When you think of credit cards, there's a good chance the first few names that come to mind are the big three issuers: Visa, Mastercard, and American Express. But so many different financial companies offer credit card services that consumers are no longer limited to just these three. While the Discover credit card may not be as familiar as others, it  offers cardholders some of the same perks and benefits as its counterparts—plus a few of its own.

Key Takeaways

  • The Discover Card is the seventh largest issuer of credit cards in the world.
  • Discover was an innovator when it launched in 1986, with its no annual fee and cash back rewards program.
  • Discover offers eight major credit cards today; terms and features vary.
  • While competitors have aped many of its innovations, Discover ranks high in customer service and satisfaction among credit card companies.

History of Discover Card

Dean Witter Financial Services Group Inc., a subsidiary of Sears, Roebuck, and Co., developed the Discover card in the early 1980s. Testing for the card began in 1985—the very first purchase was made by a Sears employee from Chicago in a Sears store in Atlanta—and there was also test marketing in Atlanta and San Diego. A year later, in 1986, the Discover card rolled out officially, introduced in a national ad campaign during Super Bowl XX.

The credit card market was roaring at the time, with cards coming out at head-spinning speed, but Discover sought to distinguish itself in a couple of ways. It charged no annual fee, which was somewhat of a rarity at the time (at least, for general-purpose credit cards). Another one of its perks, which was also a major innovation at the time, was its cash back rewards: the return of a small percentage of the amount of the purchase in cash money on the user's account.

Although the cash back feature was attractive to consumers, Discover caught on slowly with merchants; at first, only major airlines and rental-car companies—and of course, big retailers like Sears—accepted it. But it gradually increased in popularity. In the mid 2000s, agreements with foreign payment networks, like Japan's JCB and China's UnionPay, greatly increased its usage abroad. As of 2021, Discover is the seventh-largest issuer of credit cards in the world with over 57 million cardholders.

Unlike Visas and Mastercards, which are issued through banks, Discover is its own issuer and network (similar to American Express). The card is issued through Discover Bank, a subsidiary of Discover Financial Services. Discover Bank was formed after a series of acquisitions and reorganizations. Along with its credit card offerings, Discover Bank now functions like an online bank offering many traditional financial services, including checking and savings accounts, certificates of deposit, bill paying and more. It also offers consumers access to cash with 60,000 no-fee ATMs across the U.S. 

What Does Discover Card Offer? 

The Discover “it” card, as the company's card was branded in 2013, comes in eight basic varieties including:

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

Staying true to its roots, the card still has no annual fee, and also does not charge its customers a foreign transaction fee. 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 5% cash back on certain categories that change throughout the year. Discover also promises to match all of the cash back 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. J.D. Power ranked Discover second in overall customer satisfaction, behind American Express, in its 2020 U.S. Credit Card Satisfaction Study, followed by Bank of America, Chase and Capital One. Discover advertises that its customer service reps are all based in the United States.

Discover Card Rewards

Rewards for Discover credit cards vary depending on the card. For example, you can earn 5% cash back with the Cash Back card, on categories that change on a quarterly basis, such as gas, grocery stores, and Amazon.com. You also earn 1% cash back on all other purchases. Cash back 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.com or Paypal.

The Student Cash Back and Student Chrome cards provide 5% and 2% cash back, 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 cash back rewards you earn during the first 12 months you have your card on the Cash Back, Student and Student Chrome, and Secured card.

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

Discover Card APR

As with all credit cards, the attractiveness of Discover card's terms depends 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 a 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; you pay $10 or 5% of the amount, whichever is higher, as a fee.

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

Although other cards have jumped on the cash back bandwagon, the Discover it card's 5% cash back 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 more customer-friendly card. Today, the cards 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% cash back 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.

Finally, 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.