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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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PINless Debit Card Purchases and Reward Checking Accounts

For several years I've heard reports from readers who didn't qualify for the high rates on their reward checking accounts due to debit card purchases that didn't count as a "credit" purchase. Many banks and credit unions that offer reward checking accounts have debit card usage requirements that specify only "credit" or signature-based debit card purchases. PIN-based debit card purchases in which you enter your PIN for the transaction don't count. However, it's possible to make a debit card purchase without your PIN and the purchase will still be considered by the bank as a PIN-based purchase. This type of debit card purchase is called a PINless debit card transaction, and I came across a good explanation of this at a PerkStreet blog post:

PINless debit allows certain merchants to process online and telephone purchases through a debit network rather than a credit network. Only certain merchants and sectors are allowed to use PINless debit. There has to be an intimate relationship between the company and the customer, and the company has to be able to cancel all services if the payment is not received.

Recently, utility, cable, telephone, college, and insurance bills are being processed more frequently as PINless debit transactions. Also, in rare cases, certain retailers are allowed to use PINless debit to process payments. This payment method is seemingly identical to credit for the consumer, but it greatly affects banks and merchants.

There are actually three types of debit card purchases.

  1. PIN = you enter your secret code
  2. Signature (or "credit" or non-PIN) = No code necessary, may need to sign for purchase
  3. PINless = no code necessary, but processed as a PIN purchase

From the point-of-view of a bank, PIN and PINless debit card purchases are considered the same type of transaction. So if your reward checking account requires non-PIN debit card purchases, you have to be careful to avoid PINless transactions. This is also the case for PerkStreet Financial checking account customers. PerkStreet Financial doesn't offer a high-yield reward checking account. Instead of a high yield, it rewards its checking account customers with cash back from their debit card purchases that's similar to credit card cash back. To qualify for this cash back, customers must make non-PIN debit card purchases. The PerkStreet blog post offers some useful examples of what to watch out for when you're making payments online.

Why do these banks want non-PIN debit card purchases? The reason is that banks make more money on them. The PerkStreet blog post is very straightforward in explaining this:

The interchange fee for PINless debit is significantly reduced compared to that of payments processed on a credit network — that is to say, PerkStreet and other financial institutions don’t earn as much on those transactions.

Interchange fees drive perks.

For the case of PerkStreet Financial, the perks are cash back from your purchases. In the case of reward checking accounts, the perks are a relatively high interest rate and ATM fee refunds.

Not all reward checking accounts require non-PIN debit card purchases. For these you may still want to avoid PIN-based and PINless debit card purchases so that the bank makes more money which will make it easier for them to continue the rewards. There are other things to consider. One is the time it takes for the purchase to post to your account. PIN-based purchases are typically faster, so if you're near the end of your statement cycle, PIN-based purchases may be useful.

Do you make any PIN-based or PINless debit card purchases with your reward checking accounts?

To learn more about reward checking accounts, please refer to my post 10 Common Traits of High-Yield Reward Checking Accounts.

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Anonymous   |     |   Comment #1
i have had 2 inbstances of this recently the first is with dish network, despite selecting credit they post transactions as a pinless debit.  the second most recent instance was with paypal as they processed a small payment as a debit
51hh   |     |   Comment #2
Verizon seems to change their Billpay system to be PINless recently, which is a great advantage for me personally.
tightwad   |     |   Comment #3
Hmmm...interesting. I think this might be the reason I may not have qualified for 2 accounts just this month. I wonder if AT&T hasn't sneakily went to a pinless debit, even if you have chosen the credit payment?


51hh- I'm interested in how this is an advantage to you?
Rebecca   |     |   Comment #4
Also need to watch out for Paypal, where you can type in your debit card # and they will treat it as an ATM withdrawal - so not only do you not get credit for a debit card purchase, you get charged an ATM fee which will not get refunded if you don't meet your requirements.  (There is a way around this, but it's not intuitive.  I know how to do it, but can't describe it unless I were going through a purchase at the moment.)
Pete   |     |   Comment #5
Some merchants that allow signature debit cards do NOT require a signature within certain $ limits.

So how would one know if the non-signature debit card is using the credit or direct debit network?


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