Free Money for Debit Card Users

Want to get paid for spending your money? Find a bank that offers a debit card rewards program. surveyed the top 10 banks and thrifts in the top 10 markets in the country plus the top 10 credit unions to find out what debit card rewards programs are available and how they work.

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It's not the final word on what's out there, but it is a sampling of what's offered by larger banks and credit unions around the country.

The survey found 40 different debit card rewards programs ranging from nationally available to local and regional offerings.

Of all available debit card rewards programs, 65 percent give rewards on signature purchases only.

Plus, more than half of the programs in the survey have no fee and 75 percent of them put no cap on the amount of rewards a card holder can earn.

Purchase limitations

Though not as rewarding as reward credit cards, there are decent perks out there for debit card users. The main hurdle debit card users must clear in order to qualify for rewards is at the point of sale.

Sixty-five percent of programs in the survey require a signature-based transaction for rewards.

Banks prefer signature-based debit card transactions because they receive a higher interchange fee from merchants for those sorts of payments versus using your PIN.

Thirty percent of the programs surveyed have no restrictions on purchases, but the majority of those, seven out of 12, pay less in reward points for PIN transactions.

Finally, 5 percent of the programs offer rewards only for purchases made at specific retailers, for instance, at merchant-funded malls such as the MasterCard MarketPlace.

They may actually offer the most benefit to consumers, according to John Hansen, director in the national financial services consulting practice at Hitachi Consulting.

"Whereas a debit card user might get a point for every $2 or $4 in a signature debit transaction, some of these merchant-funded mall transactions can rebate five (percent), 10 (percent), 15 (percent) or 20 percent on the merchandise," he says.

The benefits may be outweighed by fees however.

A word on fees

Though fee programs tend to pay slightly more in rewards than fee-free programs, fees should be avoided at all costs for most people. At best, the debit card rewards program turns out to be a wash after paying a fee.

"The most common fee is $25 a year. At a typical reward ratio, you'd have to spend $5,000 just to earn back the fee," says Greg McBride, senior financial analyst.

Fees in the survey ranged from $12 to $55.

Bottom line: Avoid debit cards with fees attached.

Payout ratios

Of the 40 cards that offer bonuses for signature-only transactions, the reward ratios range from 0.2 percent to 3 percent of the purchase with the most common falling around 0.5 percent.

Among the 12 cards that pay out for PIN transactions, the rewards range from 0.1 percent to 0.5 percent with the most common around 0.5 percent.

But that's not all, two cards had flat payouts for purchases above a minimum amount and four cards offered higher payouts for certain categories of purchases. For instance, the Bank of America US Airways reward card offers double miles for US Airways purchases.

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