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Debunking debit card rewards programs

If you have a credit card rewards program, and think you can get a similar one with your debit card, think again.

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By Gerri Willis, CNN personal finance editor

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For more information on managing your largest investment, check out Gerri Willis' 'Home Rich,' now in bookstores.

NEW YORK (CNNMoney.com) -- Debit cards: more and more consumers are swiping them. Issuers are taking notice and rolling out more rewards programs. But are debit reward programs all they're cracked up to be?

1. Debit cards are used more than credit cards

Right now, over half of transactions are from debit cards -- not credit cards according to TowerGroup.

By 2015, debit card transactions will account for nearly 60% of purchases. And, just like credit card reward programs were so popular, by the end of this year, more than half of debt card issuers will have a rewards program.

These programs are similar to what you'd get with a credit card: cash back rewards, frequent flyer miles, earning points with a specific merchant. But there's one BIG difference between credit card reward programs and debit card reward programs. Namely -- debit card reward programs are greatly watered down.

To get $100 in cash back rewards on a credit card, you have to spend $10,000. To get the same amount of cash back with a debit card, you'll have to spend double that, $20,000.

If it's travel rewards you want, to get $100 in value, you have to spend over $33,000 on a debit card, compared to about $16,500 on a credit card. That doesn't sound like a great deal to me.

Why the large discrepancy in what you get? Simply put, issuers don't make as much money with debit cards as they do with credit cards.

2. Don't get distracted

Don't get distracted by the rewards program says Brian Riley of TowerGroup. There are much more important things you need to know about a debit card.

What are the fees? Understand what the policy is regarding clearing checks. If you have $300 in your account and you write two checks that are pending ... one for $100 and the other for $400, some banks will clear the highest amount first triggering an overdraft fee. If you get two of these overdraft fees, there goes your rewards program advantage.

3. Debit vs. credit

Debit cards just aren't as safe as credit cards. This is a card that is linked directly to your checking account.

So, if fraudsters get a hold of your checking account, you could be exposed to ID theft. Although most banks have voluntarily extended zero liability to debit cards if there are fraudulent charges, there are no federal requirements says Curtis Arnold of Cardratings.com.

So, if you're buying something online or you're buying a big ticket item, sometimes a credit card is the better bet.

-- CNN's Jen Haley contributed to this article.

Got a financial dilemma? Go to CNNMoney.com/helpdesk to submit questions, read the Help Desk articles and check out new Help Desk videos. And tune in to CNN's Newsroom Tuesdays and Fridays, when Gerri Willis and other experts answer your questions.

Talkback: What do you think about your debit card rewards program? Tell us and share your comments below. To top of page

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