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Debit vs. credit: How the rewards compare

Kasasa checking accounts offer monthly rewards that blow most other accounts away...as long as you meet a few qualifications. One of those is swiping your debit card a certain amount of times each month. But if you’re like most people, you also have a credit card that offers rewards too.

 

When faced with the question of how to get all your Kasasa debit card swipes, and still earn credit card rewards, we understand your dilemma. You aren't swiping either card just for the rewards. You need to buy groceries or replace your toaster and you want to get reward points or a cash back reward while you're spending. Makes sense.

 

When you use your reward credit card for most of your purchases, it feels like you're getting something back each time — or at least you ought to be. You don't want to give that reward up. It's possible you're giving your rewards card too much credit (pun 100% intended).

 

The cash reward and ATM fee refunds you can earn with a rewards checking account, like the Kasasa Cash Back® account pay off in real earnings and savings for you every month. These rewards aren't about saving up, but getting credit for the daily use of your personal checking account.

 

When it comes to debit card versus credit card rewards, you can definitely earn both, but it's also about finding the value and purpose of each.

 

Credit card rewards

When you look at your credit card account and see points in the tens of thousands, it can look like you've earned something pretty substantial. However, the value of those points is often less, much less, than it appears. The key to making credit card rewards benefit you is to understand where they can also shortchange you.

Set earning goals

Set a goal for what you want to earn with your rewards. The tricky part, however, is the time factor. You may choose to save up your reward points for an anniversary trip in two years. The cost of the airfare and hotels may increase over that time, and the rewards you earn this month may not have the same value in two years that they have right now.

 

You also have to take into consideration that the value of rewards points isn't consistent. It's not just how you use them that changes their financial value, it's also when you use them. An airline or credit card company can decide to make the value of their points less or more whenever they want.

 

If the reward you seek is a gift card, know what you need to qualify for and which purchase earns you the most points. For example, if you earn five points per dollar spent on travel and seven points per dollar spent on restaurants, those restaurant purchases earn you more rewards. Also, consider if there are limits to only specific qualifying transactions. Maybe you earn rewards on fuel, but not food purchases. It's important to know all the nuances of the monthly requirement to earn points.

Deduct credit card interest from your rewards

Even more importantly, you have to pay your balance in full each month to make those rewards count. If you spend $200 on fuel over the monthly billing cycle, but you don't pay the credit card balance at the end of the month, what you may have gained in rewards you may be losing in interest charges. Let's check the math on those rewards:

 

Let’s say that rather than pay the balance in full, you choose to pay a little more than the minimum balance, or $25 per month during each statement cycle. Including the 15% interest your credit card charges, it will take you 15 months to pay the credit card balance, and you'll have paid a total of $220.17.

 

You paid an extra $20.17 in interest. Unless you received a $20.17 gas reward for your one month of fuel, you lost money on that reward. That doesn't even include all the other months of fuel you may be charging to your card, accruing even more interest.

Rewards should do more than break even

Depending on the card you use, and what purchases you spend your rewards points on, you may only earn 2-3% back on those purchases. On $200 worth of gas for your car, that's only $4-$6 in rewards. It's absolutely worth it, but only if you pay off your credit card in full each month.

 

If you're paying an annual fee on the card, those points are worth even less considering the price you're paying to earn them. If your annual fee is $70, that's almost $6 per month you paid to earn those $4-$6 in gas rewards. It's more of a break-even deal. It's important to be sure you are gaining rewards, not just paying for rewards.

Consider your debt before your rewards

You may have chosen your credit card for the rewards it offers, but it is still part of your debt – a loan from your credit card company. It's handy when you need to replace the tires on your truck, but how you use your credit card is just as important as what you might get for using it.

 

Experts suggest that using your credit card for daily living expenses, such as groceries and gas, may be a financial misstep. Your personal checking account is designed to manage your month-to-month living expenses since it is where your direct deposit goes. Your credit debt is a separate part of your budget, not the resource for your monthly income.

Breaking up what hits your credit card versus when you use your personal checking account may help distinguish when it's time to earn each kind of reward. Prioritize the accounts over the perks.

 

Debit card rewards

Credit cards may claim to award you tens of thousands of points. But those rewards points are randomly assigned a value and only have worth when you redeem them. Free rewards checking earns you rewards, refunds, and yes, cash, every month. — with consistent, established value.

Your checking account

The function of your checking account is to manage life's expenses every month. Your direct deposit comes in and your bills and payments go out. That's how they are designed to work. Free rewards checking accounts build upon this constant spending of your everyday life.

 

Similar to your credit card rewards, there are requirements in the monthly qualification cycle, but they align with how you manage your account already, like logging in to your online banking or mobile banking and enrolling in e-statements. Easy enough.

Rewards for use

In order to earn debit card rewards, you will need to swipe your card throughout the qualification cycle. Both the number of swipes and the exact dates of the cycle are set by the bank or credit union*, but the swiping is all in your hands. 

 

You may qualify for rewards through in-person debit card purchase such as washing your car or buying potting soil at the local nursery. If you prefer to shop online, a one-time debit card transaction can also build towards your monthly rewards. The real secret sauce of earning debit card rewards is about completing the actions you do on any given day as you go about your daily life.

 

These qualifying transactions don't require you to save up for months or years until you reach a stratospheric limit, it's a reward you can earn every month. With a Kasasa Cash Back account, you earn a percentage of your purchases up to a fixed amount, and that amount isn't lofty; it's tangible and paid directly into your account at the end of the qualifying cycle.

 

Kasasa Cash® accounts pay interest every month by completing these same debit card transactions. The annual percentage yield (APY) is paid on the amount in the account, and without requiring a minimum balance.

 

The rewards you earn with a Kasasa account are more straightforward. By meeting these few other basic qualifications set by your bank or credit union*, you'll earn the same rewards each month.

Refunds of ATM withdrawal fees

If you feel punished for not using your bank's ATM, it makes sense that getting an ATM fee refunded should be a reward for using your debit card. Refunds on your ATM withdrawal fees vary by a community bank or credit union*, but rewards should be a benefit of using your debit card, not a penalty.

 

With out-of-network ATM fees averaging $1.51, it may not feel like as big a benefit as thousands of points off future exotic travel, but it is a tangible cost that is being refunded to you every month. If you take advantage of ATM transactions once a week, that's about the equivalent of a credit card annual fee, except it's paid back to you.

No monthly service fee

Here's what the best rewards checking account doesn't have: a monthly service fee. You should not have to pay to earn rewards. You should earn rewards for using your debit card every month.

 

Does that mean you are missing out on credit card reward opportunities? Compare the monthly fee or annual fee to the rewards you earn. The math is pretty simple here: no monthly service fee increases the value of your rewards.

The best choice: Use both wisely

You don't have to choose one or the other. Most people make enough purchases each month to easily rack up the rewards points on a credit card, while also meeting the minimum number of swipes on their Kasasa debit card. The big difference is paying attention to your spending habits and the underlying costs associated with using credit cards versus debit cards.

 

Compare the interest you pay on a credit card balance when considering those frequent flyer points or the gift card you will eventually earn. If you find yourself paying hundreds of dollars in interest charges that you could have put towards paying for a flight, did the rewards gain you a financial advantage?

 

Think strategically. Use your debit card for at least the first dozen or so purchases you make when you're out and about each month to secure your Kasasa rewards. Use your credit card for online transactions and non-daily living costs that earn you more points. Reap the benefits of the various rewards that you deserve from each.

 

*Qualifications, limits and other requirements apply. See financial institution for details.

Tags: Rewards banking, Spending

About Kasasa

We believe your money should do more... for you and your community. Founded in 2003, Kasasa is a financial and technology services company working to help empower consumers to take control of their finances and be proud of their money by banking locally with community banks and credit unions in your neighborhood, that you know and trust.

These local institutions have roots in their communities, care about people over profits, and are actively invested in local businesses to help keep the economy strong (unlike some of the megabanks we could name).

We believe you shouldn't have to choose between the best banking products, the best customer experience, or keeping your money local, where it can do more good. We've created ethical banking products and partnered exclusively with community banks and credit unions. So you can have it all.

Kasasa accounts are available at community financial institutions around the country. Find one near you at Kasasa.com to get free checking that pays cash rewards, the only loan with Take-Backs, and more. All while keeping your money in the community, so you can always be proud of your money.