This Unique Checking Account Doesn't Pay Interest -- It Does Something Even Better

There are some excellent online checking accounts in the market, known for their lack of fees compared with those offered by branch-based banks. And while checking accounts typically aren't known for paying interest, some of the top online checking accounts do pay a modest annual percentage yield (APY).

The Discover® Cashback Debit account is not an interest-bearing checking account, but it offers another feature that more than makes up for it. In fact, for many customers, the account can be significantly more lucrative than having an interest-bearing checking account.

How much interest do online checking accounts pay?

Checking accounts (especially those offered by branch-based banks) typically don't pay interest at all. However, some of the top checking accounts offered by online banks do.

Just like with other financial products like savings accounts and CDs, interest rates vary significantly between banks. And many banks have specific requirements to get their highest rates. Some online checking accounts that have APYs in the 0.25% to 1.50% range without any special requirements, as of April 2024.

Meet the Discover® Cashback Debit account

The Discover® Cashback Debit account is Discover's online checking account. It has no monthly maintenance, overdraft, or insufficient funds fees. Customers have access to fee-free withdrawals at more than 60,000 ATMs worldwide, and even get free checks. And there are no minimum balance or activity requirements.

At first glance, one major drawback is that the account doesn't pay interest. As I mentioned in the last section, some of its competitors do.

However, the Discover® Cashback Debit offers something that could be even better. Customers get a debit card that gives them 1% in cash back on as much as $3,000 in purchases per month. This is quite common as a credit card reward, but is a rarity among debit cards and can result in as much as $360 per year in cash back.

Here's why this can be even better than earning interest

Consider this simplified example. Let's say that you typically keep about $5,000 in your checking account. If you get an interest-bearing online checking account with a 1.00% APY, this means that you can expect about $50 in interest income over the course of a year.

Now let's say that you make $1,000 in various purchases using your debit card each month. Based on the Discover® Cashback Debit account's 1% cash back rate, this means you would earn $10 per month, or $120 per year, just for making your everyday purchases. If you use your debit card even more often, it's not hard to see how the rewards you get from the Discover® Cashback Debit account can be several times the interest you would get from an interest-bearing online checking account.

Is the Discover® Cashback Debit right for you?

The short answer is that the Discover® Cashback Debit account can be an excellent online checking account for you if you use your debit card enough to make it worthwhile. Many people don't make many purchases with their debit card, mainly using their checking account to pay bills and move money around to other accounts, and if this describes you, an interest-bearing online checking account could be a better idea.

On the other hand, if you're an active debit card user and are in the market for a new online checking account, the Discover® Cashback Debit account certainly belongs on your radar.