Debit Card Rewards: PIN vs. Signing

Debit or credit?  It’s a question that most consumers with debit cards are asked each time they swipe the card.  Your answer to the question will dictate whether you enter your personal identification number, or PIN, or sign your name to complete the transaction.  Most people don’t think twice about their answer.  They simply choose the one they believe is most convenient and least costly for them.  On the surface, it doesn’t seem to matter which one you choose, since the money ultimately comes from your checking account.  However, if your bank offers debit card rewards, you might have to pay closer attention to how you answer the debit or credit question.

Many banks offer rewards to their customers for the use of a debit card.  In most cases, the rewards are in the form of a cash rebate given as a percentage of total purchases made using the debit card.  This is usually something like 0.25% of the dollar amount of the purchase.  Some banks offer rewards in the form of points that can be redeemed for merchandise, gift certificates, or airplane tickets.  Some banks offer higher rewards when cardholders make purchases from select merchants.

Does the way you use your debit card – PIN or signature – have an effect on the rewards you receive?  You bet it does.

Most banks that offer rewards for debit card users only do so when the cardholders sign instead of

using their PIN; that is, when the cardholder uses the debit card as a credit card.  Those banks that do offer rewards for PIN purchases, offer a much lower rewards than that for signed purchases.  Not only that, depending on your bank and state laws, you could find yourself paying a fee when you use your PIN instead of signing for your purchase.  This could be a fee of 25 cents or more for each transaction or a flat-rate monthly fee.

One of the primary reasons that banks offer rewards for debit card users when the signature is used is because the banks themselves receive a “reward” from the merchant.  Merchants pay banks a transaction fee each time a credit card is used.  When you, the debit cardholder, sign your receipt instead of entering your PIN, the bank receives more money from the transaction.  This is why you receive a higher reward for signed transactions over PIN transactions.

If your bank offers rewards when you use your debit card, do your research to find out if these rewards are contingent upon how you use the debit card.