Are rewards debit cards the new credit cards? A brief history and the best options to consider

Debit cards that earn rewards were effectively obsolete thanks to a 2011 federal amendment limiting interchange fees. But recently, co-branded debit cards have begun to fill that void.

That’s largely because smaller companies, often partnering with banks, have been able to launch rewards debit cards even as major banks have largely stayed on the sidelines.

Debit cards come with a few security risks compared to using a credit card, but they serve a purpose and can be attractive to those worried about accruing debt. With that in mind, should you use a rewards debit card? And how do they compare to credit cards?

CNBC Select breaks down what exactly happened to rewards debit cards, how they’ve evolved and where they can fit in your wallet.

Many banks use debit cards as a way to get people to spend the money in their checking account. And before 2011, many offered rewards for debit card spending as a way to encourage customer loyalty.

Much like credit card rewards, debit card rewards programs were often fueled by swipe fees, or the total charge a business pays whenever a customer makes a purchase using a credit or debit card. Prior to 2011, big banks could charge high enough fees to support offering debit cards that earn rewards. But when the Durbin Amendment was enacted, that shifted things.

Implemented on the heels of the 2008 financial crisis via the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Durbin Amendment capped debit interchange fees for issuers with $10 billion or more in assets. It was based on the idea that debit card swipe fees were too costly for merchants and needed to be capped.

From Jan. 1, 2011, to Sept. 30, 2011, before the amendment took effect, signature debit cards from banks with more than $10 billion in assets averaged a swipe fee of 59 cents. From Oct. 1, 2011, to Dec. 31, 2011, after the amendment went into effect, this dropped to just 24 cents — almost a 60% cut.

“The interchange wasn’t there to then fund the value proposition,” Dan Dougherty, partner at Marketgate Advisors, a financial services and consulting firm, told CNBC Select. As such, large banks began to have second thoughts about debit products.

Once the Durbin Amendment passed, all development of rewards debit cards “came to a screeching halt,” Jonathan Clarkson, founder of The Carlisle Advisory and previous vice president and chief product officer at Southwest Airlines, told CNBC Select. “We were about to launch a program at Southwest, and then just entirely shelved it for economic reasons.”

However, smaller banks unaffected by the Durbin Amendment cap didn’t suffer as much, with the average interchange fee dropping from 54 cents to 51 cents. That exemption for smaller banks ultimately paved the way for the return of rewards debit cards.

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Those partnerships may, in part, exist because there’s still strong demand for debit cards. Debit cards have been Americans’ most preferred payment method for in-person purchases over the past decade, according to the Federal Reserve’s 2026 Findings from the Diary of Consumer Payment Choice.

“There’s just certain customers who are simply debit-embracing or credit-averse,” said Clarkson, pointing to the long-standing stability of debit card usage in both good times and bad.

Clarkson sees brand loyalty as one of the biggest factors toward rewards debit cards attracting users. “To what extent can somebody’s loyalty for that particular brand drive these tools to the top of wallet?” he said, adding that the rewards should align with customers’ everyday spending habits.

The Venmo Debit Mastercard® lets you choose from customized bundles (or groups of select merchants) where you earn cash back on your transactions. The exact amount of cash back you earn depends on which Venmo features you’re taking advantage of:

• 1% is the default cash back at your bundle merchants
• 2% if you turn on low balance automatic reloads (you don’t need to use it, just enable it)
• 5% when you receive $500+ in direct deposits each calendar month

One downside to the Venmo Mastercard is that the monthly rewards are capped at a maximum of $100 cash back. Once you hit that limit, you won’t earn any rewards until the first day of the next calendar month.

With the PayPal Debit Card, you choose a category each month to earn 5% cash back on up to $1,000 in monthly category spend. You can choose from groceries, restaurants, apparel, fuel and rideshare and public transit, with temporary or seasonal categories offered periodically.

The PayPal Debit Card can only earn up to $50 in rewards per month, which is a lower cap than the Venmo debit card. But you don’t need to meet a direct deposit requirement each month to earn the 5% back, and you can stack rewards with offers in the PayPal app.

Finally, the Southwest Rapid Rewards® Debit Card earns Southwest Rapid Rewards® points, which often provide the most value when redeemed for Southwest flights. The card earns 1 point for every $1 spent on Southwest purchases and on qualifying dining and subscription purchases (including utilities and streaming services). You’ll also earn 1 per $2 spent on qualifying everyday purchases.

Unlike the monthly fee-free debit options listed above, the Southwest debit card charges a $6.99 monthly fee. It’s waived if you keep an average monthly balance of $2,500 or more.

If you’re looking to maximize your rewards potential, a rewards credit card is much more effective than a debit card.

While Dougherty believes that rewards debit cards clearly have a place in the market, they still fall short of what credit cards can offer. “The value is always going to be greater on a credit card. The economics is there, right?” he said.

A critical part of using a credit card is being able to make payments on time, and ideally in full. You should treat your credit card as if it were a debit card, only buying what you can afford. Credit cards can also be a better choice for larger purchases, as they have better dispute options. Plus, many come with purchase protection, extended warranty coverage or return protection.

Credit cards can also help you build credit, while debit cards typically don’t because debit card transactions aren’t reported to the credit bureaus. If building credit is your goal, a secured credit card or a low-limit starter credit card could be a much better fit than a debit card.

Rewards credit cards to consider

If you’re ready to make the switch from debit to credit, these cards offer a low-cost way to start building credit while earning rewards when available.

The Chase Freedom Rise® (see rates and fees) is geared to those with limited-to-fair credit, has a $0 annual fee and earns 1.5% cash back on all purchases. For a limited time, new cardholders can also earn 3% cash back on dining at restaurants, including takeout and eligible delivery services, on up to $6,000 spent in the first six months from account opening.

Concerned about overspending? Consider a secured credit card, where your credit limit is typically equal to the security deposit you put down. While the Capital One Platinum Secured Credit Card lacks a rewards program, you can open your account with a $49, $99 or $200 minimum deposit, and you’ll have an initial credit line of at least $200 regardless. Responsible card usage, like making on-time payments, can help you get automatically upgraded to an unsecured Capital One Platinum Credit Card.

If you already have a good credit score and are simply worried about paying your bill on time, the Citi Double Cash® Card can help keep you accountable. The card earns 1% cash back when you make a purchase and awards you an additional 1% back when you pay off your purchase.

• Dan Dougherty, partner at Marketgate Advisors, LLC; previously executive vice president, head of partnerships and branch cards at Wells Fargo

• Jonathan Clarkson, founder of The Carlisle Advisory; previously vice president and chief product officer at Southwest Airlines

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