Zerocard: A debit-like credit card for credit-shy consumers

If you crave rewards, but are wary of overspending on a credit card, it can be tough to find a satisfying card you can use for all your purchases.

A handful of debit cards continue to offer rewards programs, but the rewards are puny compared to what you can get on a more traditional credit card.

Meanwhile, American Express offers a number of high-earning charge cards that are popular with debt-wary consumers who want guardrails attached to their rewards. (With a charge card, you have to pay off each purchase in full each month.) However, Amex charge cards cost anywhere from $95 to $550 a year to own and so are inaccessible to many cardholders.

Enter Zero, a credit/debit card hybrid that’s technically a no-annual-fee credit card, but is designed to function more like a rewards-granting debit card. The San Francisco-based startup behind the Zerocard recently received a huge infusion of funding, and on July 30 it announced the card was available to the public. (The firm also invited consumers who had signed up for a waitlist to apply for the card.)

If you’re wary of signing up for a more traditional credit card, it’s worth taking a closer look at the Zerocard. Unlike some of its debit card competitors, the Zerocard offers a competitive rewards program that rivals some of the best no-annual-fee credit cards.

However, it also charges an exceptionally high APR, so you’ll want to avoid using this card like a regular credit card and carrying a balance.

See related:  Amazon rolls out new secured store card

Generous rewards for the well-off or connected

If you’re a moderate to heavy spender, you could earn significantly more rewards using the Zerocard than you would with other no annual fee rewards cards. The Zerocard has a tiered rewards program that offers 1-3 percent cash back on every purchase.

However, you either have to spend a substantial amount every month in order to earn the card’s best bonuses – or you have to convince a significant number of friends to sign up for their own Zerocards.

For example, if you want to earn 1.5 percent cash back, you’ll either need to spend at least $25,000 a year (around $2,083 in monthly spending) or refer a qualifying friend to the Zerocard. If you refer two friends – or spend $50,000 a year (about $4,167 monthly) – you’ll earn 2 percent cash back. To unlock the card’s highest rewards rate – 3 percent cash back on every purchase – you need to refer four friends or spend at least $100,000 a year.

There are certain conditions your referred friends must meet in order for you to climb Zerocard’s rewards tier. They must apply and be approved for Zerocard, then make two qualifying purchases and receive two qualifying direct deposits (no less than 30 days apart) to their Zero checking account.

All other cardholders earn just 1 percent cash back, which is comparable to what some of its debit card competitors offer.

Discover’s Cashback Debit card offers 1 percent cash back (up to $3,000 in monthly spending), while the Green Dot Cash Back Visa Debit card offers 5 percent cash back. The Green Dot card limits annual earnings to $100 a year, though, so you are essentially only getting cash back on $2,000 worth of purchases.

See related:  Venmo set to launch new credit card in 2019

Debit-like benefits

What really sets the Zerocard apart, though, is its unique status as a credit card/debit card hybrid.

The Zerocard is technically a credit card, so you’ll get credit for on-time payments on your credit report – a perk that debit cards can’t match. However, you can also link it to a Zero checking account and authorize automatic payments so it functions more like a debit card.

The Zero app will also keep a real-time tally of your spending and your checking account balance so you can keep track of how your spending is draining your account. For example, when you make a purchase using your Zerocard, the app will subtract the amount from your balance, showing you what’s left in available cash.

Psychologically, that kind of real-time tally can be helpful: You may be less likely to overspend if you see that your checking account is getting closer to $0. A tally of your growing credit card balance, on the other hand, may be less potent – especially if you have the option of paying back just a fraction of the balance each month.

You also have the option of using the Zerocard like a credit card; but if you do, it’s a much less attractive card.

See Related: Debit vs Credit cards: What’s the difference?

Expensive to carry a balance

Like many competitive credit cards, the Zerocard doesn’t charge a foreign transaction fee, nor does it charge a penalty rate or annual fee.

However, it does charge a notably high interest rate, even for a rewards card. No matter what your credit score is, you’ll be charged a single 24.99 percent APR if you qualify for a Zerocard – which is well above average for a general market credit card. The average rewards card, for example, charges a minimum APR of 17.57 percent.

The Zerocard’s single APR is instead closer to the average maximum card APR. For example, according to CreditCards.com data, the average credit card charges a maximum APR of 25.13 percent.

If there’s a chance you’ll carry a balance, you’ll want to steer clear of the Zerocard since you could get into significant trouble if you rack up more debt than what’s available in your checking account. You may also forfeit your rewards: Zerocard says you’ll only receive the full cash back amount if you pay off your balance in full using a Zero checking account.

See related:  New Apple Card to offer 3 percent cash back on Apple purchases

Bottom line

The Zerocard offers an attractive rewards program for moderate to heavy spenders and a unique app that could potentially help you rein in your spending and avoid charging more than you can afford to repay each month. The chance of forfeiting your rewards if you fail to pay off your balance in full each month may also help motivate you to charge more wisely.

But the Zerocard also requires a substantial amount of spending in order to regularly receive at least 1.5 percent cash back, which may tempt you to charge more than you should.

Its high APR also makes it fairly risky. If you’re looking for the safest credit option, you may be better off choosing a lower rate card instead and setting up automated payments.