Tag Archives: interest

Pottery Barn claims to reward but actually reaps 19% interest

24 May

Pottery Barn Rewards Credit Card

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%

11 Jan

“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)

8 Jan
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!

APR graphic relating to DPR

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

Sandy = more credit card debt

3 Nov

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.

Wells Fargo Fees Waived

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.

Continue reading