You’ve probably heard of Discover Financial Services, a publicly traded company (NYSE: DFS) that offers consumer-friendly credit cards like the Discover it Card. According to the Nilson Report, it’s among the United States’ 10 biggest credit card issuers.
What you may not know as much about is Discover’s online-only bank: the appropriately named Discover Bank. It offers a checking account, savings accounts, money market accounts, CDs, and retirement products, all of which are FDIC insured. This segment of the company competes with online banking heavyweights such as Ally Bank and TIAA Bank.
Discover Bank’s Cashback debit account is available to anyone with a Discover-branded credit card or existing Discover Bank account, such as a savings or money market account. It requires a minimum opening deposit of $25, but no minimum daily balance or monthly fee. It also comes with 50 free checks and offers fee-free ATM transactions at more than 60,000 ATMs in Discover’s U.S. network.
The real benefit of Cashback Debit is its rewards program. Every qualifying debit card purchase earns 1% cash back, up to $3,000 in purchases ($30 in rewards) each month. You can redeem your reward balance at any time and in any amount as a cash deposit into your Cashback Debit account or as a statement credit on your Discover credit card, if you have one. Rewards never expire. Discover waives the first eligible fee (such as a stop payment fee) on all new accounts.
Discover Bank offers a savings account with a current yield of 1.90% APY. There’s no minimum deposit amount and no need to maintain a minimum balance after your initial deposit. Outbound transfers are capped at 6 per month, with Discover assessing a fee of $15 for each additional one. There’s no limit on inbound transfers. If you attempt an outbound transfer but don’t have enough money in your account, you’re charged $30 per attempt.
Money Market Accounts
Discover Bank’s money market account currently yields 1.75% APY for balances less than $100,000, a minimum opening deposit of $2,500, and a minimum daily balance of $2,500. If your account drops below $2,500 at any point during a statement cycle, you are charged $10 at that cycle’s end.
Money market accounts come with free checks and a free debit card, but are subject to the same 6-withdrawal-per-period limit as savings accounts. Excess withdrawals also cost $15 per item, and non-sufficient funds (NSF) transactions cost $30 per item. Any balance over $100,000 yields 1.85% APY.
Discover Bank offers more than a dozen CDs, with terms ranging from 3 months to 10 years. All require a minimum deposit amount of $2,500.
With 30 days to go before your CD expires, you’re asked to redeem it or renew at the same rate and term. You have until 9 days after its expiration to redeem, after which the CD is automatically renewed. Yields range from 0.35% APY on the 3-month vehicle to 3.10% APY on the 10-year product, with the popular 12-month account yielding 2.50% APY. Early withdrawal penalties are as follows:
- 3 months’ interest for terms less than 12 months
- 6 months’ interest between 1 and 3 years
- 9 months’ interest for 4 years
- 18 months’ interest for 5 years
- 24 months’ interest for 7 years and up
Discover Bank lets you open an IRA account (Roth or traditional) with any of its CD products. There are no monthly maintenance fees. While these accounts are advertised as tax-free, you may have to pay tax and penalties on withdrawals made before age 59 1/2. You can roll over several types of retirement accounts, including 401ks, 457 deferred compensation plans, annuities, and other traditional or Roth IRAs.
Mortgage and Home Equity Loans
Through Discover Financial Services, Discover Bank offers access to mortgage, mortgage refinancing, and home equity loans. Its mortgage loans include a 30-year fixed rate, 15-year fixed rate, 15-year fixed rate FHA, and 5/1 adjustable rate vehicles. Refinance loans come in 30-year fixed, 15-year fixed, and 5/1 adjustable versions.
Discover Bank also offers student loans for undergraduates, graduates, and post-graduates (such as medical residents and law school grads studying for the bar). The bank doesn’t charge origination or maintenance fees on these loan products, which come with rewards (a one-time cash rebate equal to 1% of the value of a newly issued student loan) for maintaining a GPA above 3.0 or its equivalent.
To redeem this reward, you need to submit your transcript for the academic term covered by the loan within six months of its end date. Discover then reduces your loan’s principal by 1%. An interest rate credit of 0.25% also applies to accounts with auto-debit. Additionally, Discover Bank issues personal loans for non-students, including debt consolidation loans and loans for big-ticket purchases. Discover Bank doesn’t disclose interest rates for these loans on its website – you need to call for a personalized rate quote.
- No-Fee ATM Network. Discover works with the MoneyPass and Allpoint networks to provide fee-free ATM access at about 60,000 ATMs in the U.S. The bank’s online, mobile-friendly ATM locator marks these fee-free ATMs with orange pins.
- Google Wallet. Discover’s partnership with Google Wallet lets you store your Discover credit or debit card on your phone and pay for purchases without taking the card out of your wallet. Participating retailers include McDonald’s, Macy’s, CVS, Walgreens, Home Depot, Subway, and Petco.
- Mobile Check Deposit. Discover Bank has a pretty extensive mobile banking app that lets you deposit physical checks without visiting a branch or using the postal mail. Just enter the amount of your check, take photos of the front and back, and confirm your deposit.
- Gift Cards. Using the funds from your Discover savings or money market accounts (or any third-party bank account), you can purchase personalized, Discover-branded gift cards for $3.95 each. Denominations range from $20 to $500.
Discover Bank has a 24/7 customer support hotline and a slew of specific departments open during regular or extended business hours. Wait times longer than 10 minutes are rare, even during busy periods.
You might not even have to talk to a human: Discover Bank has a pretty sophisticated help center with a detailed knowledge base and FAQ section.
1. Direct Access to Consumer and Business Credit Cards
Discover Bank offers direct access to four credit cards for individuals and businesses. All come with useful perks.
- Discover it Card. Like the Chase Freedom card, Discover it offers 5% cash back on your first $1,500 spent in purchase categories, such as home improvement stores and movie theaters, which rotate quarterly. You get 1% cash back on all other purchases, without limit. These rewards can be redeemed for cash in the form of a check or bank account deposit, or for a gift card purchase.
- Discover it Card for Students. This one pays 2% cash back on up to $1,000 per quarter in purchases from gas stations and restaurants, and an unlimited 1% cash back on all other purchases.
- Discover it Miles. This card earns unlimited 1.5 miles per $1 spent on qualifying purchases, with no caps or restrictions. Your mile earnings are doubled during the first year, again with no caps or restrictions. Miles are worth $0.01 apiece at redemption against travel purchases and other items.
As a Discover credit card holder, you can also use the Discover Deals feature to earn between 5% and 20% cash back on purchases made through its online portal. This functions like theChase Ultimate Rewards and Upromise shopping portals: You choose from a list of about 200 online retailers on Discover’s website, click through to their respective sites, and make purchases with your Discover credit card. Cash back rewards then accrue to your account.
2. Convenient Payment With Google Wallet
Discover Bank partners with mobile payments provider Google Wallet, allowing you to make debit or credit payments at major retailers without actually swiping your card. Other major credit card issuers, such as Visa and MasterCard, also offer this service, as do brick-and-mortar banks like Citibank. However, online banks such as Ally Bank and Capital One 360 do not.
3. Full Line of Loan Products
Although many national brick-and-mortar banks offer lending services for homebuyers, refinancing homeowners, and folks who just need some extra cash, online banks often have limited or nonexistent lending services. For instance, Ally Bank only makes auto loans to its clients, and TIAA Bank only deals with folks who want to buy or refinance their homes.
By contrast, Discover Bank makes mortgage loans, refinancing loans, home equity loans, a full lineup of student loans, and personal loans for debt consolidation and big-ticket purchases.
4. 24-Hour Customer Service
Discover Bank features an online secure message feature and a traditional phone center. The former is open at all times except midnight to 7am eastern time on Sundays, but the customer service center is always open to take phone calls. While some online banks (such as Ally Bank) also offer 24-hour phone support, many – including TIAA Bank – do not.
5. No Fees for Checks
Even if they offer to cover the cost of your first book of personal checks, many online banks charge for the privilege of cutting a cashiers’ check or sending additional books of personal checks. For instance, TIAA Bank charges $10 per bank check and Capital One 360 charges $5 for every additional book of 50 checks that you order. Many brick-and-mortar banks charge similar fees: Bank checks cost $10 a piece at Wells Fargo, and Flagstar Bank charges $20 plus tax for 100 new checks.
By contrast, bank checks cut from Discover Bank’s money market accounts, savings accounts, and even CDs never cost anything. Discover also never charges for issuing checks to your account.
1. High Minimum Deposits for Money Market and CD Accounts
Discover Bank imposes minimum deposit requirements for its money market accounts ($2,500) and CDs ($2,500). Ally Bank and Capital One 360 both lack minimums on their money market accounts. TIAA Bank requires lower deposits – $1,500 for its money market and savings accounts. For traditional banks, opening deposit requirements are usually minimal – for instance, Wells Fargo’s money market account asks just $50 to open.
2. No Early Withdrawals for CDs
In addition to the high minimum opening deposit, Discover Bank’s CDs have another big limitation: You can’t cash them out early without incurring a penalty. This isn’t unusual, but no-penalty CDs have become more common in recent years. For instance, Ally Bank’s No Penalty CD offers an 11-month term with yields well north of 1% APY. Discover Bank’s closest analogue, the 12-month CD, comes with an early withdrawal penalty of 3 months’ interest.
3. No Brokerage
Discover Bank might offer more loans than many of its online bank competitors, but it’s not attached to a brokerage that could provide additional investment options for account holders.
Other online banks are much better in this department. For instance, Capital One 360 lets you link a checking, savings, or money market account to its Capital One Investing platform and trade stocks, mutual funds, ETFs, and options with your deposited funds. While Discover Bank does offer retirement accounts, they’re limited to CDs.
4. Past Legal Issues
Though Discover Bank generally enjoys high customer satisfaction ratings, it has seen its share of controversy in the past. In 2005, the Supreme Court of California issued a ruling against the bank which invalidated a class action waiver contained within its arbitration clause. Basically, the waiver prevented regular customers with relatively small monetary claims from joining class action suits against the bank. As a result of the verdict, Discover was forced to remove the class action waiver from its customer contract. If you’re looking for a bank with an unblemished record of customer service, look elsewhere.
5. No Business Accounts or Loans
Although Discover Bank does offer credit cards for small business owners, it doesn’t have any business banking accounts. Contrast this with TIAA Bank, which has separate checking options for small businesses, large businesses, and nonprofit organizations, as well as money market accounts and CDs for businesses of all types. Discover Bank can’t get you a business loan, either. While some other online banks focus solely on consumers, many traditional banks offer commercial loans as well.
Discover Bank offers an almost-full suite of online banking services, including checking accounts, savings accounts, money market accounts, retirement options, and CDs. It also connects its customers with several popular credit cards, which offer perks like cash-back rewards and online shopping discounts. Discover Bank issues several types of loans for students, home buyers, existing homeowners, and regular consumers who need extra cash. That said, better options for business customers would help attract even more users into the fold.
Have you had any experience with Discover Bank? Would you recommend it to others?