ConsumerWatch: Cash-Back Debit Cards Come With Drawbacks

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SAN FRANCISCO (CBS 5) — Most people don’t need more incentive to spend money. But some banks are trying to make it sweeter to spend by offering debit cards that let customers collect points, rewards or cash back.

Bank of America’s program is called “Add it Up.” US Bank has a program called “Flex Rewards,” while Chase calls their program “Ultimate Rewards.”

But banks aren’t doing all this out of the goodness of their hearts said Adam Levin, Founder and President of “They’re trying to do a few things. Lure you to a new card, increase the amount of business you are doing with them and trying to maximize the amount of fees they will make from the merchant,” Levin said.

Levin said while it’s generally a good idea to take advantage of rewards programs, there can be downsides. “With every pro, there’s a con,” he warned.

For example, most bank reward programs only offer bonuses on transactions that do not require a PIN code. Therefore, to get a reward you have to sign. Levin says that is because banks collect larger fees from merchants on non-pin transactions. “The bank gets paid more – in some cases, double,” Levin said.

There may also be other limitations. For example, Bank of America’s “Add It Up” program only gives rewards on items you buy on-line from selected merchants. While Chase charges a $25 annual fee for its “Real Cash” debit card program.

And some of the rewards may not seem very rewarding. U.S. Bank offers 0.5 percent back on non-pin debit card transactions. That works out to ten cents on a $20 purchase.

(© CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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