Discover Bank Review

Discover is known for its high-interest savings accounts and a cash back debit card, which offers 1% back on up to $3,000 per month. The company was founded in 1986 and maintains its headquarters just outside of Chicago in Riverwoods, Illinois. Their services are mostly online — and their lone branch is located in Greenwood, Delaware.

We like Discover Bank’s ease of use and lack of fees. If you’re overwhelmed by having too many separate accounts, Discover could become your one-stop shop for banking, in part because this bank merges all your account details under one login, so you only have to remember a single username to access every account you have with them. Best of all, their interest rates are great compared to the competition.

How Discover Stacks Up

Pros
  • High-savings APY
  • No-fee checking and savings accounts
  • 1% cash-back debit card
Cons
  • A single physical branch location
  • Need $2,500 to open a money market or CD account
  • No first mortgage or auto loan products

 

What’s interesting about Discover Bank

Discover offers one of the only cash back debit cards, which can return up to $300 per month in return for its users spending $3,000 or more. For customers who already regularly use a debit card, this could be a way to earn while spending. Add in other benefits such as overdraft protection and no ATM withdrawal fees, and you have an excellent banking option.

Not to mention, Discover offers a high-yield savings account at 1.90% APY. This rate is competitive with other online banks, especially since it doesn’t require a minimum deposit to open.

Things to consider

If you prefer to bank in person, Discover might not work for you. Its services are mostly online; the bank only has one branch location in Delaware. With that said, Discover’s customer service center is open 24/7 and available via a quick phone call.

Also, opening a money market or a CD account with Discover requires a minimum of $2,500. For those of you who wish to open one of these accounts but don’t have that much saved up yet, Discover may not be your best choice.

Checking and Savings Accounts

The 1% cash back offer on Discover’s debit card is one big benefit to members, but it’s not the only valuable feature. The bank doesn’t charge fees to open or maintain an account. Discover also offers free standard checks, free replacement debit cards and free online bill pay. At a time when banks are ramping up their fees, Discover stands out in the crowd.

Discover’s savings account rates are 1.85% APY, which is high compared to many of its competitors. On top of that, there’s no minimum for the initial deposit. So, you can open a Discover savings account today with zero dollars down and build up your savings over time without facing a penalty.

Also, because Discover is primarily online, it’s important for its web services to function well. The bank allows you to log in to all your accounts with one username and password, which makes it easier for you as a customer to manage your money. Also, the Discover Bank app is well-rated by customers and can be used on the go. One innovative app feature is the Quick View, which allows you to see your balances without logging in each time.

Money Market Accounts

Some customers want to look beyond the standard savings account. Discover’s money market account enables customers to earn 1.70% APY for balances under $100,000 and 1.76% APY for balances over $100,000. It’s a decent rate compared to the competition, but there are other banks with a higher yield. The APY is lower than Discover’s savings account, but it gives you faster access to your money than a savings account via debit card and checks.

One unique feature of a Discover money market account: you can sign up for online bill pay. Typically, only checking accounts allow for online bill pay, but Discover allows money market customers to pay up to six bills per month without a fee.

To open a money market account through Discover, you must deposit at least $2,500. If your account falls short of that, you’ll pay a $10 monthly fee. For customers who have a large enough deposit to avoid the charge, Discover’s money-market account could be an enticing option.

CDs

Discover also offers great rates on its certificate of deposit accounts. As with all CDs, the longer you leave the money alone, the more you make. You can choose a term from 3 months to 10 years, but you’ll get a great rate of 2.20% APY starting at the one-year term. A 10-year CD comes in even higher at 2.40% APY.

To open a CD account with Discover Bank, you’ll need a $2,500 initial deposit. If you need to withdraw the money before the term is up, Discover will charge a penalty on the simple interest you have accrued. The amount of the fee depends on the length of the account’s life. CDs are great options for the money you know you won’t need to touch while it’s earning interest.

Credit Cards

Discover’s It credit card offers a 0% annual percentage rate for the first 14 months. After the introductory period, the APR rises to between 13.99% and 24.99%, which is comparable to many other card offers. The company also offers more tailored credit cards, like the Business card, Travel card, and Student Cash Back card. This last option gives students a $20 credit each year for keeping up their grades.

Discover’s It card gives 5% cash back for spending on rotating items like groceries, restaurants and gas each quarter. Members must sign up to receive these cash back rewards. However, the credit card also offers an automatic 1% back on all purchases, whether or not your expenses are one of the qualifying items that quarter. Another bonus: at the end of your first year, Discover offers a cash back match straight into your account for the total amount of rewards you have received throughout the year.

Personal Loans

The primary reason borrowers get a Discover personal loan is for debt consolidation. This is due to low interest rates, the option of direct payment to creditors and flexible repayment options. If you do opt for a debt consolidation loan, you have to use at least 70% of the loan for that purpose. However, you can get personal loans for other reasons, including home repairs and other large expenses. However, you cannot use the loans for college or to pay off either secured credit cards or a Discover card. This is in part because Discover has its own private student loan product.

Terms vary from three to seven years, and interest rates, while low, vary depending on your credit history, the amount you borrow, and your ability to repay. You’ll need good credit to qualify, with a minimum score of 660. Most borrowers have a much higher score, and you’ll need to make a minimum of $25,000 a year, although the average amount borrowers earn is much higher.

While there are no origination fees, there is a $39 late fee should you pay late or miss a loan payment. If you have good credit and on-time payment history, Discover personal loans may work well for you.

Mortgage Loans

Discover does not offer mortgage loans for new construction or if you are buying a home. For those types of loans, you’ll have to shop around elsewhere, using a product like Rocket Mortgage or more traditional lenders, such as Chase or Wells Fargo.

Mortgage Refinancing

A mortgage refinance replaces your current mortgage with a new one, hopefully with better rates and more favorable terms for your financial situation. However, Discover does not offer mortgage refinancing products. It does offer home equity loans and home equity lines of credit to draw on your existing home equity and add cash flow without replacing your mortgage.

Home Equity Loans & HELOCs

All of Discover’s home loan products fall under the home equity umbrella. Home equity allows you to borrow on the equity of your house without replacing your original mortgage. For example, if your original mortgage was $200,000 and you’ve already made $60,000 of payments, then you have $60,000 in home equity.  Loan amounts can range from $35,000 to $150,000 depending on your needs. Terms include 10, 12, 15, 20, or even 30 years, and you can borrow between 70% and 95% of the home’s value depending on your credit score and the current lien position. You’ll also need a fair credit score of at least 620 to qualify. Your debt-to-income ratio cannot be higher than 43%.

On the plus side, there are no application fees or origination fees, and you won’t have to come up with any cash at closing. That can mean big savings: closing costs are often between 2–5% of the overall loan amount. Rates are fixed as are the payments, which are both big advantages when it comes to budgeting. However, if you’re looking for the potential savings and flexibility a variable rate loan might offer, Discover does not offer one.

Unfortunately, Discover does not offer home equity lines of credit, which let you draw upon your home equity over a certain period of time before paying it back.

Student Loans

Discover provides private student loans as part of its services as well. Through this product, Discover offers both variable rates at 3.12–11.62% and fixed rates at 4.74–12.99%. Qualifying customers who want to refinance their existing student loan debt can find that rates are even lower. Student loans from Discover can be used for undergraduate, graduate, nursing and medical school, law school and even paying for taking the bar exam. Unlike the other loan products offered through Discover, there is an option to add a cosigner

The only drawbacks are that there are only 10- or 20-year options and when you apply, Discover will run a hard credit check before you can see what your rates are or if you even qualify.

If you want to refinance student loans or need to bridge the gap in your graduate or undergraduate studies, Discover may have an option for you.

Car Loans

Discover does not offer auto loans directly, but a personal loan through Discover can be used to purchase a vehicle. If you are looking for a traditional auto loan, consider lenders like LightStream or Capital One. Capital One has a nifty Auto Navigator Tool to help customers search for cars and discover what best fits their budgets.

The Final Word

Who would get the most out of banking with Discover? Anyone who’s comfortable with online banking and would like to have easy access to all of their accounts from a single log-in. This bank also could be the right choice for people who are building their savings from scratch but still want a competitive interest rate.

Who’s not a perfect fit for Discover? Because of its lack of physical locations, anyone who likes to do his or her banking in person might not want to go with Discover, and any customer hoping to open a CD or money-market account with less than $2,500 would need to look elsewhere.