West Elm: “With great style comes even better perks” (a.k.a. high interest rates)

West Elm, an upscale retail store featuring contemporary furniture designs and housewares, is offering you 10% back in rewards with their exclusive credit card. For every $250 you spend, you’ll receive $25 in rewards

– OR –

If you spend at least $750, you can opt for no interest if paid in full within 12 months. You can’t even get the best of both offers.

Now let’s look at the fine print. Standard variable APR of 19.00% to 22.80% or a APR of 26.99% – depending on when you opened your account – with no additional details or explanation. Consider that even a person with the absolute best credit score ever would get the lowest possible rate of 19.00%.

So, add 20% to their designer prices for each item bought, which makes your 10% “reward” completely nonexistent. Why bother. Instead, just pay with cash.

Pottery Barn claims to reward but actually reaps 19% interest

Notice the two words with the largest font in the above advertisement: reward and benefits. The Pottery Barn Credit Card totes numerous perks including no annual fee (I would hope not), special offers (junk mail & spam), online account management (yippee, another login…who doesn’t have this nowadays?!), and the ability to use your “rewards” credit cards at all Pottery Barn outlets (store, online, catalog…well duh).  So what they’re saying is the benefits are not beneficial at all.

But what about the 12 months special financing OR the 10% back in rewards. Notice the word with the smallest font. This tiny little “or” is critical in clarifying that the two most significant rewards are actually an option between them and not both included. It’s a classic example of the ol’ strategic font size marketing gimmick. With that highlighted, let’s dive into these two reward options.

To begin, in order to benefit from the 12 months special financing, your first purchase must be at least $750. The special financing rate is 0% APR, if and only if, the entire balance is paid off within that initial 12 month period. If not (brace yourself), interest is charged on the account from the purchase date at the standard variable APR (19% or 22.8%, depending on credit worthiness). So even if you paid off all but one dollar of the initial purchase within 12 months, you would automatically be charged at least $156.89 in interest (assuming a $750 purchase at 19% over 12 months). That initial $750 purchase now costs more than $900. That’s a hefty penalty for not meeting the payment expectations.

Let’s discuss the other option, 10% back in rewards. The first important factor is rewards are only earned on purchases that are greater than $250. Not a $100 purchase nor a $200 purchase, but only $250+ purchases. Second, the rewards certificate is only redeemable at PB outlets; makes sense. But when the rewards certificate is used, if the purchase total is more than the value of the certificate, the remaining purchase balance must be payed with by using the PB Credit Card. It’s amazing this requirement is even legal. This means a customer would not be permitted to pay the remaining balance in dollars (a.k.a. US legal tender). It’s a clever way to perpetuate the use of their credit card. Finally, if the purchase is less than the certificate amount, of course, the balance of the certificate is forfeited.

So the former benefit, if paid off within the initial 12 month time period, is basically just a way to (for free) avoid paying for something up front. And the latter, if over $250 is spent on a purchase and a number of hoops are jumped through, could potentially earn 10% more PB merchandise, because who doesn’t need more PB crap. None of this seems rewarding.

 

BofA boasts cash rewards of 3%, yet they cash in at 18.99%

“Cash in on life’s essentials” implores the envelop even before the offer is opened.

On their Cash Reward’s Visa credit card, Bank of America generously offers 1% cash back everywhere, 2% cash back at grocery stores and 3% cash back at gas stations. Best part, there is no annual fee.

But this stellar offer is only applicable on the first $1,500 spent per quarter. So if you spend $1,500 on just gas in a quarter, you’d receive $45 back. That’s the maximum cash reward that can be earned in a three-month span. Sounds like a lot of work for a mere $45 every 90 days, assuming only gas is bought on the card.

However, if you carry a $1,000 revolving balance on the card generating interest at the Cash Rewards Visa’s lowest interest rate of 18.99% for that same 90-day period, you’d pay $48 in interest, accounting for the daily periodic rate and compounding interest. When the average credit card debt for a credit card holder in the U.S. is $5,047, it’s not unreasonable to assuming $1,000 revolving balance in this scenario.

The point is very few will cash in on such reward cards. In fact, the credit card companies expect many people to never break even on these offers, allowing them to dish out diminutive cash rewards to the few who can manage paying off their balance monthly. While the only one who is truly cashing in on this scenarios is Bank of America CEO, Brian Moynihan, who received a $12.1 million pay package in 2012 (and all the other BofA execs).

Glossary: Annual Percentage Rate (actually charged daily)

Throughout this blog, there will be posts that define important terms to know when understanding credit cards. These posts and definitions will be summarized on my glossary page.

 

In theory, the Annual Percentage Rate (APR) is the interest rate charged annually on the outstanding balance of a credit card. For instance, if a particular credit card had an APR of 15%, and there was a $100 outstanding balance on that account for a year, the interest charged would be $15. However, when applied in actuality, it’s not so simply.

See, nearly all credit cards charge interest DAILY based on the DAILY outstanding balance using a Daily Periodic Rate (DPR). This is found by taking the card’s APR and dividing it by 365 days per year, generally round to the nearest 1/100,000th of 1%. So, going back to our example of 15% APR, the DPR would be 15% ÷ 365 = 0.041009589, rounded to the nearest 1/100,000th is 0.04101 interest charged on the daily balance. This may not sound like much, but with the effect of compounding interest added DAILY, it grows to be a big number quickly.

What’s compounding interest? Stay tuned for a future post that defines and illustrates the astonishing effect of compounding interest.

So, at the end of the day, the APR is actually just used to find and calculate the DPR, and actual interest charged on a credit card balance can end up being way more than the stated APR. Buyer (a.k.a. credit card holder) beware!

A graphic found on Bank of America’s website that simplifies how the APR relates to the DPR.

Citi AAdvantage card deceitful marketing tactics

Arriving today in a shiny large envelop was an offer to “enjoy a better travel experience”, or rather an offer for the Citi American Airlines AAdvantage credit card, or rather an offer to go into debt.

This unoriginal offer features a bonus 50,000 miles for those who spend $3,000 in the first three months. Sound familiar? This truly is an unfeasible bonus that most credit card holders cannot nor should not achieve.

The card requires a $95 annual fee. But have no fear, this fee is waived for the first twelve months.

The reward amount is one mile per $1 spent, with the exception of some eligible American Airlines purchases, which then earn two miles per $1 spent. The offer, however, conveniently stated this in reverse order with some strategic bolding, making it seem as though you would earn two miles per $1 spent.

Direct mail advertisement image: Misleading bolded text causes consumers to wrongly conclude they’ll earn two miles per $1 spent on purchases.

Baldwin replies to Capital One post, defends spokesmanship

Or at least someone responded from Alec Baldwin’s foundation. Yes, I think it’s commendable that Alec Baldwin has a foundation that supports “the arts and artists, amateur and professional”. However, as I stated in my reply to the pictured tweet, Capital One is making way more than $11 million on their Venture accounts, and that is money that should be in the pockets of American families and not those of overpaid bank CEO’s. In fact, MSN money deemed Capital One’s CEO, Richard Fairbanks, the most overpaid bank CEO of 2012.

Capital One offers fun in the sun at 13.9% interest (at least)

With the end of the holiday shopping bender and consumers feeling their massive buying binge hangovers, credit card companies are likely to capitalize on those who are currently cash strapped.

So right on cue, Capital One sends a credit card offer arriving on December 28 to rescue those who don’t have money for their New Year’s Eve party (or maybe a real emergency). This offer is for their Venture card, which features 2 miles per $1 spent on every purchase AND 50,000 bonus miles, if you spend $3,000 in the first three months…what?! That’s more disposable income than most families have in a year, let alone three months. Don’t forget the $59 annual fee.

Alec Baldwin hawking high, variable interest rates.

But we’re only getting started with the dirty details.

The Annual Percentage Rate (APR) is 13.9% and is based on the Prime Rate, which means it’s going to go up. The APR for cash advances is 24.9%, again based on the Prime Rate. These are not unheard of numbers, but here’s the kicker…

If ONE payment is missed and/or ONE late payment is made, the APR will jump up to 29.4% INDEFINITELY! Additionally, a $35 late fee will be assessed AND the miles earned during the period of the late fee will be forfeited. Ouch.

So the next time you see Alec Baldwin imploring that these are “miles you can actually use”, remember Capital One is not actually interested in getting you to your dream destination, but instead intends to steal all your money via their high interest rates and fees, so you won’t actually be able to afford the vacation once you arrive. But that’s what the Venture card is for, right?

What’s in your wallet?…hopefully NOT the Capital One Venture card.

Poll: more than one bank?

Per a reader’s comment, I’m curious how many people have accounts at more than one bank. Doesn’t matter if you’re still using a particular account or not. If you have more than one, feel free to share how many you have and who you bank with. Would you recommend your banks? 

Sandy = more credit card debt

Hurricane Sandy struck on Monday, October 29. By 1:03a, Tuesday, October 30, I received an email from Wells Fargo stating late fees would be waived on credit cards, consumer and certain small business loans, including home-equity, auto and student loans. What a nice gesture towards those hit by Sandy.

The email also advised me that “Fees normally charged to you for using another bank’s ATMs when you use another bank’s ATM in Maryland, Virginia, Washington, D.C., Delaware, Pennsylvania, New York, New Jersey and Connecticut” will be waived.

Wow, Wells Fargo! Really earning some consumer brownie points. These two acts of financial compassion during a disaster will ultimately affect their income, but this was the least they could do to “help during these difficult times.”

But then, 24 hours later, I receive an email from Bank of America.

Why I’m here

I’m fed up with the countless credit card offers I receive…daily. I am spending one year documenting all the offers I receive to demonstrate the severity of the problem and how it relates to the larger American credit card debt crisis.

My goals are to highlight the fine print in these offers and ideally educate others regarding the danger of credit cards and the financial havoc they can wreak.