Store-Branded Debit Cards: Use Them or Lose Them?

Store-branded debit cards seem like a no-brainer.

They give customers an easy way to pay and earn perks without racking up debt, annual fees or qualifying for another credit card.

But are these cards really worth their rewards? And how do they affect your behavior and your bank account?

Here’s the good and the bad of store-specific debit cards.

First, the Good:

Store Debit Beats Credit

Although cash is still the most popular form of payment among U.S. consumers, debit cards are on the rise. According to the Federal Reserve Bank of San Francisco, the average American still uses cash for 40% of their monthly transactions, debit cards for 25%, and credit cards for 17% (checks and mobile payments round out the list).

That’s likely why big retailers like Target and Nordstrom jumped on the debit card bandwagon a few years ago.

With store-branded debit cards, budget-conscious customers don’t have to worry about paying for items later since they draw directly from their bank accounts now. That means there’s no risk of going into debt over a pair of shoes or a bag of potato chips.

Loyalty Has Its Perks

And the perks aren’t bad either. Target’s debit card delivers 5% off all in-store and online purchases as well as free shipping and an extra 30 days for returns.

The Nordstrom debit card works more like a rewards program. Shoppers earn two points per dollar spent and a $20 store gift card after netting 2,000 points. Other perks include reimbursement for in-store alterations and early access to annual sales.

Now, the Bad:

Cash Beats Store Debit

While store-branded debit cards can’t put consumers directly into debt, they also can’t provide the accountability of cash. When you have an envelope of pre-budgeted dollar bills, you know exactly how much you can spend. Once it’s gone, it’s gone.

Store cards, on the other hand, can lull consumers into overspending at one retailer instead of hunting for the best deals. For example, according to industry magazine American Banker, Target noticed an increase of more than 50% in spending among its store-branded debit card users.

Customers may be spending more because they no longer feel the pain of parting with their cash.

Liability Has Its Limits

Since these debit cards are for in-store (and website) use only, they don’t have the same fraud protections of traditional Visa- or MasterCard-branded debit cards, which go above and beyond federal guidelines to offer customers a zero-liability guarantee.

Since store-specific debit cards don’t have this tough fraud protection, a consumer’s liability depends on how quickly he or she reports the misuse. By law, debit card users are liable for up to $50 if they alert the card issuer within two days (although both Target and Nordstrom extend this period to four days).

After that, it gets a bit hairy.

Cardholders could be liable for up to $500 if they fail to notify the card issuer within 60 days. And if they wait even longer, they may never get their money back.

The Bottom Line:

When using store-specific debit cards, be vigilant. Keep a close eye on your bank account and be sure you’re not overspending in order to earn rewards.

Cash, we think, is the real no-brainer.

Need help creating a budget? Aren't sure if you can really live on cash and no credit cards? Check out Dave Ramsey's Complete Guide to Money and get started on your debt-free journey!