That's just a pride thing... feels nice... if you're at the mid to high 700s the extra points don't make any difference in credit decisions anyway.

    I have a trust account at Discover, but it's just a place holder. A family member has one of their credit cards though and gets some use out of it.

    Oh I meant to mention, the missing piece in the discussion so far as to why some people get debit cards rather than credit cards is largely answered by the fact that not everyone can qualify for a credit card, but most can get a debit card.
    111
      |     |   Comment #5
    Interestingly, during the pandemic debit card spending has risen, while credit card spending has fallen somewhat -
    https://www.wsj.com/articles/payments-companies-give-credit-where-its-dueto-debit-11604239201

    That article suggests it's due to stimulus checks, and to tighter underwriting on credit cards.

    With a couple of special-purpose exceptions my debit cards are for Rewards Checking accounts only, do not leave the house, and are used only at online payees I know well and trust - for example some utilities.
    Rickny
      |     |   Comment #4
    I use multiple charge cards with cash back ranging from 2% on all purchases up to 5% cash back on specific categories. I also have a Lowe's and a Target card that give me 5% off any purchase.

    I have a grandfathered Penfed 5% off gas purchases that they take off each bill. It's the only account I have with Penfed.

    You can get cash back if you purchase items online using the Rakuten website once you sign up for an account. Once you get to Rakuten you search for the store you want. It shows the cash back percentage and you go to the store website via Rakuten and you get the discount. The discount in most cases is 1% but you can get up to 10%. They mail you a check I believe quarterly. Works like Upromise. I got a Fidelity Charge card and a $200 bonus. The only way I get 2% is if I deposit my rewards to Fidelity account which I do have. So we use the Citi charge card for a base 2%.
    111
      |     |   Comment #6
    Yes, my Penfed 5% gas card only gets used for gas, but it stays in my wallet because it's easier than trying to remember whether any of the 5% quarterly credit cards have “gas” as a category that particular month.
    Rickny
      |     |   Comment #7
    With gas I get the Penfed 5% and Shell Rewards for 5 cents off a gallon. Registered my Penfed with rewards so the 5 cents comes off automatically. Other discounts

    2% all purchases Citicard
    3% Chase for restaurants and drug stores including medication. 12 months 5% grocery.
    3% Amex grocery.
    3% Online purchases BOA card.
    P_D
      |     |   Comment #13
    Rickny

    My Chase Freedom card has rotating 5% categories and a base cash back rate of 1%. They also have a feature similar to Rakuten where you can shop at stores through their website in your account and get additional discounts. You pay with the card and the extra discount is added to the card's cash back account.  I have not used that in years, but I think it is still there.

    That particular card is not available anymore but I am betting other Chase cards and probably other kinds of cards offer that same feature.
    Rickny
      |     |   Comment #15
    My Chase Charge Card pays 1.5% on all purchases. 3% on restaurants and drug stores all the time. The only limit is 5% on groceries for 1 year but not at Target and Walmart.

    Rakuten.com has many more on line sites than Chase that you get cashback. The Chase card I have gives discounts on a few on line sites that change often.
    P_D
      |     |   Comment #16
    That's the card I just got.

    I just looked at my Chase account and it looks like both of my cards give you access to "Shop through Chase." It says there are 450 stores. And it goes up to 15% back. I see lots that are in the 4-5% range. Maybe Rakuten has more, I don't know.

    There are also other deals in Chase when you go to redeem your points.

    About the tax issue... should cash back be considered income. Every time something you buy is on sale, it's the functional equivalent of getting "cash back." Now the last thing I want to do is give these tax and spend politicians any ideas because taxes are already about 10 times higher than they should be. But if a cash back discount is considered income, so should the difference between the regular price and the sale price be considered income. Either one though is clearly NOT income, it is a reduction in expenses.
    Rickny
      |     |   Comment #17
    I just checked on the Chase app.. On my card there are 13 offers available and none of them I would use and 10% is the highest. They do change over time. The bonus of $500 was great when I opened it a few months ago. I thought it was less but I've been working a lot of bonuses.
    P_D
      |     |   Comment #18
    Check your account online. That's where I found the Shop with Chase stores. And it applies to both of my cards.
    Rickny
      |     |   Comment #19
    I do not have Shop with Chase on my charge or debit card. Just Ultimate awards.
    Rickny
      |     |   Comment #20
    PD Your Chase card pays 1% mine pays 1.5% as a base rate so they are not the same. Thanks for the Shop at Chase info but not part of the benefits on my card.
    Buckeyes
      |     |   Comment #21
    I realize my Amex $95 annual fee is not for some but the perks help make that less daunting. For instance 6% back at supermarkets. And a month ago I was able to get the Motley Fool service free for a year as they gave $99 back on a purchase of $99 or more at Motley Fool. At the same time Motley fool reduced their one year price to $99, so it was free except for the stupid sales tax. Just so many great offers in the credit card world. Great offers in the debit card/online savings world have dried up. It's amazing to think that even with paying a $95 annual fee, my return is still better than what I'd get with a boring debit card if I paid the same expenses charged on Amex vs a debit card. 
    P_D
      |     |   Comment #22
    Hi Rickny

    I have two Chase credit cards. One of them is the Freedom Unlimited that pays a 1.5% base rate and seems to have the same other percentage discounts as yours on dining and drug stores, etc. My other card is the original Freedom card that has a base rate of 1%.

    I am able to use Shop through Chase with either of these cards through my online account.
    Rickny
      |     |   Comment #23
    You only mentioned the 1% in your posts. I do not have access to any Shop at Chase. It does not show when I logon. So I just use Rakuten for extra discounts. I did Upromise for a while and had $1000 added to my daughters 529.

    Got 10% off Under Armour using Rakuten a few days ago and 3% using my BOA card. Bought a new laptop and got 2% from Ratuken and 3% BOA.
    Jack11
      |     |   Comment #24
    I think everyone with a chase account has access to their shopping portal via ultimate rewards

    I have never used it because I primarily use topcashback

    chase calls it points

    https://ultimaterewardsearn.chase.com/
    w00d00w
      |     |   Comment #8
    with these cashback rewards debit or credit cards, wondering how common it is for financial institutions to issue MISC 1099s for the amount earned. investopedia suggests the threshold is $600 or if a bonus is issued without purchase requirement.
    111
      |     |   Comment #9
    The IRS currently does not consider cashback rewards on credit or debit cards to be taxable income – or even, “income”. But, here's an interesting recent story - https://taxprof.typepad.com/taxprof_blog/2021/03/wsj-he-got-300000-from-credit-card-rewards-the-irs-said-it-was-taxable-income.html

    I think this may have also appeared here in DA.com.
    111
      |     |   Comment #10
    Note that this is different that bank/CU promotional bonuses, which the IRS does consider taxable income. You'll normally get a 1099-INT for these for anything over $10. However, I've had a few instances over the years where a bank/CU seems to have forgotten to include the value of these bonuses on my 1099, especially in cases where there was little or no other income from that bank/CU. I wouldn't bet the ranch on this happening often, though.
    P_D
      |     |   Comment #12
    Unfortunately you are responsible for reporting the income and liable for the tax whether a 1099 is issued or not.
    Buckeyes
      |     |   Comment #11
    The only thing I can come up with is the 1% is better than the .00001 % people get from the bank. So in that respect it looks like a good deal. But in my opinion a debit card isn't a savings tool. Well lets face it, it isnt. It's a spending tool.  It's the Chevy to the credit cards Ford, so why bother with a lousy cash back, all things considered. As someone said, maybe people don't qualify for credit cards. I dare say those same people consider promotions like these. I'd love to see a who's who of the people who do. Actually though, im glad I could edit, it's easy to see who would go after this rate.  It's the same people chasing 1% CD's, and 1% savings rates which I am currently not doing.  Comparing credit cards to debit cards is not a fair fight due to cash back deals and that's the world I live in.  Compare debit cards to the rates banks offer could be marginally interesting.   I suppose it could be tempting to dump some money out of your bank to a debit card, but as others have posted, you lose out on things the credit card has that the debit card does not.     Long story short this isn't the right offer for me.
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