Discover Bank’s online cashback checking account has launched, offering consumers another free alternative to accounts that are available through traditional banks. It enters an increasingly crowded arena filled with online checking accounts — differentiating itself with a cashback approach. But, it may fall short against the competition.
The new Cashback Checking account carries no monthly maintenance fee and it offers 10 cents per debit card purchase, online bill payment or written check. Discover Bank doesn’t charge a fee to use any ATM, but the ATM operator may impose a surcharge. This surcharge is waived at MoneyPass ATMs. The account comes will all the mobile features you’d expect from an online bank, including native mobile applications that offer mobile deposit and bill pay.
See how it compares to similar online checking accounts with transaction-based rewards:
|Features||Discover Bank Cashback Checking||PerkStreet Financial||UFB Direct Airline Rewards Checking|
|Monthly fee||$0||$0 ($4.50 in months without a posted transaction)||$0|
|Rewards||10 cents per debit card purchase, bill payment or written check||Up to 2% cash back at certain retailers, 1% cash back on all other purchases, and 25% cash back on special weekly deals||1 mile per debit card purchase of at least $2 and a personalized-deals program|
|Free online bill pay||Yes||Yes||Yes|
|ATM access||No fees from Discover Bank and no surcharge at MoneyPass ATMs (ATM operator may charge fee)||No fees at STARsf® ATMs, $2 at other ATMs (ATM operator may charge fee)||Unlimited ATM fee reimbursements|
|Mobile banking apps||Yes||No||Yes|
|Remote check deposit||Yes||No||Yes|
At a cash back rate of 10 cents per debit transaction, Discover’s Cashback Checking account doesn’t appear to be attractive enough to encourage debit card usage.
Under PerkStreet’s debit card rewards program, customers will earn 10 cents in cash back with a $10 purchase. With UFB Direct’s personalized deals program, for instance, customers might get $5 back on a $25 purchase at a major retailer — which is equivalent to the cash back earned on 50 debit transactions on Discover Bank’s checking account.
Currently, one caveat of the Cashback Checking account also places a shadow over the debit card program. Initially, the account will be available to select Discover cardmembers, before gradually becoming available to all Discover cardmembers in 2013. A public roll-out is expected in 2014. Discover cardmembers may already be earning a competitive cash back or rewards rate on their credit cards (like the Discover it card), which obscures the appeal of Cashback Checking.
Ideally, the customer that gains the most from having Discover Bank’s checking account is anyone who regularly uses his or her debit card for purchases of less than $10 — effectively earning more than 1% cash back, which would even beat the cash back rate on many credit cards.
Those who don’t swipe their debit card often may be better off with an interest-bearing checking account, such as those offered by Capital 360, Ally Bank, Bank of Internet and others.