So, I got this credit card that deposits 2% cash back into a brokerage account. I started using it for all my daily purchases, paying off the statement balance each month. At the end of January, my points on the card were redeemed for the first time, and a few impatient days later, I had $38 dollars to start investing.
I could just set up a transfer from the brokerage account to my regular checking account and use this free money for other purposes, but I’ve always wanted to try investing in the market, and because it’s free money, I’m allowing myself to do so.
I figured that I could buy 3 shares of an ETF called PBW, which is a collection of companies specializing in renewable energy, which seemed like a good fit because:
- I didn’t feel like I have the time needed to do the right amount of research to buy shares in only one company
- I’m an aspiring hippie
- I knew that the American Recovery and Reinvestment Act of 2009 was in the works, and it set aside a serious amount of money for renewable energy projects
Here’s the funny part: that $38 dollars that Charles Schwab gave me for free? It was double the amount that they should have given me. So a few days later, I noticed in my portfolio that $19 was missing. It took me three tries to get the credit card and the free brokerage account linked in the first place, so this was extremely frustrating. I assume it was an honest mistake on Schwab’s part, but I had gotten myself in the position where I was investing with my own money, and not with free money, anymore.
I still think that this card/brokerage setup is a good idea, but if you’re setting this up for the first time, keep a close eye on the amounts being moved around.
Incidentally, I’ve only lost $17.66 on my investment so far, including the $12.95 commission. I can laugh about it, because it’s free money.
Every Tuesday, Smithee presents an article about his own experiences with credit cards and observations about the credit card industry.
Two weeks ago I introduced you to a new credit card that offers 2% cash back that is deposited into a brokerage account. Then, a few hours later, I applied for the thing. In my experience, online credit card applications always say, “get a decision in minutes!” and then they feign some sort of technical difficulty, so you have to wait for the mail, anyway.
This was no different. But waiting didn’t matter, this time. Because for once, I had no plans to use the card to “extend” my “buying power.” I’m just using it for the rewards.
I’ve long scoffed at those commercials for credit cards which advertise “rewards”, internally thinking, “Sure, whatever, airline miles. But what good is it if you’re spending $100 a month on interest?” For years, that’s what credit cards were to me: devices that stole your current money because your previous self wanted to go out to dinner instead of eating soup at home.
I had $0.20 when I graduated college. But at least I got to go to college. I found a job quickly, but getting there meant spending money that I hadn’t earned yet. And the job did not pay well. Overwhelming credit card debt kind of snowballed from there. That was 11 years ago.
But later came ambition, smarter living, and marketable skills. Now I’m able to pay off my remaining credit card debt (roughly $6,400 right now) at a rate of $1,000 / month. It’s on a 0% card. I never charge anything on that card. But I do still pay for things. I set aside a little bit every month for lunch and movies with my wife. And lots of dog food.
So, I figure now’s an okay time to start getting in the habit of paying off one card in full every month. If it means 2% of what I’m charging gets redirected toward our future by way of investments, I can be that smart. The problem now is that I have to start learning about investing. But 2% back on my monthly charges will probably give me about a year before I have enough to buy a single share of anything. Got any advice for me that will still be good a year from now?
The name of the card has clearly too many symbols and arguably too many syllables, but when the daily financial news is consistently dire, I should just be happy to see something that is this innovative and attractive.
It’s a credit card that gives you free money for investing.
Of course, we at Consumerism Commentary always recommend against carrying a balance on a credit card from month to month (incidentally, so does Dave Ramsey, who proves it by not accepting them on his Web site), but if you’re put together enough to literally take advantage of a credit card’s bonus features, check this out:
- Unlimited 2% “cash” back on purchases
- the cash is actually a deposit made into a Charles Schwab brokerage account
- no minimum purchase or annual fee
See more details at MarketWatch.
I’m not a Charles Schwab customer, so I don’t know what kind of investment options you get when you sign up for the card. For example, maybe you’re limited to mutual funds with front-end load fees. Hopefully someone can help out in the comments below.
Anti-disclaimer: This is not an advertisement. I honestly found this when looking at the news and thought it was compelling enough to write about.
Costco and American Express are offering a $25 bonus in the form of a statement credit for new customers who make their first purchase using their TrueEarnings® Card.
The TrueEarnings® Card from Costco and American Express also offers significant cash back awards on most purchases, including 3% on gasoline and restaurants, 2% for travel, and 1% everywhere else. This cash back is unlimited, so you don’t have to worry about an annual cap. You’ll even earn cash back when shopping at Costco, which from what I understand already has low prices.
There is no annual fee for current members of Costco, but that’s the catch. You have to be a member of Costco to be approved for this card.
Also consider the equivalent card for businesses, the TrueEarnings® Business Card from Costco and American Express. This is a very similar card, but it does not offer the $25 statement credit with your first purchase. This card does, however, offer 5% cash back on gasoline rather than 3%. Therefore, if you plan on spending more than $1,250 on gas and if you don’t need $25 right away, the business card may be the better choice.
Kiva is an international non-profit organization that facilitates “microlending” for the purpose of its mission, alleviating poverty across the world. The organization allows those who wish to contribute to lend money in small amounts to entrepreneurs in the developing world. Kiva’s website lets you browse entrepreneurs’ profiles to select the recipient of your micro-loan and allows you to make that loan. The terms of the loan are generally 6 to 12 months. Kiva claims that repayment rates are 99.7%, so there is very little risk of default.
Even with the potential for earning interest as a lender, I’d be careful about including microlending as an important part of an investment portfolio. It might be best to lend money only with amounts you don’t mind losing. Despite success stories — Endless Gibberish is “addicted” to Kiva and has lent over $20,000 — there is always a risk.
For anyone who finds Kiva to be a valuable resource, the Kiva BusinessCard, a credit card offered by Advanta, is an excellent choice. This is the only credit card I’ve encountered that is geared towards philanthropy. The Kiva BusinessCard matches your Kiva contribution (when placed on the credit card) dollar for dollar, up to $200 each month. Your contribution has twice the power. This match is considered a grant, however, and not part of your microloan. When the loan is repaid, you will only receive the amount of your contribution, not including the match. The matching portion will be paid back to Advanta.
Additionally, the card offers an 5% cash back rebate in the form of a statement credit for grants to Kiva, charitable donations, and some expense categories, up to $1,200 in charges to the card. Beyond that $1,200 limit, and in other expense categories, the program offers a cash back rebate of up to 1% on all other purchases. The total cash back you receive is unlimited. The cash back incentive for charitable donations is an excellent idea; to loan $100 to Kiva or donate $100 to your favorite non-profit, it will only cost you $95 (after you receive your credit).
That same $95 you spent on a $100 microloan provides the recipient with $200, thanks to Advanta’s matching grant.
Like other business credit cards, you don’t have to be a business in order to apply and be approved for this credit card.
Every week, cash back credit card deals are decreasing. American Express recently emailed me to let me know that they have lowered the cash back rate on their SimplyCash Business Card from 5% to 3% on gas station purchases. If this is your card, it might be time to seek out another deal.
Here are a few suggestions designed to maximize your cash back based on your spending habits.
Blue Cash from American Express.
If you use credit cards for most of your spending, you might like this card. While the first yearly $6,500 of your spending is subject to only 1% cash back on “everyday” purchases (including purchases at gas stations, supermarkets, and drug stores) and 0.5% cash back on everything else, once you pass that threshold, you will earn 5% cash back on your “everyday” purchases and 1.5% cash back on everything else.
Discover Open Road Card.
If you’re not a heavy spender on your credit cards but you’re still looking for the best deal, the Discover Open Road Card may be a good choice. You will earn 5% cash back of the first $100 you spend each month on gas and auto maintenance. In other categories, you will earn 0.25% or 0.50% cash back. Spend more than $3,000 over the entire year and you’ll earn 1% cash back on your spending in excess of this minimum.
TrueEarnings Card from Costco and American Express.
Even if you don’t shop at Costco, this card provides a good cash back bonus. You can earn 3% back on gas, as long as you don’t buy 75 gallons or more in one transaction. There’s no yearly limit to this cash back, however. The catch here, as you might have guessed, is that you must be a member of Costco in order to qualify for this card.
As with any rewards-offering credit cards, taking advantage of cash back depends on your ability not to carry a balance, accrue interest, or pay late fees. Any method of using a rewards credit card other than paying the balance in full every month will negate any benefit offered by the issuer.
As a number of Consumerism Commentary visitors have mentioned over the past few months, it’s getting harder to find good credit card deals, including 0% APR no-fee balance transfer offers and worthwhile sign-up bonuses. Other commenters who have been successful milking credit card companies with balance arbitrage strategies have slowed down their pursuit with fewer deals and lower interest rates on savings.
Yet, there are still many credit cards, like the AmEx Platinum Business FreedomPass card, that offer sign-up bonuses in the form of cash back or “points,” though redeeming the reward may either be a hassle, require a waiting period, and/or take the form of a statement credit or retail gift card.
How effective are these bonuses, particularly when there are so many restrictions? What would it take to get you to sign up for a new credit card? You have to weigh the possibility of a temporary decrease in your credit score. You also have to keep in mind your predisposition towards credit use. With a new card, perhaps you would be tempted to spend more.
It’s important to note that $50 (for example) has a different “value” for different people. An extra $50 could be the difference between coming out ahead for the month and falling behind. Money received from a credit card bonus might be what enables someone to make their child support payment.
This isn’t lost on the credit card issuers. They know “low hanging fruit” will snag users more likely to become permanent and profitable customers. These customers pay for those who take advantage of credit card issuers by being smart and careful about rewards.
I have not seen any bonus available that would convince me to sign up for a new card at this time. For me, the threshold would be $300 or $400 in cash. I would meet the minimum requirements for receiving the bonus and then forget about the card unless it also offers cash back on purchases at a level higher than the cards I use currently (American Express Blue Cash for Business and Citi Dividend World MasterCard).
I would expect that some individuals will never be tempted to sign up for a credit card regardless of the amount of the sign-up bonus, while others have no qualms about gathering as many credit cards as possible to take advantage of the cash that is out there.
How much would it take for a credit card company to buy your patronage? Do you have a dollar minimum after which you’ll start to consider taking advantage? Or would a free flight be attractive to you?
Jim submitted this news today, but I’ve been unable to find a confirmation online. Perhaps holders of the Emigrant Direct MasterCard have received this announcement.
The party is over on the Emigrant Direct Savings account and Mastercard program.
As the Fed has cut interest rates, so too has Emigrant Direct (2.75% as of 4/19.2008). What is worse, they just pulled the rug out of their cash back program on the Mastercard side.
It used to be that you could earn 1.4% cash back on all purchases as long as you maintained a $10,000 balance in your Emigrant Direct savings account. However, that will all end on 5/15/2008. Emigrant Direct is now issuing a new card called the World Elite. The new cash back program is now capped at 1.5% back on the first $10,000 in purchases or in other words $150 maximum cash back.
We used to charge EVERYTHING to our Emigrant Direct Platinum card. We earned over $500 in cash back last year, so this comes as quite a disappointment. In fact, with the lousy interest rate in the Emigrant Direct Savings account and now coupled with the horrible cash back program of their Mastercard program, it may be time to shut down my accounts and move elsewhere.
A cash back rebate capped at $150 is hardly a benefit.
Email this article
Print this article
