Discover Bank Review

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As regular readers of the Dough Roller know, I use the Discover it® for daily purchases. It has no annual fee and you can earn up to 5% cash back (actually, you can earn up to 20% cash back with some online retailers). What you might not know is that the Discover family of companies include an online FDIC-insured bank. Called simply enough, Discover Bank, it offers some of the highest available interest rates on online savings and money market accounts. And if you already carry a Discover credit card, there are some nice features that integrate your credit card with Discover Bank.

So let’s take a quick look at the types of accounts Discover Bank offers, including how to open an account and the fees charged by Discover Bank.

Discover Bank’s Products and Services

Discover Bank offers four account types: a money market account, online savings account, certificates of deposit (CD) and an IRA CD. Each of these account types offer different interest rates and different access to your money.

Money Market Account: Discover Bank’s money market account is similar to an interest-bearing checking account with one exception: customers are limited to 6 pre-authorized withdrawals per statement cycle, including automatic or telephone transfers. Any withdrawals over the permitted 6 per statement cycle incur a $15 fee per withdrawal. Now you may be asking why Discover Bank imposed this limitation. The short answer is that it is required to under federal law. I won’t dive into the details, but banking regulations prohibit banks from paying interest on certain transaction accounts. To comply with these laws, money market accounts are limited to six withdrawals per statement cycle, and they impose fees to discourage customers from exceeding this limit. In short, all money market accounts have this limitation, but in normal economic times, money market accounts typically pay higher interest rates than other demand accounts.

Setting up direct deposit into a money market account at Discover Bank means that customers can earn interest on their money while still having easy access with a Discover Debit (ATM) card, check, online transfer, or even with a Discover credit card. An initial deposit of $2,500 is required to open a Discover Bank money market account, and a $2,500 balance must be maintained to avoid fees. If you stay above $2,500 and the withdrawal limits, there are no fees associated with this account except for special services (e.g., wiring money, ordering checks).

Online Savings Account: While the Discover Bank online savings account is similar to the money market account, there are some important differences. First, the minimum required opening balance is just $500. Second, the interest rate is generally higher. While both of these differences favor the online savings account, there is one important difference that favors the money market account–access to funds. With the saving account, you withdraw money from your account through an online transfer to your checking account (wherever you bank), wire, or official bank check. You cannot write checks against the account or use a Discover debit card or credit card to gain access to your money. As with a money market account, you are limited to six pre-authorized withdraws each statement cycle, with additional withdrawals cost $15 each. So with the online savings account, you give up some methods to withdraw funds, but you gain a lower initial deposit and higher interest rate.

You can also set up automatic transfers from your existing checking or savings account. This is a useful way to automate your savings, whether to build up an emergency fund or to save for a future purchase.

To check out Discover Bank’s current online saving account rates, visit the up to the minute interest rates at Discover Bank.

CDs and IRA CDs: Discover Bank offers both a traditional certificate of deposit and an IRA CD designed specifically for retirement savings. The traditional CD is available with terms from 3 months to 10 years. With rates currently as high as 2.45%, Discover Bank makes it easy to accumulate interest that can be reinvested in the CD or transferred to another account. With the IRA CD, Discover Bank offers both the Roth and traditional IRA CDs. And you can rollover a 401(k) or transfer an IRA to Discover Bank. The interest rates for a given term are the same for both the CD and IRA CD products.

Both the CD and IRA CD offer what Discover Bank calls a “no penalty” feature. If you involuntarily lose your job, you can withdraw your funds penalty-free. There are limitations and restrictions on this feature (e.g., it only applies to the 12-month CD or IRA CD), so be sure to review the terms on Discover Bank’s website.

Discover Bank’s Website and Customer Service

When you are dealing with an online bank (or anything online for that matter), the website and customer service are very important. Having used the Discover credit card site for a long time, I know first-hand that it is one of the easiest most feature-rich sites I’ve ever used. The Discover Bank site, while not as robust as the credit card site, is easy to use and offers a number of nice features.

First, Discover Bank offers 24 hour telephone customer support. Whether you have questions about opening an account or an existing account, you can talk to a Discover Bank representative 24/7. Second, the Discover Bank website offers a number of useful financial calculators, including a savings calculator and a tool to forecast your retirement savings. Finally, Discover Bank offers money management tips and advice.

If you like more information visit the secure website for Discover Bank.

Published or Updated: August 20, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. Garlicbulb says:

    Sty away from Ally Bank. Their website doesn’t accurately show transactions and they are really hung up on paperowrk

  2. John Doe says:

    There was some confusion with some transfers between Discover and Chase where I believe I was incorrectly charged fees.

    Chase quickly refunded their fee without admitting any fault, making this customer happy with Chase.

    Discover didn’t do the same.

  3. john says:

    they double “pulled” my initial ECH deposit from my bank and denied responsibility. Seems kinda amateurish. is 1/2 of 1% worth this?
    Would not do it again but plan on seeing how it goes at this point.
    ING or capital one might be better choices.

    • scott says:

      They did this to me today. I understand why it happened. Their website is not very clear about the initial deposit. When you first open the account you enter the amount you want to deposit, then go through the trial deposits. After they go through you get to fund your account… at which point you added another transfer request and… they double.

      Stupid process. I talked to a supervisor about it and said she would bring it to management.

      Hopefully I can talk my local bank out of the non sufficient funds fee… Which eats up any interest payments I would have gained from this whole endeavor… :-o

  4. flyercab says:

    I opened a Discover Bank savings account several years ago. Ease of use has been a big plus for me. I’ve had reason to call them on several occasions and the customer service results of the situation were always to my liking. I’m sold on it.

  5. Tem Roka says:

    I should have seen the warning signs. When I first opened the account in August 2011, Discover tried to pull the initial deposit amount ($9,000) THREE TIMES from my other bank, resulting in multiple overdraft charges of $105. When I asked my bank about this, they told me that I needed to get refunded from Discover and of course Discover told me otherwise. So basically I had to fight with both banks and then eventually closed off my original bank account (since their service was worse than Discover’s). What a mistake.

    Things were going well for a while with Discover as I had a regular deposit in place. But after unacceptable delays in money transfers and having to wait almost a week for each transaction to occur, I decided to pull out from Discover and open a HSBC bank account that only takes 3 days per transfer. As I was pulling out all my money, of course Discover did what they do the best-they repeatedly tried to “transfer” money into my other account multiple times, resulting in $35 overdraft fees. When I called Discover to ask how on earth this multiple pull happened, they explained that I logged on and transferred the money multiple times myself (they even got a tech person at Discover to verify this!). This was the most insane excuse I have ever heard. And all of this mysterious ‘transfer’ that I requested all occurred after I emptied out my account. When I asked them “why would I try to make transfers from an empty account?”, they were like, “I can see that this doesn’t make sense and there must have been a mistake”. So I asked for a refund for the $35 fee they charged but they told me that was impossible.

    I realized that this is how Discover penalizes people who empty out their accounts–they falsely charge you with fees based on a fake transfer that their system creates. This is the most unbelievable experience I have ever had with a bank. I truly believe that Discover bank is committing a crime through their fraudulent practices.

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