Discover Credit Cards: Advantages and Disadvantages

Visa and Mastercard are the two largest credit card companies in the world, so it’s no surprise that people these two names come to most people’s minds when they think about credit cards. Together, these two networks have more than 75% of the global credit card market when it comes to purchase transactions. American Express, which is another popular card network comes in at just under 3%.

While these three names have traditionally dominated the credit card industry, there are other, smaller players that compete. One of these names is the Discover credit card. Although it may not be a household name like the others, it does provide cardholders with some of the same perks and benefits as its counterparts—plus a few of its own. Keep reading to learn more about Discover and how it works.

Key Takeaways

  • Although the credit card network industry is dominated by Visa and Mastercard, smaller players like Discover share a piece of the pie.
  • Discover launched its credit card with cashback rewards and no annual fees in 1986.
  • Its cashback rewards remain among the highest in the industry.
  • The company offers eight major credit cards today, each of which carries different terms and rates.
  • Discover has consistently ranked high in customer service and satisfaction among credit card companies.

History of Discover Card

The Discovery card was developed and tested in the mid-1980s by Dean Witter Financial Services Group, a subsidiary of Sears. It was introduced to consumers in a national ad campaign during Super Bowl XX in 1986 and was officially rolled out that same year.

One of the main goals of the Discover card was to set itself apart from the competition at a time when the market became saturated with credit cards. Cardholders enjoyed an option with no annual fee, which was a rarity at the time. Discover also offered cardholders an innovative new perk: cashback rewards or the promise of returning a small percentage of every purchase amount in cash money on their accounts.

Discover’s cashback perks may have attracted consumers but it didn’t catch on with merchants at first. In fact, only major airlines, rental-car companies, and big retailers like Sears accepted the card. In the mid-2000s, agreements with foreign payment networks, like Japan’s JCB and China’s UnionPay, greatly increased its usage abroad. As the fifth-largest card network in the world, Discover had over 57 million cardholders in 2021.

The company is a little different than network powerhouses Visa and Mastercard in that it doesn’t use banks or financial institutions to issue its products. Just like American Express, Discover is its own issuer and network. Cards are issued through Discover Bank, a subsidiary of Discover Financial Services that was formed after a series of acquisitions and reorganizations.

What Does Discover Card Offer? 

The Discover “it” card, as it was branded in 2013, comes in seven basic varieties (in addition to a business credit card), including:

  • The flagship Cash Back card
  • Student Chrome
  • Student Cash Back
  • Travel
  • Secured
  • Gas & Restaurants
  • NHL

Staying true to its roots, the card still has no annual fee and doesn’t charge foreign transaction fees. Discover won’t charge a late fee for the first missed or late payment, either. Each of your monthly statements also comes with a free FICO score. As with all credit cards, you are not responsible for fraudulent transactions.

Features vary, depending on the card. The flagship Discover Cash Back card offers cashback rewards of 5% for certain categories that change throughout the year. It also promises to match all of the cashback at the end of the year for the first year. Flagship Cash Back, Gas & Restaurants, and NHL cards have an introductory 0% annual percentage rate (APR) for purchases and balance transfers for the first 14 months. The introductory 0% APR for student cards is for six months and applies for purchases only.

Customer service is a strength for the company, too. Discover advertises that its customer service representatives can be reached at any time by phone or online. And J.D. Power ranked Discover second in overall customer satisfaction, behind American Express, in its 2021 U.S. Credit Card Satisfaction Study, followed by Capital One.

Discover Bank now functions like an online bank, providing traditional financial services in addition to its credit offerings. These include checking and savings accounts, certificates of deposit (CDs), bill paying, and more. Consumers can access cash through 60,000 of Discover’s no-fee ATMs across the U.S. 

Discover Card Rewards

Rewards for Discover credit cards vary depending on the card. For example, you can earn 5% cashback with the Cash Back card on categories that change on a quarterly basis, such as gas, grocery stores, and Amazon. You also earn 1% cashback on all other purchases. Cashback doesn’t expire and can be redeemed into your bank account, used as a credit against your Discover card balance, or used at checkout at Amazon or Paypal.

The Student Cash Back and Student Chrome cards provide 5% and 2% cashback, respectively, as well as a $20 statement credit for achieving a GPA of 3.0 or higher for the year, for up to five years. Discover will also match the cashback rewards you earn during the first 12 months you have your card on the Cash Back, Student and Student Chrome, and Secured card.

You’ll earn 1.5 miles for every dollar you spend on the Travel Card, and all of your miles in the first year of card ownership will be matched mile-for-mile. The Business card offers 1.5% cashback on all purchases, with no cap on the amount you spend. With the NHL card, in addition to earning cashback, you’ll save 10% when you shop at and also get a discount on an NHLTV subscription if you pay for it with your card.

Discover Card Annual Percentage Rate (APR)

As with all credit cards, the terms of your Discover card all depend on your credit score. For non-student cards, those with borderline credit could see an APR of 22.99%, but customers with stellar credit scores might be offered an 11.99% rate. The student cards have an introductory 0% APR for the first six months on purchases, then range from 12.99% to 21.99%. The APR for cash advances is 24.99% for all cards and you pay a fee of $10 or 5% of the amount, whichever is higher.

Transferring a balance may come with a 0% APR introductory rate, but you will pay a 3% fee for each transfer, which is a standard fee among most credit cards.

Although other cards have jumped on the cashback bandwagon, the Discover it card’s 5% cashback reward remains one of the most generous around, as does the company’s policy of matching. However, unlike some other cards, you have to keep track of the eligible categories for each quarter. There’s also a cap on the amount you can spend while still earning rewards—currently $1,500 per quarter. All other purchases earn you 1%.

The Bottom Line

Discover came to the market in 1986 as a customer-friendly card option. It continues to maintain those traits but the benefits that set the brand apart years ago are now fairly standard in the industry. Carefully review the terms on each of its cards before applying. Two cards may look similar but have significantly different terms. For example, there are 1.5% to 2% cashback cards (Business, Gas & Restaurants, Secured, Student Chrome), besides the ones that offer 5%. If you receive an offer in the mail, compare it to what’s listed on the Discover website. And if you routinely hold a balance, the rewards may not make up for the interest payments, especially if you end up with one of the higher interest rates.