Because I check my credit card activity online almost every day to ensure nothing unexpected has been charged to me, it’s rare that I examine my paper statements. I usually look through the envelopes to make sure there aren’t any notices identifying any significant changes in the user agreement, such as a requirement to sign my first-born child over to the credit card company if I accidentally pay my bill late some day. In reality, however, I more often stick the unopened envelopes into a folder.
I was in for a surprise. This past weekend, I opened the latest statement from Citibank. They’ve redesigned the statement, probably to comply with the Credit CARD Act of 2009, and 29.99% caught my eye immediately. This usurious rate is what I would need to begin paying if Citi were not to receive my payment by the due date. I looked further into the statement to find the interest rate for standard purchases, and I was surprised to see it was 19.99% APR.
Concerned, I retrieved my other statements. The annual percentage rate on my Bank of America Visa Signature card is a more respectable but still expensive 11.24% while the rate on my American Express Blue Cash for Business card clocks in at 9.24%.
I don’t pay any interest because at this stage, and for as long as I can, I pay my credit card balance in full every month. So the interest rate doesn’t affect me. I won’t be calling Citi in anger, at least not for this reason. But that doesn’t mean I’m not contributing to the growth of the credit card industry. Even if I’m not paying any fees to use my credit card — in fact, I’m earning cash-back rewards — every time I purchase something I contribute to an overall increase in prices.
Merchants pay an interchange fee to process credit card and debit card transactions, and that fee varies depending on the type of card. To put this idea into real numbers, I entered my credit card information (just the first six digits of each card, nothing personally identifiable) into the True Cost of Credit calculator.
Here were my results. The table below contains several different types of purchases, and for each purchase, the fee the merchant would owe for credit card processing. The numbers aren’t very surprising.
| Citi Dividend World MasterCard |
BoA Visa Signature |
AmEx Blue Cash for Business |
|
|---|---|---|---|
| Convenience Store Pack of Gum ($1.50) |
$0.28 | $0.37 | $0.30 |
| Sandwhich Shop Sandwich ($7.00) |
$0.36 | $0.36 | $0.45 |
| Pizza Restaurant Pizza Delivery ($25.00) |
$0.85 | $0.84 | $1.13 |
| Gas Station Full Tank ($30.00) |
$0.71 | $0.64 | $1.15 |
| Online Retailer Books ($50.00) |
$1.17 | $1.14 | $1.80 |
| Grocery Store Groceries ($100.00) |
$1.56 | $1.52 | $3.55 |
| Electric Company Bill Paid Over Phone ($150.00) |
$1.02 | $1.11 | $5.26 |
| Online Travel Flight to California ($300.00) |
$6.92 | $6.76 | $10.51 |
| Electronics Store Flat Screen TV ($800.00) |
$19.59 | $19.05 | $28.01 |
The credit card industry is receiving anywhere from just underneath 1% to 25% of every transaction that occurs, though that amount may be split between a merchant servicing company, a bank, and the issuer (Visa, MasterCard, or American Express). Yet even with this practically guaranteed income, some credit card companies now want to start charging additional fees to those of us who pay our balances in full every month.
Take your cards for a spin to see how much the credit card industry is earning from you, not including increased spending due to the convenience and psychological appeal of credit cards, even if you don’t pay interest or late fees. It would be interesting to see how a store-branded credit card compares.
Photo credit: rahego
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19.99% APR On My Citi Credit Card, True Cost of Credit
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