Apr 21, 2010
As banks gear up for a tougher year ahead, they are making credit card deals more irresistible for consumers. In general, this is in reaction to stricter lending laws that make it more difficult for firms to profit from gullible and debt-laden clients. Some card issuers actually offer free travel vouchers, access to airport lounges, and the option to transfer reward points to other hotel and airline loyalty programs. Meanwhile, several issuers doubled and even tripled the points you can get for purchases.
At first glance, these perks may appear free or complimentary. But as always, you should expect to ultimately pay for them. Banks used to profit mainly from the interest rates charged to consumers. These days, more revenue will be derived from merchant charges and annual fees that were historically kept at a low range.
Robert Hammer who runs an advisory firm based in Thousand Oaks, California estimates that fees range from $75 to $495 compared to its range of $20 to $40 (1995-2005). Take the example of Barclay’s PLC, its Visa Black “carbon card” has an annual fee of $495 though it comes with a 24-hr concierge service.
These developments are not always bad for consumers. A lot depends on their buying cycles, purchasing pattern, and their lifestyle. Value also depends greatly on perception. For instance, a customer who loves to travel will definitely look more favorably on air miles compared to a rebate feature. In general though, credit card experts will advise you to avoid reward cards since it typically has higher interest rates.
If you can pay off your debt before its due date then you can benefit great. Otherwise, the finance charge and interest you need to pay will outweigh the retail value of the “reward” you get. Not all banks are joining the bandwagon. Charles Schwab Corp. has discontinued its First Invest Credit Card which provided 2% cash back to new clients. Expect this to be more of an exception than the rule. Most issuers are ramping up their marketing campaign in order to attract loyalty and more customers.
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- Credit Card Regulations – Senator Dodd’s Push
- Credit Card Debt – The Worst Things You Can Do
- High Credit Card Rates before the Holidays