Discover Bank Review


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Are you looking for a bank with the best interest rates and no fees? An excellent option is Discover Bank. Yes, these are the same people who issue the Discover Card. This Discover Bank review will help you learn more about what Discover has to offer.

You can open savings accounts, rewards checking and even retirement accounts. And let’s not forget that Discover offers some of the best interest rates.

Although Discover Bank doesn’t offer local branch access, you can bank online or from your phone. And you finally may be able to say goodbye to bank fees and ATM fees.

discover bank logo
4.5
Overall Rating

Summary

Their savings account interest rates are some of the highest. You can earn 1% back on debit card purchases, and you have access to over 60,000 fee-free ATMs. There are zero account fees or minimum balance requirements for the savings and checking accounts. 

  • Competitive rates

    4.5

  • Fee-free ATMs

    4.5

  • Additional Fees

    4.5

Pros

  • Competitive interest rates
  • Free ATMs
  • Zero accounting fees

Cons

  • No small business accounts
  • Checking account does not earn interest

Is Discover Bank Online Only?

The first question you might have is can you only bank online with Discover. Well, the answer is “sort of”.

Yes, Discover Bank is “online-only” for most customers, but it is FDIC-insured. Their only physical branch is in Greenwood, Delaware. According to the 2010 census, Greenwood has a population of 973 residents. So it’s safe to say that most Discover Bank customers will probably never visit the Greenwood branch.

Online banking isn’t rare like it was 20 years ago. Back then, it was still uncommon to pay your bills online. Depositing paper checks was also a hassle. Today, you can do just about anything from your smartphone in a few seconds. 

If you rarely go to your local bank, Discover Bank can be a good option. They don’t charge account fees or require a minimum account balance. Discover also offers competitive rates for their savings and checking accounts.

However, Discover Bank doesn’t offer business bank accounts.

You may still keep a local bank account if you handle cash and coins. But you can always retain part of your savings at Discover to earn more interest.  

Discover Bank Fees

The best reason to consider an online bank is for the lack of recurring fees many local banks charge. 

Fee-heavy banks may only waive their fees by doing specific activities. You may need a certain account balance, enroll in direct deposit or make a minimum number of debit card purchases.

Discover Bank makes it easy to avoid fees. The minimum account balance is $0 for most accounts. And you don’t have to worry about inactivity fees if you make infrequent deposits or purchases.

For instance, you don’t have to worry about fees chipping away at your fully-funded emergency fund.

Discover Bank waives fees for these services:

  • Monthly account fees
  • ATM withdrawals at over 60,000 locations
  • Online bill pay
  • Insufficient funds
  • Overdraft protection
  • Standard checks
  • Official checks
  • Stop payment
  • Zelle money transfers to non-Discover accounts

Outbound wire transfers you initiate cost $30. You will also need to pay service charges for non-network ATM withdrawals. And if you have multiple account overdrafts, Discover may not waive the fee. 

What Discover Bank Offers

Discover Bank offers a variety of interest-bearing savings, checking and fixed income accounts. No account charges monthly account fees. Even better, you can earn some of the highest interest rates.

Online Savings Account

Maybe you want to replace your local bank. Or you may only use Discover Bank for sinking funds to save for future goals. Each Discover Bank online savings account is free to open. It also has no minimum opening deposit. 

Your entire balance earns over 5x the national average, according to the Discover website. Many local banks and credit unions may only pay between 0.01% and 0.15% APY interest. If you deposit $1,000 at Discover, you earn much more than that. In contrast, keeping that cash at a bank that only pays 0.01% APY only gives you $0.10. 

We’re talking a bit about interest rates in this Discover Bank review, but you can check the Discover website for current savings account interest rates.

Monthly Withdrawal limits

One “catch” with high-yield savings accounts is that you can’t make unlimited monthly withdrawals. Federal law only permits six withdrawals each calendar month.

Whether you open an online-only savings account at Discover Bank or a competitor like CIT Bank, you have the same withdrawal limits.

You will need a checking account to pay your monthly bills if you make more than six monthly withdrawals. 

Why We Like the Discover Bank Online Savings

  • No account maintenance fees
  • $0 opening deposit
  • All deposits earn over 5x the national average savings account interest rate

Why You May Want to Avoid

  • Up to six monthly withdrawals (a downside for all high-yield online savings accounts)
  • Doesn’t come with a debit card

Discover Bank Review: Discover Online Checking Account

The Discover Bank checking account can be a good option if you make debit card purchases. Your first $3,000 in monthly debit card purchases get a 1% cashback. You can earn up to $360 in cash rewards each year. Few banks offer a rewards debit card. 

Plus, there are no account maintenance fees. And you can also get free overdraft protection. Discover will also waive the insufficient funds fees that other banks charge. Mobile check deposit and online bill pay are free as well.

Unlike other online checking accounts, Discover doesn’t pay interest. However, you’re usually better off stashing your extra cash in a savings account to earn more. This is because most interest-bearing checking accounts have rates slightly higher than your local bank. 

These are some of the Discover Bank checking account’s best perks:

  • Earn 1% cashback on the first $3,000 in monthly debit card purchases
  • $0 in recurring fees
  • Over 60,000 fee-free ATMs
  • No-fee checking orders
  • Mobile check deposit
  • Free online bill pay

Free Overdraft Protection

Discover offers free overdraft protection. You can link another bank account to cover your cash shortage. 

Rewards Debit Card

Only a few banks offer rewards debit cards. Getting up to 1% back on debit purchases is exciting. 

You also have access to 60,000 fee-free ATMs across the United States. These ATMs are in the Allpoint and MoneyPass networks.

Free Paper Checks

Online bill pay is free. But you may still need to write a paper check sometimes. Discover doesn’t charge a fee to order paper checks. 

Zelle Money Transfers

Discover offers free money transfers with your friends who use a different bank using the Zelle app. Many large U.S. banks use Zelle, so now you don’t have to use PayPal, Venmo or Cash App to send or receive money. (For instant transfers, these apps usually charge a small fee.)

You and your friend only need an email address or phone number to transfer money. As a Discover Bank member, you can manage all transfer requests inside the Discover mobile app.

If your friend’s bank also uses Zelle, most transfers complete within minutes. But if their bank does not support instant transfers, the transfers are free but can take up to five business days. Also, your friend may need to download the Zelle mobile app to approve the transfer. 

Why We Like the Discover Bank Checking Account

  • No account fees or balance minimums
  • Up to 1% back on debit card purchases
  • Free paper checks

Why You May Want to Avoid

  • Cannot deposit paper currency or coins
  • Account balances don’t earn interest

Next in our Discover Bank review, we’ll talk about Discover Money Market accounts.

Money Market Account

The Discover Bank money market account is an interesting account option. Your account balance earns interest like a savings account. You can also make fee-free ATM withdrawals like a checking account.

This account has a minimum $2,500 opening deposit but has no account fees. At times, the best money market accounts have higher interest rates than a savings account. 

Interest Rates

Below are the current interest rates for money market accounts (as of August 19, 2020): 

  • Balances under $100,000 earn 0.65% APY
  • Balances $100,000 or over earn 0.70% APY

Your entire Discover Bank savings account balance earns 5x the nation average. See the website for details on current savings account interest rates.  

Withdrawal Rules

You can only make up to six monthly withdrawals like the high-yield savings account. If you estimate more than six monthly withdrawals, you will need to open a checking account. It might be more of a hassle, but with a checking account, you can make unlimited withdrawals.

Withdrawals are fee-free at the 60,000 Allpoint and MoneyPass partner ATMs. Zelle money transfers and online bill pay are also free. You can also request free paper checks and official checks.

Your money market account debit card purchases don’t earn 1% back like the Discover checking account.

Why We Like the Discover Bank Money Market Account

  • Entire account balance earns interest
  • Fee-free ATM withdrawals at 60,000 nationwide locations
  • Free paper checks

Why You May Want to Avoid

  • Minimum $2,500 opening deposit
  • Limited monthly withdrawals
  • Online savings accounts can earn more interest

Bank CDs

It’s also possible to earn fixed income with a Discover Bank certificate of deposit (CD). Each CD requires a minimum of $2,500 deposit. This starting balance is higher than some banks. Although the interest rates are competitive.

CDs can be less risky than investing in bonds but also earn less interest.

Savings account and money market accounts are adjustable. As central banks raise or lower their rates, your bank account interest rate fluctuates. 

When rates rise, you earn more interest income. But you earn less if rates decrease. A bank CD  can be a good option when you predict future interest rates to decline. Discover offers CD terms for up to 10 years.

Usually, the best CD rates are for terms of at least 12 months. A 12-month CD means you earn a fixed interest rate for the next 12 months. However, most CDs have an early withdrawal penalty. For instance, you forfeit the first six months of interest on a 12-month CD term.

CD Terms

Discover Bank’s current CD terms range from three months up to 10 years. Longer-term CDs usually have a higher interest rate. Although your money is inaccessible for more years.

Here are some of the current CD interest rates (as of August 19, 2020):

  •  12 months: 0.90% APY
  •  18 months: 0.90% APY
  •  24 months: 0.90% APY
  • 30 months through 4-year term: 0.95% APY
  • 5-year term: 1.05% APY

At the moment, the CD terms of at least 12 months can earn more than the savings account or money market account. These rates are competitive with other online bank CDs. They are a low-risk way to earn passive income while hedging against falling interest rates.

When the CD matures, you can renew the CD at the new interest rate. You can also withdraw your funds penalty-free and close the CD account.

Why We Like the Discover Bank CDs

  • A low-risk hedge against falling interest rates
  • Earn fixed interest income for the entire term

Why You May Want to Avoid

  • The minimum deposit per CD is $2,500
  • Early withdrawal penalties

Retirement Accounts

You can also open a traditional or Roth IRA Certificate of Deposit to help save for retirement. The CD terms and yields are the same as taxable bank CDs. The only difference is you only pay income tax once. You must report your taxable CD income on each annual tax return.

This can be a good option if you want to earn a fixed income without investing in bonds or dividend stocks.

IRA CDs can be a better option than bank CDs to minimize your taxable income. However, you can’t make penalty-free IRA withdrawals until you turn 59 ½ years old. Early withdrawals are subject to a 10% penalty plus income taxes.

Young investors with decades until retirement should consider investors in more aggressive assets. As you near retirement, you can focus on CDs that earn a steady income and have less risk. 

Also, the Discover Bank retirement accounts only let you own IRA CDs. You still need a separate account from your online broker to trade stock, bonds and index funds.

Traditional IRA CD

You fund a traditional IRA CD with pretax income. Doing this reduces your taxable income for the current tax year because your contribution grows tax-deferred. The only time you pay income tax is when you withdraw the cash from your IRA. 

You can no longer add new money to any traditional IRA when you turn 70 ½ years old. At this age, you have to start taking required minimum distributions. 

Roth IRA CD

All Roth IRA contributions grow tax-free. You pay income tax on the contribution amount. Because you pay the income tax upfront, you keep the full withdrawal amount.

You forfeit an immediate tax deduction. But predicting your tax bill in retirement can be easier.

Roth IRAs don’t require minimum distributions. Therefore, you can make new contributions after your turn 70 ½ if you earn taxable income. But, you can make penalty-free withdrawals until your account has been open for five years or turn 59 ½, whichever is later.

Why We Like IRA CDs

  • Earn fixed income and pay fewer taxes
  • Roth or traditional IRA CDs are available

Why You May Want to Avoid

  • Can’t make penalty-free withdrawals until age 59 ½
  • Too passive for young investors

Other Discover Products

Discover offers other products that can help you save money today. For instance, you can refinance your existing debt at a lower interest rate. 

Personal Loans

Maybe you have high-interest debt like a credit card balance. If so, consider getting a personal loan to consolidate your debt. Your repayment term options are between 36 and 84 months.

Discover personal loans don’t have an origination fee. This fee can be as high as 8% of the starting loan balance with other lenders. On a $10,000 loan, these upfront fees can be as much as $800. But at Discover, your upfront fee is $0.

Interest rates start at 6.99% APR. You can get a free rate quote to see your personal rate.  Refinancing to a lower interest rate can save you easily save you hundreds of dollars. 

Another neat option is if you can repay the loan in full within the first 30 days. Doing so means you don’t pay any interest on the loan balance.

Why We Like Discover Personal Loans

  • No origination fees
  • Same-day decisions

Why You May Want to Avoid

  • Other lenders may have lower interest rates

Discover Bank Review: Discover Student Loans

You can refinance student loans or apply for new private student loans at Discover.

Refinance Student Loans

Student loan refinancing is a good option when you can reduce your interest rate. There are zero upfront fees or prepayment penalties. You can also get a 0.25% interest rate deduction by enrolling in monthly auto-pay.

Discover lets you refinance federal and private loans. You must have at least $5,000 in student loans to refinance with Discover.

Both variable and fixed interest rates are available. Fixed-rate loans can be a better option for avoiding rising interest rates. This is because you pay the same interest rate for the entire loan term.

If possible, continue to pay the same amount as your old monthly payment (if it’s higher than your new payment). The extra cash pays off your loan balance quicker. As your principal gets smaller, your monthly interest charges decrease.

Private Student Loans

Both fixed-rate and variable-rate loans for upcoming college costs.

Loans are available for these education levels:

  • Undergraduate
  • Graduate
  • MBA
  • Health professions
  • Law
  • Residency
  • Bar exam

You can get an interest rate deduction by making interest-only payments while in school. Keeping a 3.0+ GPA helps you get a loyalty discount on future Discover student loans. Monthly auto-pay gives you a 0.25% deduction.

Why We Like Discover Student Loans

  • Can refinance federal and private student loans
  • Interest rate discounts available
  • Fixed-rate terms available

Why You May Want to Avoid

  • May forfeit federal loan repayment benefits
  • Must refinance at least $5,000

Positives and Negatives

Here are the pros and cons of Discover Bank.

Pros

  • Competitive interest rates for savings account and money market account
  • Earn 1% back on checking account debit card purchases
  • Over 60,000 fee-free ATMs
  • $0 opening account balance for savings and checking accounts
  • No monthly account fees

Cons

  • High opening account balance for money market account and bank CDs
  • Checking account balance doesn’t earn interest
  • Only one physical branch 
  • No small business account options

Summary

This Discover Bank review shows you that Discover is one of the best online banks for savings and checking accounts. You can earn a competitive interest rate to increase your net worth

The rewards checking account is great for debit card purchases while avoiding common bank fees. And the best part is that you can open an account with $0. 

Are you ready to open a Discover Bank savings or checking account? Tell us why or why not by leaving a comment below.