There are two types of low-cost velocity sensors based on magnetic principles, variable-reluctance sensors, and galvanomagnetic semiconductor (Hall effect or magnetoresistive) sensors. Variable-reluctance devices sense variations in flux linkage while semiconductors read variations in local flux density. The paper shows how recognizing this fundamental difference leads to markedly different sensor design approaches, and proposes new configurations with improved performance. The analysis of the sensors is based on a general theory specifically developed for these sensors. The magnetic field computations use the finite-element method, which is particularly well suited to this problem involving complex airgap configurations and a need for the calculation of local flux densities and flux linkages. Experiments were carried out to validate the models and confirm the predicted sensitivity improvements of the new sensor structures.