As of November 6^th, all Discover cards have no foreign transaction fees! This is excellent news if you already have a Discover credit card, of course, but should you consider getting one because of the change? The answer depends on your travel habits. As you might expect, Discover’s new pricing structure has the biggest effect on their two airline miles credit cards: the Miles and the Escape. While we do have a few words of caution, we’re super excited to see these cards become a more competitive choice for international travelers. The rewards are decent and easy to redeem. And if you’re looking for the most bang for your buck in terms of reward redemption, Discover provides plenty of good options.

Discover Escape beats Discover Miles

The Discover Miles card and the Discover Escape card are similar in many respects. Both offer a 0% introductory purchase and transfer APR for the first six months, and if you transfer your balance before February 2012, your B/T fee will be only 3%. (Mind you, that’s hardly noteworthy: Citi has 3% transfer fees all the time, and any number of credit unions waive it altogether.)

The primary differences between the two are the annual fee and rewards rate. The Miles card offers a base rewards rate of one mile per dollar, the industry standard, and a maximum of two miles per dollar for qualifying purchases. The Discover Escape card offers double miles (the equivalent of 2% back) for every dollar you spend, putting it on par with cards like the Capital One Venture Rewards card.

Escape by Discover® Card
	Earn up to $250 in travel rewards--1,000 Bonus miles every month you make a purchase for the first 25 months Double Miles on every $1 you spend 0% intro APR on purchases and balance transfers for 6 months, then the variable purchase APR of 10.99% - 16.99% No restrictions on travel--fly on any airline, book any hotel or car, with no blackout dates Flexible redemption options like travel credits, merchandise, gift cards or cash Travel Insurance benefits, including primary car rental, lost or damaged luggage, travel delay, and trip cancellation when you book with your Escape by Discover card Discover is ranked #1 in customer loyalty--16 years in a row! (2012 Brand Keys Customer Loyalty Engagement Index report) *Click apply to view rates, fees, rewards, limitations and other important information
Annual Fee Signing Promo APR, variable* Intro APR Promotions $60 25,000 Discover Miles Bonus - 1,000 extra miles a month for first 25 months. Min APR: 10.99% Max APR: 16.99% Default APR: 21.99% Cash Adv: 23.99% Purchase: 0% for 6 mos Bal Trans: 0% for 6 mos

The Escape has a $60 annual fee, but it’s worth it for the better rewards rate. The Discover Miles card only offers double miles on the first $3,000 you spend on restaurant and travel purchases. After that, you can only earn bonus miles through Discover’s online shopping mall. To Discover’s credit, that includes over 175 top retailers, but the Escape card still has the edge, even with the annual fee. The Discover Escape also offers the best signup bonus of the two cards. It gives you 25,000 miles, worth $250, but they’re paid out at a rate of 1,000 per month, forcing you to keep your card active for 2+ years. The Discover Miles only offers a 12,000-mile signup bonus, worth $120, with the same 1,000 miles per month restriction.

What about international purchases?

Discover cards have always gotten a bad rap for low their acceptance rate at home and abroad. Although you still can’t use them as many places as a Visa or MasterCard, Discover has made a tremendous effort to expand their network in recent years. In fact, you’ll find it very easy to use a Discover card in a few parts of the world. Thanks to Discover’s joint venture with China UnionPay in 2005, Discover is more widely accepted in China than Visa or MasterCard. Similar agreements with JCB, Redecard and BC Card have also made Discover cards widely accepted in Japan, Brazil and South Korea, respectively. A Discover card is definitely worth considering if you visit any of these countries frequently, especially now that there’s no foreign transaction fee.

Love those flexible miles

One of the best things about Discover miles has to be their flexibility. Most credit card miles can only be used for airline tickets or hotel stays. Additionally, airline miles are typically good for airfare, but not additional charges or taxes. With a Discover card, you’re allowed to combine airline miles from multiple cards and use your miles for any kind of travel purchase (or expense) you want, booked any way you want. This definitely gives it an edge for travelers who need more spending flexibility.

Verdict: If you’re looking for a Discover card for travel, we definitely recommend the Escape. Be sure to check Discover’s list of countries to see if you can use it in the countries you visit most. The Discover Miles credit card is intended for people who don’t travel as frequently, but still want to earn airline miles with no annual fee. We’re glad this option exists. However, depending on your spending habits, you might be better off with a regular rewards card instead of an airline card. Take the time to consider your options before signing up.

Discover just announced an increased rewards rate at Amazon.com and seems pretty excited about it. While the upgrade is definitely a plus for Discover card holders, Discover still lags behind others in giving rewards for Amazon shopping.

Discovering the Amazon

The Discover More’s claim to fame is its 5% cash back rate in rotating categories. It’s a decent program, but you’re subject to pretty low quarterly rewards caps (December’s is $300 in purchases) and you have to abide by the category calendar if you really want to earn rewards. Other purchases earn rewards at a .25% rate for the first $3,000 of every year and 1% after that. Discover has upped the rewards at Amazon, allowing cardholders to earn double points up to $250 in purchases a month.

Rotating categories making you Blue?

Double points at Amazon is certainly an improvement, but Discover is not quite living up to the precedent. The American Express Blue Cash Everyday credit card offers 3% cash back at supermarkets, 2% at department stores and 1% everywhere else. It treats Amazon as a department store, so you receive double points on the site, and, unlike Discover, American Express doesn’t limit your earning potential. For an even better rate, check out the American Express Blue Cash Preferred. It shares many of the same benefits with the regular Blue Cash card, but the cash back rate is bumped to 6% at supermarkets, 3% at gas stations and department stores (including Amazon), and 1% everywhere else. It does have a $75 annual fee, but it also gives $100 cash back as a signup bonus.

Though they are both cash back cards, the Blue Cash and Discover More couldn’t be more different. The Blue Cash is a rewards credit card that prides itself on simplicity. You don’t have to contend with caps or rotating categories. The cash back rates kick in right away, and you can redeem as soon as you hit $25. The Discover More can be a bit confusing and somewhat limiting, so unless you’re really excited by the rotating categories they’ve preselected for you, the Blue Cash might be a better option.

Forward thinking

If you’re really an Amazon lover, you might want to check out the Citi Forward® Card card. It offers 5x rewards at bookstores, movie theaters, movie rental store, music stores, and restaurants (you earn 1 point per $1 spent everywhere else). Citi includes Amazon.com in the bookstore category, which means a 5% rewards rate on all your Amazon purchases. Unfortunately, rewards are capped at 75,000 ThankYou Points a year.

The only downfall of the Citi Forward® Card is the cash redemption isn’t what it could be. You’ll only get about .6 cents to the point. There are other redemption options (gift cards, music downloads) that yield a better return, but it does not claim to be the king of cash back credit cards. Check out the redemption options first. If you like what you see, the card might be worth your time.

Discover® More® Card
	0% intro APR on purchases and balance transfers for 15 months, then the variable standard purchase APR of 10.99% - 20.99%* 5% Cashback Bonus® in categories that change like gas, groceries, restaurants, department stores and more. Limitations apply* Up to 20% Cashback Bonus at popular retailers when you shop online through Discover.com Discover is ranked #1 in customer loyalty--16 years in a row! (2012 Brand Keys Customer Loyalty Engagement Index report) 24/7 access to a U.S. based Account Manager within 60 seconds $0 Fraud Liability plus automatic mobile and email fraud alerts Great rewards with no annual fee, no rewards redemption fee, and no additional card fee *Click apply to view rates, fees, rewards, limitations and other important information
Annual Fee Signing Promo APR, variable* Intro APR Promotions $0 None Min APR: 10.99% Max APR: 20.99% Default APR: 24.99% Cash Adv: 23.99% Purchase: 0% for 15 mos Bal Trans: 0% for 15 mos

Good news for Discover Escape cardholders: you can now escape beyond the US borders. Discover just announced that they’re scrapping the foreign transaction fee on all their credit cards as of November 6^th. As an added bonus, they’re also scrapping their “Research Fee” for extra copies of your receipts or billing statements. We always like to see credit cards lower their fees, so this is great news! However, we don’t necessarily recommend you run out to grab a Discover card for your travel purchases just yet. Here’s why: Discover still isn’t accepted in very many countries.

Limited (but improving) international service

As we’ve mentioned before, the Discover acceptance rate has gotten a bad rap for years, and we’ve been hesitant to recommend them because of it. To Discover’s credit, however, they’ve made a real effort to expand their horizons in recent years. Discover acquired Diners Club in 2008, which helped boost their acceptance network tremendously. As of October 2011, you can use your Discover card in most North American and Central American countries, and the Caribbean, but their scope is pretty limited elsewhere.

Discover cards are also accepted in a few major Asian and South American countries (like China and Brazil), South Africa, and 10 countries in Europe, but not necessarily the ones you might expect. You’re covered if you travel to Slovakia, but not to Spain or the UK. Huh? The good news is, thanks to Discover’s merchant acquiring partnership with Global Payments last year, a number of countries, including Spain and the UK, are listed as “coming soon”. And, by the way, we have nothing against Slovakia. We just recommend checking out the full list of countries before traveling with your Discover Card. Traveling is stressful enough without those unpleasant, money-related surprises.

Still a decent deal, especially in Asia

That said, if you find Discover’s list of countries comprehensive enough for your travel purposes, a Discover card might still be a great deal for your travels abroad. Discover’s joint venture China UnionPay in 2005 has actually made them more widely accepted in China than Visa or Mastercard. Similar agreements with JCB, Redecard and BC Card have also made them widely accepted in Japan, Brazil and South Korea, respectively. If you’re interested, we think the Discover Escape card is worth considering, although the Capital One Venture Rewards has a slight edge in the rewards department. Be sure to check out our review of the best international credit cards for tips on what to take with you abroad, as well as a comprehensive list of all the cards with no foreign transaction fees.

The Discover More credit card boasts 0% interest on balance transfers for the first 18 months, longer than almost any other card, on top of a lower-than-normal balance transfer fee. What’s more, the card still earns rewards on purchases. Though its introductory APR period isn’t the longest one out there,  the combination of an above-average introductory period and rewards makes the Discover More a standout.

A balance transfer offer with few shrouded fees

The Discover More offers no interest on balance transfers for 18 months, and no interest on purchases for 6. It’s a great deal if you already have credit card debt and are looking to pay it down interest-free for a time. In addition, its balance transfer fee is only 3%, while the industry standard is 5%. The balance transfer fee is one of the lesser-known “shrouded fees” that many credit cards slip in because you’re not likely to notice. It speaks well of the Discover More that it doesn’t gouge you with the transfer charge.

Discover® More® Card - 18 Month Balance Transfer
	0% intro APR on purchases for 6 months, then the variable standard purchase APR of 10.99% - 20.99%* 0% intro APR on balance transfers for 18 months, then the variable standard purchase APR of 10.99% - 20.99%* 5% Cashback Bonus® in categories that change like gas, groceries, restaurants, department stores and more. Limitations apply* Discover is ranked #1 in customer loyalty--16 years in a row! (2012 Brand Keys Customer Loyalty Engagement Index report) # 24/7 access to a U.S. based Account Manager within 60 seconds $0 Fraud Liability plus automatic mobile and email fraud alerts Great rewards with no annual fee, no rewards redemption fee, and no additional card fee *Click apply to view rates, fees, rewards, limitations and other important information
Annual Fee Signing Promo APR, variable* Intro APR Promotions $0 None Min APR: 10.99% Max APR: 20.99% Default APR: 25.99% Cash Adv: 23.99% Purchase: 0% for 6 mos Bal Trans: 0% for 18 mos

In terms of ongoing APRs, the Discover More is comparable to other hard-hitting balance transfer cards, with an ongoing APR of 8.75% to 17.74% + prime (as of this writing, that translates to 11.99% to 20.99%). That’s about the same APR charged by the Citi balance transfer cards, which tend to be heavyweights in the category.

Similarly, both the Citi Diamond Preferred and the Citi Platinum Select also offer 18 months free of interest on both transfers and purchases, along with a flat transfer fee of 3%. But unlike the Discover More, these cards don’t offer rewards.

Rewards program isn’t all it’s cracked up to be

That said, we have a gripe about the Discover More’s rewards program. Though it advertises a 1% base rewards rate, it only pays 0.25% on the first $3,000 a year. The full 1% kicks in only after the $3k threshold. Still, there are a number of features to recommend the rewards program. The Discover More also offers 5% cash back when you use the card to pay for items in special categories like groceries, gas, travel and restaurants, among others. The bonus categories tend to vary with the seasons. The categories for the remainder of the year are:

• Q3: Gas, hotels, movies, theme parks (up to $300 in spending)
• Q4: Restaurants and department and clothing stores (up to $300 in spending)

If you don’t need the balance transfer, the Chase Freedom offers a better rewards package. It offers a $100 bonus cash back when you make $500 in purchases in the first 3 months and a reward rate of 1% on all purchases. In addition, the Chase Freedom gives 5% cash back for purchases of up to $1500 in special categories. For the third quarter of 2011, cash back categories are airlines, gas and hotels.

Overall, the Discover More card provides a great way to give yourself time to pay off credit card debt, while earning rewards.  And even after the introductory period, the card offers a competitive interest rate and a decent rewards program.

Chase Freedom® Visa - $100 Bonus Cash Back
	Earn $100 Bonus Cash Back after you make $500 in purchases in your first 3 months 0% Intro APR for 15 months on purchases and balance transfers 5% Cash Back on up to $1,500 spent at grocery stores and movie theaters from 4/1/12 - 6/30/12 You'll enjoy new 5% categories every 3 months like gas stations, restaurants and even airlines. It's free and easy to activate your bonus each quarter! Unlimited 1% Cash Back on all other purchases Up to an additional 10% Cash Back when you shop online at select merchants through Chase No annual fee and rewards never expire
Annual Fee Signing Promo APR, variable* Intro APR Promotions $0 $100 Cash Bonus after spending $500 - in first 3 months Min APR: 12.99% Max APR: 22.99% Default APR: 29.99% Cash Adv: 23.24% Purchase: 0% for 15 mos Bal Trans: 0% for 15 mos

When decoupled debit cards first drew attention in 2008, banks were not happy. These new products allowed a third party to sweet-talk its way between a consumer and his checking account, allowing that third party to earn interchange revenue while giving some of the proceeds back in the form of debit rewards. The bank, which owned the actual checking account, would be shut out of payment processing.

It worked something like this: let’s say you, the consumer, really like the customer service at Wells Fargo, but you don’t have a rewards checking account. A third party, such as Discover, can step in and give you a debit card that’s linked back to your Wells Fargo checking account. The third party can also set up partnerships with retailers or nonprofits. In this scenario, Discover gets the debit swipe fees levied every time you pay with plastic, gives you rewards and sends a kickback to a retailer, and still has some change left over. Everyone’s happy, except for the bank.

A win-win-win-lose situation

Of the three players in this game, only one loses out. You, the consumer, get more rewards with a decoupled debit card. This forces other banks to step up their rewards programs to compete with the third-party processors, so even those who don’t have decoupled debit see a benefit.

Retailers, especially smallish gas stations and nonprofits, get to build customer loyalty and increase revenue while taking advantage of economies of scale. This is of special value to those who can’t or don’t want to issue store credit cards or other lines of credit. Take, for example, the Arco debit card, which allowed customers to skip the 45-cent surcharge typically levied on plastic transactions (the program is now ended; more on that later). There’s no way that the Arco could issue its own debit card, so Discover steps in and handles the finances.

Discover, of course, gets the interchange fee. Before financial regulation, debit card swipe fees amounted to 44 cents on average. The charges are nominally levied to counter the cost of fraud, but actually end up subsidizing debit rewards and free checking while still padding banks’ profits. By intercepting the interchange fee, Discover gets the revenue without the risk.

One participant is not happy with this arrangement. Wells Fargo is still on the hook for your checking account, and has to keep up with Discover to make sure you don’t overdraw. What’s more, the interchange fee that Discover gets is the fee that Wells Fargo doesn’t get. Small wonder that banks were miffed when decoupled debit cards first made their entrance. What is unexpected, though, is that banks are crying foul now that the products are on their way out.

No interchange fees, no money, no rewards

The Durbin Amendment directed the Federal Reserve to cap debit swipe fees at a “reasonable and proportional” level. The Fed’s final ruling, issued in late June, capped swipe fees at 21 cents plus 0.05% of the transaction, with the possibility of an additional cent if certain criteria are met. Under the cap, the average swipe fee is around 24 cents. A number of banks, including Wells Fargo and Chase, cancelled their debit rewards programs, while others eliminated or placed restrictions on free checking because lowered interchange revenue made debit cards much less profitable.

Decoupled debit cards got a special mention. The Durbin Amendment exempts small institutions with less than $10 billion in assets from the swipe fee cap. The Fed, however, says this exemption doesn’t apply to decoupled debit. It emphasized in a footnote to its ruling that “an issuer of decoupled debit cards would not qualify for the exemption … regardless of the issuer’s asset size.” Whether issued by Bank of America or a small-town credit union, decoupled debit will be subject to the swipe fee cap.

“A casualty of the Durbin Amendment”

Arco announced recently that it would terminate its debit rewards program, effective July 21^st, the same day the Durbin Amendment rules were to have gone into effect (the Fed pushed the date back to October 1^st, but apparently forgot to tell Arco). Now that Discover is making only half of the interchange revenue it used to, decoupled debit cards no longer make financial sense. And the Arco Discover card isn’t the only high-profile victim.

The major player in the decoupled debit industry, Tempo Payments, is shutting its doors after eight years and an up-and-down history. Though they were initially vehemently opposed to such payment products, banks now hold up Tempo as yet another example of how interchange regulation is hurting consumers.

Tempo, for its part, made it clear that the Durbin Amendment put them out of business. “When you impose price controls, a lot of things happen,” remarked Tempo CEO Mike Grossman. “We’re a casualty of Durbin.”

Echoing the sentiment (literally), an American Banker article began, “First it was free checking. Then it was spending rewards. Are decoupled-debit cards the next casualty of the Durbin Amendment?” Despite their earlier acrimony towards decoupled debit cards, banks are willing to call them martyrs in the interchange fee battle. The industry presents some compelling evidence: Chase blamed Durbin specifically for ending its rewards program, while credit unions and community banks fret that they’ll have to end free or rewards checking, cut staff, or both. Decoupled debit, the benefit most consumers never knew they had, is seemingly the newest addition to programs caught in the crossfire.

“Decoupled debit is not dead”

But as we’ve seen with rewards checking and free checking, banks’ dire pronouncements can be somewhat premature. Is the Durbin Amendment the cold-hearted rewards killer that it’s painted to be? To be sure, no one, not even Ben Bernanke, is sure that consumers will actually benefit from interchange fee regulation. But as we’ve shown time and time again, it simply isn’t true that decent checking is nowhere to be found. Even in a post-Durbin world, TD Bank offers accessible free checking, online bank PerkStreet Financial offers up to 2% rewards on its debit cards, and the prepaid Walmart MoneyCard is now offering a $10 bonus when you sign up for direct deposit.

And Tempo wasn’t the only decoupled debit payment company. National Payment Card Association is a similar intermediary between a customer and his checking account, but with an entirely different business model. NPCA charges only 15 cents a transaction in swipe fees – and did so even before the Durbin Amendment went into effect. CEO Joe Randazza says that his company did swipe fee reform before it became cool. “We’ve always been the 15-cent transaction model and we’re able to make a fair and reasonable profit.”

Now that debit cards are suddenly about half as profitable, banks are pushing their customers towards credit cards – a highly unfavorable outcome for merchants. Randazza hopes that retailers will try to entice consumers to use debit cards by continuing to offer rewards (preferably, of course, through NPCA).

Those banks that still have free checking and rewards debit cards say, with just a hint of exasperation, that those products are not extinct, despite pronouncements to the contrary. Randazza has a similar message: “Decoupled debit is not dead.”