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Interest Rate Alone Doesn’t Make The Best Secured Credit Card

by / 0 Comments / Apr 11, 2015

Ah, the beauty of the best secured credit card. Whether you’re new to credit or need to rebuild, these products are here for you. What’s more, if you use them well and get the right one, you can even make a little money from the deal.

All secured credit cards are guaranteed by a cash deposit that you provide to the lender. Where does that money go? Into a separate account. What kind that may be depends on the type of card.

Non-interest bearing savings account.

The money is deposited and then does nothing more but sit there, waiting for you. This is not the best secured credit card deal. You won’t earn anything, but then again, you won’t dip into it either. Capital One offers such a secured card.

The best secured credit card goes into an interest-bearing savings account.

More common is that the account does offer a little reward, and the deposit earns interest as it would in a typical savings or money market account. Republic Bank, for instance, is one of the many that offers this opportunity for its best secured credit card. Rates are low – less than one percent – and they fluctuate with the market, but it’s something.

Account tied to a Certificate of Deposit.

Some issuers, such as USAA, open a Certificate of Deposit (CD) when you get a secured card with them. It’s safe and the money is guaranteed to have some growth. The term is for two years, and rates are typically a smidgen over one percent. Still not much, but better than nothing.

Find out whether or not the money you leave with them for the duration of the account will earn anything, and if it does, what that may be. The rate alone should not influence you too much, since it will never be more than what you’d make on other investments, but why walk away from free money if you don’t have to? A secured credit card with few fees but no interest accumulation on the deposit is almost always the better choice against one that offers some earning potential but costs a lot to get and keep. So consider interest and fees when choosing the best secured credit card.

After you do get the card of your dreams, make sure it doesn’t turn into a nightmare. Keep the balance at zero or very low. Not only does owing more than 30 percent of your balance hurt your credit score, these accounts tend to have higher than average APRs. Large, revolving debt will balloon with expensive finance fees, thus eating into any profit you may enjoy, and fast. Pay on time, too. Many credit card issuers will hike up already high APRs even further if you’re late.

In short, when shopping for a secured credit card read over all the terms of the account, paying close attention to the interest you may earn as well as the fees you could owe. Then, manage it like you would all other types of credit accounts. Perfectly.

About the Author

Erica Sandberg is a renowned personal finance editor, advice columnist, and reporter. She hosts her own video program, Making it with Erica, and is a frequent guest on national news shows, from Fox to CNN. Her book, Expecting Money: The Essential Financial Plan for New and Growing Families was the first to address the specific financial needs of new parents. Erica is the spokesperson for some of the finest businesses and products in the U.S., including Western Union, the Better Business Bureau, Bank of America, CVS Pharmacy, Michael Minna Restaurant Group, Bounty paper towels, Chase Card Services, and Assurant Solutions. Prior to her her current journalism career Erica was affiliated with Consumer Credit Counseling Service of San Francisco for ten years.

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