Here’s a scenario related to credit cards that plays out far too often.  To some degree it’s a problem from the past, but it still affects older people today.  It has the potential to affect younger people too if they’re not careful. Auntie : But why did the bank take away my credit card? Nephew : The bank thinks it’s your husband’s credit card, and when he died they cancelled it. Auntie : But it has my name on it. Nephew : Yes it does.  But that card was created as an added card on your husband’s credit card account, even though they printed your name on it. Auntie : How was I supposed to know this? Nephew : I’m not sure.  The account statements show your husband’s name, which tells us that the bank considers it to be his account.  But many people don’t know that this is how it works. Auntie : Why won’t the bank give me my own card now? Nephew : The bank’s computers don’t know who you are. Auntie : But everyone at the bank has known me for decades. Nephew : Ban...

There are many ways to hide banking fees so that customers don’t notice them.  One way is to quietly help yourself to a couple percent of people’s mutual fund savings every year.  Another is to tack a foreign exchange fee onto the exchange rate when customers exchange currencies.  I learned about a new one recently with credit card payment plans. Many of the big banks offer plans that allow you to take a credit card purchase and pay it off over 6 months to 2 years at a low-sounding interest rate.  The trick is that they add fees that also seem small, but they add up. One example is TD’s credit card payment plan that allows you to pay for large purchases over 6 months at zero percent interest for a one-time fee of 4%.  This sounds way better than paying standard credit card interest rates.  However, looks can be deceiving. Suppose you make a $600 purchase.  With the 4% fee, this grows to $624.  At 0% interest, you could use the payment plan to pay ...

With each passing year I’ve been spending more time in the U.S. during Canada’s winter.  When I was young I embraced winter, but not so much now.  I guess I’m becoming a snowbird.  Over the years I’ve paid a lot in currency exchange fees, but I’ve finally done something to cut these fees. Until recently, I just used a Canadian credit card to pay amounts charged in U.S. dollars.  This has felt painless, because the credit card company automatically applies an exchange rate so I can pay my bill in Canadian dollars. Hidden in the exchange rate my credit card company uses is an extra 2.5% fee.  Most people, myself included, don’t know the exact fair exchange rate between Canadian and U.S. dollars at any given moment, so it’s easy to forget about this extra fee.  However, almost all Canadian credit cards charge this extra 2.5%. So, when I recently spent a little over US$6000 to rent a nice place and was charged nearly CDN$8000 on my credit card, roughly CDN$200 ...

Recently, I applied for a new credit card.  Among the questions I had to answer was ‘What is your income?’  Before retirement that was an easy question; I’d just tell them my salary.  But now that I’m retired, I’m not sure how to answer it. I have no salary.  I have no workplace pension.  I’m not drawing from CPP or OAS yet.  There’s nothing I can point to that is the rough equivalent of a salary. I chose to answer the question with my previous year’s taxable income.  However, that number has little relationship to what I can afford to spend.  A big chunk of my spending comes from non-registered accounts that contain savings that have already been taxed. I do draw from my RRSPs, but this is only for lifetime tax efficiency.  Late in the year I withdraw the right amount to manage my income up to the top of a particular tax bracket.  I could just as easily have an income near zero and collect the HST rebate. So, my taxable income for the y...

Recent reports that TD will start charging compound interest on all personal credit cards are only partially true.  TD was charging some compound interest on these credit cards and will start charging more. The relevant section of the credit card agreement used to read as follows: If interest is charged, it is calculated on the average daily balance of each Transaction from the transaction date until that amount is paid in full.  The total is the amount of interest we will charge you on each statement on the last day of your statement period. The new agreement replaces the last sentence with the following: We add your unpaid interest charge to your balance at the end of each statement period.  As a result, we charge interest on unpaid interest. The difference is in the time from the end of a statement period until the due date for your payment.  During this time on certain personal credit cards, TD is now charging daily interest on the newly accumulated i...

It’s disconcerting when we find fraudulent charges on our credit cards.  A different type of problem is a “false positive,” which is when a legitimate charge is denied.  After having my credit card denied when trying to check into a hotel, I wished credit card companies would do more to help customers recover from these false positives. It was my Tangerine credit card that wouldn’t allow the hotel charge.  Tangerine certainly could have done more to prevent this problem and to make it easier for me to recover from it. I alerted Tangerine to the dates I’d be traveling and the country I’d be visiting.  I certainly could have given more detail, but all they wanted was “USA.” With more detail, maybe they could have seen that the hotel charge was legitimate. The bigger problem was their response as I tried to fix the situation.  I called Tangerine customer service, but there was no option for “you denied a legitimate purchase.”  The closest I found was an ...

I forgot to pay off my credit card balance a few days ago. I do this roughly every 4 or 5 years. More annoying than paying some interest is that I seem to have to stop using the card for a couple of months to break the credit card interest cycle and get back in good standing . I need a useful reminder feature to help me avoid these mistakes. My Tangerine Mastercard offers the following credit card email alerts: Remaining Credit Less Than $100.00 Credit Card Payment Due Credit Card Transactions Over $1,000.00 Money-Back Rewards Earned Credit Card Payment Received Money-Back Rewards Deposited The alert I really want is “Your payment is due in a few business days, and we haven’t received anything yet.” My wife tells me that her credit card offers this alert along with better cash-back rewards than I’m getting now. Maybe it’s time for me to dump my Tangerine credit card.

We’ve all seen the block of text on our credit cards that says how long it will take to pay off the debt if we just make minimum payments. I suspect this disclosure doesn’t make a positive difference. Here’s the text that appears on my latest credit card statement: “At your current rates of interest, if you only make your Minimum Payment by its due date each month, it will take approximately 35 year(s) and 10 month(s) to repay the account balance shown on this statement.” 35 years is a depressingly long time for it to take to get out of debt. And this is for a balance of only a little over $4200. It gets longer for larger balances. I calculate that my minimum payment should be a little over $70, but it’s only $10, which doesn’t even cover interest. Perhaps as long as I keep paying my bill in full every month, my minimum payment stays at $10 so I won’t realize that the interest is actually about $70 per month. Superficially, the mandated disclosure with the depressing mess...

The most prominent parts of my credit card statements are two numbers: my money-back rewards for the current month and the total rewards I’ve received since I got the card. This gave me an idea for “improving” credit card statements. What if the most prominent part of a statement was the total interest you’ve paid since you got the card? For many of us, that would be zero or close to zero, but for too many it would be a nauseatingly big number, perhaps a 5-figure sum. I’d be interested to see what effect this would have on people’s credit-card spending. It would likely be a slap in the face at first, and later there would be some numbness to it, but it might help some people control unnecessary spending. Another possible effect would be for people to spend with a different card. If seeing the total interest we’ve paid over the years is painful, it makes sense that people would avoid this pain by using a different card. Sadly, this will very likely remain just a thought expe...

Following quickly on the heels of adding new account fees , Tangerine is now making some less than friendly changes to their credit card. The most important change to me is that they are increasing the foreign exchange fee from 1.5% to 2.5%. So, using this credit card is going to cost me more when I travel, primarily in the U.S. The change that’s likely to annoy more customers is reducing credit-card rewards. Currently, certain categories of transactions get 2% cash back and the rest get 1%. The rest will now get only 0.5%. Of course, we’d all be better off if there was no such thing as credit-card rewards and retailers were charged less to accept credit card payments. But I’m not holding my breath. A slew of other fees that affect those who handle credit poorly are going up as well. I still find Tangerine products to be better than most of what I can get at the big banks, but future fee increases could change that.

I have a credit card that I don’t use much any more because I get more cash back on another card. I recently got an offer related to my little-used card by paper mail: “Save on interest - pay only 0.99% on balance transfers” “for up to 12 months” I normally just throw away junk like this, but I decided to scan the page. Toward the bottom, my eye caught the following line: “A fee of 3% of the balance amount you are transferring applies.” Just how dumb are they hoping I am? This looks like at least 3.99% interest annually to me. More likely, they’re hoping to reach the inattentive and desperate. I decided to read the 25 lines of fine print on the back. In addition to the usual stuff about how they’d jack up my interest rate if miss my payments, I saw the following: “Please refer to sections 10, 11, 12, 13 and 14 in your Cardholder Agreement for details on calculation of interest and the application of payments.” There just has to be a story behind something this cag...

Robert Brown has some ideas for how banks can help students learn to handle their credit cards without growing debt and paying interest. To deflect some obvious criticism, he concludes with “I honestly do feel that the big banks and other credit card providers are missing an opportunity to attract new customers – potentially very loyal customers for life – by treating them better while they are students. They will have plenty of time to profit from them once they have graduated.” Let’s start with a minor problem. Brown thinks he knows how banks should run their business better than they do. This is ridiculous. If his simple ideas for encouraging students to avoid debt and interest were profitable, the banks would already be using them. The truth is that hooking students on credit cards is profitable on multiple levels. For one, students rarely default because their parents usually pay if necessary. For another, setting a pattern of high-interest debt makes people more profitab...

I recently answered credit card questions for a couple of young people. This reminded me that nothing is obvious until someone explains it to you. Financially savvy readers can take these questions as a reminder to start with the basics whenever helping people with their finances. Here is my recollection of the questions and my answers. Q: If I’ve built up a balance on my credit card over time, how much am I allowed to pay each month above the minimum payment? A: You can pay off your entire balance any time you want. In fact, this is a very good idea if you have the money available. While you have a balance owing, the credit card company charges you interest on each item from the moment you make the purchase. Once you break this cycle and pay off your entire bill on time each month, you stop paying any interest, even though there is a delay from purchase until your monthly payment is due. It can take a few months of paying off your bill in full to get off the interest tread...

My wife received some credit card spam that started as follows: “The year is almost over, but you can still build your January rebate! Use your [brand of credit card] to earn cash back on special gifts, last-minute holiday purchases and everything in between.” She laughed and showed it to me. My first thought was who would spend an extra $1000 now just to get $20 more back in January? Most people aren’t great at math but they’re not this bad. This message seems like it shouldn’t work on anyone. But credit card marketers can’t be this dumb. There has to be more to this than I saw at first. One possibility is they are aiming this message at people with multiple credit cards in an attempt to get them to use this particular card more often for things they were going to buy anyway. But I think there is a better explanation. I think this message is mainly aimed at shopaholics. Addicts will latch onto any excuse to scratch their itch. Compulsive shoppers need an excuse to shop ...

Credit card companies seem to be losing their patience with some of their less profitable customers: THE ESTIMATED TIME TO REPAY THE CURRENT STATEMENT BALANCE IS 0 YEAR(S) AND 0 MONTH(S) AND 6 DAY(S) BECAUSE YOU’RE ONE OF THOSE JERKS WHO PAYS THEIR BILLS IN FULL EVERY MONTH.

The one with no balance. <rant> I know some bloggers make a lot of money with credit card referrals, but enough already. I just don’t care which credit card is best. As long as I don’t carry a balance, don’t pay a yearly fee, don’t pay for any idiotic insurance, and get a little cash back, the rest is small stuff. Find a way to cut back on some spending that isn’t improving your life much and you’ll come out much further ahead than picking some whiz-bang credit card. The only exception I can think of is if you can use a personal credit card for work costs such as travel, get reimbursed and get to keep credit card rewards. Outside of that, all the excited talk about choosing credit cards is just a big yawn. </rant>

I’m used to being charged at least 2.5% extra by MasterCard when I buy something in a currency other than Canadian dollars. However, I recently had my first experience with a retailer doing the conversion for me at a higher price than MasterCard charges. I rented a car in Europe and the total cost for 4 days came to a hefty 425.70 Euros. According to the Bank of Canada, converting this to Canadian dollars at a fair rate on the day I paid would give C$560.31. Based on credit card charges on the same day, MasterCard would have charged me $575.90 or 2.8% more. This differs slightly from their advertised 2.5% fee possibly by random variation and possibly due to choosing a favourable rate during the day. However, MasterCard never got the chance to make an extra C$15.59 from me because Hertz did a conversion to Canadian dollars. They charged me C$586.37 or 4.7% more than a fair exchange. Hertz made an extra C$26.06 from me, which is C$10.47 more than MasterCard would have charged ...

Years ago I noticed that my wife and I have different payment dates on our credit cards. Until recently, I never really thought about the implications of this difference, but it does present an opportunity to “optimize” cash flow. The following calendars illustrate the differences in our credit card statements. My next statement will cover purchases from roughly Nov. 16 to Dec. 15, and the payment will be due Jan. 5. I indicated a full week for the payment to illustrate that it is sensible to pay somewhat early to avoid interest charges. Note that my wife’s credit card dates are shifted forward 19 days. This creates an opportunity that I hadn’t thought much about before, but I’m sure that many people use. For purchases between Dec. 16 and Jan. 3, my wife will have to pay before Jan. 24, but I won’t have to pay until before Feb. 5. Similarly, for purchases between Dec. 4 and Dec. 15, I’ll have to pay sooner. To optimize cash flow, it’s always better to use one credit car...

You’ve logged in to pay your credit card bill and you have to choose the date to transfer the money. Do you choose the actual due date, the day before, or some earlier date? What is the right balance between the risk of late fees and the opportunity cost of paying early? Some people say they always pay bills on their due date and have never had a problem with late fees. Others claim that banks use dirty tricks like setting due dates on weekends and holidays and not recognizing payments until the following business day. It can be difficult to gauge the risks of paying on or very close to a due date. But it isn’t too hard to figure out the cost of getting caught paying late if you can’t talk the bank or other creditor into waiving the late penalty. Many utility bills actually say explicitly what the cost will be if you pay late. With credit cards, the cost is retroactive interest back to the date of purchase on all outstanding items. The total penalties are often in the 2% to ...

Right now in Canada you usually pay the same price to a retailer for goods and services whether you pay by cash, debit, or credit. On the surface this seems like a good thing. However, when we scratch the surface, we see inefficiencies that boost prices. Planned changes to these price rules could create different pricing for different payment methods, but whether consumers will benefit is still unclear. When you pay with a credit card, the retailer has to pay between 1.5% and 3% of the transaction amount to the credit card company. The cost of all the wonderful credit card reward schemes we enjoy comes out of these fees charged to retailers. Retailers have to raise their prices to compensate for the fees they pay to credit card companies. The catch is that everyone has to pay these higher prices, even those who pay with cash. In effect, people who pay cash are subsidizing the credit card rewards and cash-back schemes. But only some of the retailer fees flow back to consumers...