Cashback Debit Cards: How Do They Work?

Article Summary:

Cashback debit cards allow you to earn rewards on your spending just like many credit cards do. While cashback debit cards aren’t as common as credit cards, they can be a great option to earn some rewards without having to worry about interest rates. However, they also have some disadvantages that need to be considered.

Cashback credit cards have become a popular way to earn rewards for your spending while taking advantage of some of the other perks that credit cards offer. But you don’t need a credit card to earn cash back on your spending. More and more banks now offer cashback debit cards, which allow many of the same perks as credit cards but pull money directly from your checking account.

Are you wondering if a cashback debit card is right for you? Keep reading to learn how a cashback debit card works, how it differs from a cashback credit card, and whether a cashback debit card is worth it in the end.

What is cash back and how does it work?

Cash back is reward money that financial institutions offer as a percentage of your spending. For example, if you spend $100 on a card that offers 1% cash back, you’ll get $1 back.

Some cards offer cash back on all purchases while others only reward you for purchases on certain items or from certain merchants. Here are a few common ways cashback programs are structured:

  • Flat-rate cash back. The most common rewards structure for cash back is simply a flat percentage rate you earn on all of your purchases. Cashback rates generally start at 1% but can amount to several percent. This type of cashback is beneficial to those who spend in many categories since they can be rewarded for all of it.
  • Bonus category cash back. Another common way cashback cards operate is by offering rewards in certain spending categories. This structure may also be combined with the flat-rate cash back, where you earn a low flat rate on most purchases but then a higher rate in certain categories. Bonus categories may include groceries, gas, and more. Some cards have static bonus categories, while others have bonus categories that rotate throughout the year.

Cash back on debit cards

Historically, cash back has been most common on credit cards, but it’s become increasingly common for banks to offer cash back on a debit card as well. Popular banks like Discover and Upgrade now offer cash back on purchases you make from your checking account.

Other financial institutions have started offering cash back through a prepaid debit card, such as the American Express Serve Cash Back prepaid debit card. This card differs from other cashback debit cards because, as a prepaid card, you have to add money to the card before you can use it. That being said, the card offers 1% cash back for each dollar you spend, making it a potentially great deal for the right user.

To make sure you’re choosing the right debit card for your spending habits, compare the below accounts. Our tool allows you to compare how much cash back you can earn and even the monthly fee you may be responsible for.

Pro Tip

Some debit cards limit the cash back you can earn in a given financial period. For example, the Discover Cashback Debit account only allows you to earn cash back on your first $3,000 of purchases each month. However, if you open a Discover online savings account, you can transfer your rewards to this account and earn even more cash back.

Cashback debit cards vs. credit cards

Cash back is a fairly standard reward offered by credit card companies, but it’s not quite as common on debit cards. If the idea of a cashback debit card is new to you, then you might be wondering how they differ from credit cards.


The first important difference between a cashback debit card and credit card is how you’re actually paying for your purchases. When you spend on a cashback debit card, the money for the purchase is immediately taken from your checking account. And when you earn rewards, they’re automatically deposited into your account.

With credit cards, you’re spending with borrowed money. First, you make a purchase on your credit card, which may accrue cash back. Once the credit card bill comes due, you’ll pay off that purchase. If you don’t pay off the full balance on the card, you will accrue interest.

When you have accrued cash back, you can have it deposited into your bank account, use it to make a payment on your credit card, or use it for other rewards through your credit card company. Depending on the card you use, you may have a direct deposit feature that allows the cashback funds to automatically enter your checking account.


Another difference between cashback debit cards and credit cards is the type of rewards available. As we mentioned, rewards debit cards aren’t as common. Those that do offer cash back usually don’t offer many other perks.

Credit cards, on the other hand, can offer many perks in addition to their cash back. For example, some credit cards allow you to earn points instead of cash back. Those points can be traded in for cash but can also be used to book travel or make other purchases, as the cards below allow you to do.

Credit building

Another difference between a cashback credit and debit card is whether they help you build credit. One of the things that make credit cards so popular is they help you build credit history and boost your credit score. A higher credit score comes with plenty of other perks, including access to lower interest rates on loans, car insurance, and more.

Unfortunately, a cashback debit card doesn’t have this same credit-building advantage. Since they don’t function like a credit account, there are no payments to report to the credit bureaus when you make debit card purchases. As a result, they won’t help you boost your credit score.

Pro Tip

You’ll only get the most credit-building advantages of a credit card if you use it responsibly. Be sure to keep your card utilization low and make your monthly payments on time to prevent harming your credit score with your credit card habits.

If you want a credit card to primarily help boost your credit, you may want to consider a secured credit card. To use a secured card, you provide a security deposit usually equal to the credit line. That way, if you miss a payment, the lender uses your deposit to pay the bill.


A final important difference between cashback debit and credit cards is their security features. Both types of cards have certain security measures in place, and both utilize fraud monitoring encryption to try to prevent someone from using your account. Additionally, both limit your losses in case of fraud.

That being said, there are some differences. Under the Fair Credit Billing Act, your losses in case of credit card fraud are limited to $50. But with debit card fraud, your losses are only limited to $50 if you report it within the first 48 hours. If you report it after 48 hours, but within 60 days, your losses are limited to $500.

Another thing worth noting is that even if you report your debit card fraud right away, it could take a while to get your money back. You could be waiting upwards of a week to have your money returned. And depending on the amount that was stolen, this could be a serious problem. In the case of credit card fraud, the money hasn’t actually left your checking account. As a result, it won’t cause any further problems with your finances.

Pros and cons of cashback debit cards

Cashback debit cards can be a smart financial choice for the right user, but it does come with some risks as well. Before getting a cashback debit card, be sure to consider the below pros and cons.


Here is a list of the benefits and drawbacks to consider.

  • No credit limit. Debit cards are tied directly to your checking account, meaning your only spending limit is the money in your account. This can be a great option if you need to make a large purchase that you’ve been saving up for but exceeds your current credit card’s limit.
  • Won’t affect credit score. Since the money you use isn’t borrowed from a credit card company, you don’t have to worry about paying down a credit card balance. This means no late fees or impacts on your credit score.
  • Debit card features. Depending on your card issuer, there are a number of perks your debit cards may offer that credit cards don’t. These could include online bill pay, mobile check deposit, and possibly even free ATM withdrawals.
  • Can’t improve credit scores. While a debit card can’t harm your credit score, it also won’t improve it. This can be a disadvantage to card users looking to establish or rebuild their credit scores.
  • Potential overdraft fees. Though you don’t have a credit limit with a debit card, you’re still limited by the cash in your checking account. If you spend more than you have, you could risk incurring overdraft fees (unless your account includes overdraft protection).

Are you in the market for a cash back debit card? The good news is there are plenty of options to choose from. We’ve rounded up a list of the best cash back debit cards to help you find the one that works best for you.


Are cashback debit cards worth it?

A cashback debit card can be an excellent tool, but they aren’t right for everyone. Generally speaking, cashback credit cards offer more perks than cashback debit cards.

As a result, it’s usually more worth it to use your credit card, as long as you know you can pay off your purchases by the next statement’s due date. However, there are a couple of situations where a cashback debit card is worth it.

You don’t have a credit card

The first situation where cashback debit cards are worth it is if you don’t have a credit card. Some people don’t have sufficient credit to qualify for a credit card. Others prefer not to use a credit card for a variety of reasons.

In that case, using a debit card that offers cash back to take advantage of this perk is definitely worth it.

You’re making a purchase you can’t use your credit card for

Another situation where a cashback debit card is worth it is when you’re making a purchase you can’t use your credit card for.

Many people use their credit cards for as many purchases as possible. But there are some purchases that require a debit card or that charge an additional fee for credit cards. In that case, using a cashback debit card allows you to earn a bit of money anyways.


How does cash back work with debit cards?

Cash back on debit cards works much the same as it does with credit cards. You receive a percentage of the money you’ve spent back as a reward in your bank account.

Is cash back free money?

Cash back isn’t necessarily “free money” since you have to spend money to earn it. However, if you earn cash back on money you were already planning on spending, it can certainly feel like free money.

Which is better for rewards: a cashback debit card or credit card?

While there are some financial institutions that offer cashback debit cards, credit cards generally offer the best rewards.

Key Takeaways

  • A cashback debit card allows users to earn a percentage back on their purchases, often up to a particular amount of spending each month.
  • There are plenty of differences between cashback debit cards and credit cards, including their functionality, rewards, credit-building capabilities, and security.
  • A cashback debit card doesn’t offer all of the same perks as a cashback credit card, but may still be worth it in some situations.
View Article Sources
  1. My credit spending rule to live by — Consumer Financial Protection Bureau
  2. FDIC Consumer News: Rewards Cards – Minimize the Pitfalls, Maximize the Benefits — Federal Deposit Insurance Corporation
  3. The Definitive Guide to Cashback Credit Cards — SuperMoney
  4. What is Cashback and How Does It Work? — SuperMoney
  5. Discover Cashback Debit Checking Account — SuperMoney
  6. USAA Cashback Rewards Checking Account — SuperMoney
  7. KeyBank Key Cashback Credit Card — SuperMoney
  8. Best Cashback Rewards Debit Cards | July 2022 — SuperMoney
  9. Best Cashback Credit Cards | July 2022 — SuperMoney