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When Does a Cash Back Rewards Debit Card Make Sense?

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Rewards credit cards? We’ve covered them. A lot. But rewards debit cards … this is something we’re just now getting excited about. Most banks offer some minimal debit rewards: a point for every $2-$4 spent, generally, though some offer more when you buy from the lender’s online website. Some have better rewards – Bank Financial’s ScoreCard Rewards, BB&T Visa Extras and Comercia EZ Perks offer a point per dollar – but for the most part, you’re stuck with so-so deals. And many banks are threatening to cancel their debit rewards altogether. This has left an opening for a number of retailers to jump in and start offering rewards on their own branded debit cards, which pay out store discounts.

Rewards checking accounts come in a variety of forms: in-store discounts for retail debit cards, loyalty programs and your standard high-yield checking accounts. We’ve profiled one of each, though a number of rewards debit cards are there if you’re willing to look beyond the biggest banks.

Retail rewards: the Target Debit Card

The Target debit card offers 5% off – not cash back, but a discount applied to your purchase – on every purchase you make in-store or online (except for a few caveats, including prescriptions, gift cards and clinic services). The store also offers the REDCard, a traditional credit card, with the same rewards program.

Depending on your spending habits, this could be a better rewards program than you’d see with most credit cards. Most cards offer, say, 1% back on every purchase plus extra in a certain category. Target offers a variety of goods, from groceries to medicine to clothes to electronics, so if you use it as a one-stop shop, you’ll be getting an excellent value. There’s not a single cash back rewards credit card that we know of which will pay you 5% at department stores year-round.

The debit card also comes with 1% karmic cash back: through Target’s Take Charge of Education program, the store will donate 1% of your purchase to the K-12 school of your choice.

It’s important to note that unless you explicitly opt out, Target will share your personal information with its affiliates as well as its own marketing department. The opt-out form is delivered with your card, but they rely on users sticking with the status quo and being too busy/forgetful/lazy to opt out.

Two other fine-print details: this card doesn’t offer the same nifty protection as your typical credit card does, and can negatively impact your credit score if Target chooses to send the information to a rating agency.

All that aside, if you’re an avid Target shopper, or even if you just aren’t getting that great rewards from your current debit card, this is a fine program.

Customer loyalty: the Shell Saver Card

This card represent the other end of the spectrum, as a “rewards” credit card that isn’t even worth the space in your wallet. When linked to your checking account, this card tells the pump every time you swipe, “Hey! I’m a Shell card! Give me a discount!” But the discount is hardly notable.

The Shell Saver Card gives you 10 cents off each gallon of gas through April 2011 – a two-month promo period – and 2 cents off each gallon after that. The 10-cent discount is nice, but after the promotion runs out, you can save two cents by finding the cheapest gas in a two-mile radius, using GasBuddy, or just timing your fill-ups so that they don’t coincide with regional unrest.  If you want to save more than 10 cents, we explained how in a recent post on choosing between gas credit cards and discount gas.

I feel like the Shell Saver Card is like a Safeway club card that skips the extra step of having to key in your phone number at the register. It’s a loyalty program, plain and simple. There’s little to gain by signing up, so cash back rewards on gas are better found with a credit card.

High-yield checking: Lake Michigan and Consumers Credit Union

There are two banks in the nation that offer checking accounts with yields of over 3%: Illinois-based Consumers Credit Union, and Lake Michigan Credit Union. Both offer membership to anyone, regardless of residence, with a small donation to the Consumers Cooperative Association and West Michigan Chapter of the ALS Association, respectively.

Consumers offers a yield of 3.09% on their rewards checking account, while LMCU gives out 3% on the Max Checking account. They are far from the only banks that feature rewards checking through high yields: a number of credit unions and smaller community banks have yields of 2% or more.

*Yields current as of August 2012.