Sam Bankman-Fried, co-founder at crypto exchange FTX, tweeted Friday that he was “shocked to see things unravel the way they did,” after he quit as chief executive and the company and its related entities filed for bankruptcy.
The bankruptcy “doesn’t necessarily have to mean the end for the companies or their ability to provide value and funds to their customers chiefly, and can be consistent with other routes,” Bankman-Fried tweeted Friday.
Bankman-Fried has seen his net worth plunge to almost zero from $16 billion in less than a week, according to Bloomberg Billionaires index.
FTX was once the third largest cryptocurrency exchange by trading volume. Bitcoin BTCUSD, +0.10%
fell 3.4% Friday to around $16,838, hovering at around a two-year low, according to the CoinDesk data.
A representative at FTX didn’t respond to a request seeking comment.
FTX, the crypto exchange, filed for voluntary Chapter 11 bankruptcy in a Delaware court on Friday, and chief executive Sam Bankman-Fried has resigned.
Following the news, here is how prices are doing for major cryptocurrencies, according to CoinDesk data.
Bitcoin BTCUSD, -4.92% The price for Bitcoin was around $19,350 before the announcement of the potential FTX/Binance deal on Tuesday. The price jumped to $20,590 in less than an hour after the announcement. But dropped to a 2-year low of $17,484. Currently, the Bitcoin price is $16,907.19, a change of -5.04% over the past 24 hours.
Ethereum ETHE, -9.66% Currently, the Ethereum price is $1,252.60, a change of -6.60% over the last 24 hours. The price of Ethereum was around $1,438 before the announcement, and peaked at $1,562 under an hour after. Later on Nov 8, the price dropped to $1,289.
FTT: Today the price of FTT, which is the FTX token, is $2.74, down 20.37% in the last 24 hours, according to CoinMarketCap data. At the beginning of the week, on Nov 7, the price was around $22.06.
Solana: Currently, the price is $17.34, a change of 2.91% over the past 24 hours. The price of Solana before the announcement was around $27.69, and peaked at $31.29 shortly after the announcement.
Binance Coin: The Binance Coin price is $285.74, a change of -7.02% over the past 24 hours. The Binance Coin price was around $322 before the announcement that Binance might acquire FTX on Nov 8.
That means a full day of trading for stocks, which appear poised to book a robust week of gains, despite continued fears of a potential U.S. economic recession as the Federal Reserve works to tame stubbornly high costs of living.
While Friday marks the start of a three-day weekend for the bond market, Treasury yields already have climbed dramatically this year with the Fed’s sharp rate hikes. The central bank aims to temper demand for goods and services by making borrowing costs more restrictive.
Consumers may feel certain effects of inflation in their everyday lives, like when they go to the grocery store. But it can also impact our savings and investments. Here’s what to know.
The benchmark 10-year Treasury rate TMUBMUSD10Y, 3.819%
fell to about 3.8% on Thursday, but was up from a 1.3% low last December. Bond yields move in the opposite direction of prices.
The fresh rally on Wall Street followed the consumer-price index reading for October showing a 7.7% annual rate, down from a 9.1% high in June. The Dow remains down more than 8% from its January peak, the S&P 500 is 17.5% lower and the Nasdaq is 31% below its last record close, according to Dow Jones Market Data.
Crypto lending platform BlockFi announced it was halting withdrawals Thursday night in the wake of the collapse of crypto exchange FTX.
“We are shocked and dismayed by the news regarding FTX and Alameda,” BlockFi said in a tweet. “We, like the rest of the world, found out about this situation through Twitter.”
BlockFi said that due to the “lack of clarity” regarding FTX and Alameda, “we are not able to operate business as usual,” and that until there is “further clarity, we are limiting platform activity, including pausing client withdrawals.”
The company asked clients not to deposit into BlockFi Wallet or Interest Accounts at this time, and said it will share more specifics “as soon as possible,” though it warned it likely would communicate “less frequently” than what its clients and stakeholders are used to.
FTX founder and CEO Sam Bankman-Fried reportedly extended about $10 billion in loans to its affiliated trading firm Alameda Research — amounting to about half of FTX’s customer assets of $16 billion, according to the Wall Street Journal.
“I fucked up, and should have done better,” Bankman-Fried said in a tweet Thursday, saying he had, among other things, misread the use of margin on the platform.
The FTX fiasco has spread fear of a “contagion” across the broader crypto industry, and sent the price of bitcoin BTCUSD, -3.87%
at one point to its lowest level since November 2020.
Just six months ago, CEOs, celebs and world leaders like Bill Clinton and Tony Blair flocked to him, gathering at a Davos-like conference he hosted in the Bahamas where he lives as one of the most outspoken evangelists for the power of the blockchain.
Fast forward to Sunday and Bankman-Fried’s crypto empire came crashing down, the victim of an old-fashioned bank run that quickly exposed the weaknesses of the new finance system he had championed.
Almost overnight, Bankman-Fried’s cryptocurrency exchange, FTX, had gone from being valued at $32 billion to worthless, leaving scores of investors scrambling to get their deposits back and triggering probes in the U.S. by the Securities and Exchange Commission, the Commodities Futures Trading Commission and the Department of Justice, according to reports.
On Thursday, the 30-year-old Bankman-Fried took to Twitter to level with his clients.
“I fucked up, and should have done better,” he wrote.
A very rapid rise
It took less than five years for Bankman-Fried to build a personal fortune that was estimated at its highest point to be more than $26 billion, making him among the richest people in the world.
His schlubby, boyish appearance — ill-fitting t-shirts, gym shorts and a mop of curly hair — made him look more like a college student ripping bong hits in the basement of a frat house than a finance guru, but fit nicely with the anti-establishment ethos that appealed to crypto enthusiasts.
The son of law professors at Stanford University, Bankman-Fried was a wunderkind from an early age. He studied physics and mathematics at the Massachusetts Institute of Technology.
After a stint as an ETF trader for Jane Street Capital, a highly respected Wall Street firm that is known for attracting genius quantitative traders, Bankman-Fried became interested in the concept of effective altruism, a philosophy that focuses on using reason and evidence to find solutions that benefit the most people possible. In 2017, he launched Alameda Research, a quantitative trading firm focused on digital currencies.
Over the next year, he began building his fortune through arbitrage trading of Bitcoin BTCUSD, +11.10%
between exchanges in the U.S. and Japan, where prices were often slightly higher. In 2019, Bankman-Fried launched the crypto exchange FTX.
The timing was fortuitous: as the COVID-19 pandemic spread across the globe the following year, interest in cryptocurrencies among people exploded. FTX took off and brought in the big-name celebrity endorsers and partners, like professional athletes Tom Brady and Steph Curry.
Bankman-Fried soon found himself feted by some of the biggest institutions in finance, attracting investment from the biggest names on Wall Street and beyond like Softbank 9984, -2.65%
Group, Sequoia Capital, Blackrock BLK, +13.26%.
Tiger Global Management and Thoma Bravo. He even raised money from billionaire hedge fund legends Paul Tudor Jones and Israel Englander.
Soon, FTX was among the biggest players in the industry.
The face of crypto
Despite his ballooning wealth, Bankman-Fried maintained the appearance and lifestyle of a teenage gamer. He moved to the Bahamas, where he reportedly lived in a penthouse apartment with 10 roommates.
On Zoom calls, he would often play video games while talking — his favorite game being League of Legends. Profiles of him often noted that he kept a bean bag just feet from his desk to sleep on.
What set Bankman-Fried apart from other crypto tycoons, was his professed interest in working with regulators to create a more robust framework around the nascent industry and treat it more like a traditional finance network.
To that end, Bankman-Fried appeared before Congress to try to explain to skeptical U.S. lawmakers how the crypto industry worked. He also said he welcomed regulation, not always a popular position in the crypto world.
“FTX believes [government agencies] could play an even more prominent role in the digital-asset ecosystem and bring greater investor protections by closing some regulatory gaps,” he said before a senate panel in February. “FTX believes that such efforts would combine the best aspects of traditional finance and digital-asset innovations.”
Bankman-Fried even put his great wealth to play in politics, becoming a major campaign donor for the Democratic party. In 2020, he was one of President Joe Biden’s largest single donors and spent nearly $40 million on political campaigns this year for the midterm elections, according to campaign filings.
As cryptocurrencies have experienced significant declines in prices this year, triggering the collapse of several operations, Bankman-Fried arose as a savior, buying up several failing partners as positioning himself as a kind of Robin Hood for the industry.
A swift collapse
For as fast a rise to the top of the world that Bankman-Fried enjoyed, the fall was just as rapid.
On Sunday, Changpeng Zhao, the CEO of FTX’s competitor, Binance, and an archrival of Bankman-Fried’s, announced on Twitter that his firm, the world’s biggest cryptocurrency exchange, was liquidating its sizable holdings of FTT, the coin issued by FTX, “due to recent revelations that have come to light.”
Bankman-Fried accused Zhao of spreading false rumors. But the damage was done.
Binance’s move triggered a massive selloff with customers seeking to redeem some $5 billion in deposits. FTX didn’t have it and redemptions froze up.
On Tuesday, Bankman-Fried announced that FTX had reached a tentative agreement to be acquired by Binance, due to a “significant liquidity crunch.” The turmoil set off broad declines among several of the most popular cryptocurrencies and even spilled into the world of traditional finance, sending markets tumbling.
The next day, the chaos increased, with reports that FTX and Bankman-Fried were under investigation by several U.S. agencies. By the end of the day, Binance said it was walking away from the deal because due diligence had revealed that “the issues are beyond our control or ability to help.”
Binance’s deal seemed like the only thing preventing FTX from potentially collapsing. “At some point I might have more to say about a particular sparring partner,” Bankman-Fried tweeted on Thursday. “For now, all I’ll say is: well played; you won.”
Also on Thursday, the Wall Street Journal reported that Bankman-Fried had been using some customer deposits to fund risky bets by his Alameda Research firm, setting FTX up for collapse.
With the Binance lifeline gone and with few options available, Bankman-Fried told investors he needed $8 billion or more to plug the hole in FTX’s books, according to reports.
On Twitter, Bankman-Fried said he would focus all his efforts on making sure depositors got their money back. He also tried to explain FTX’s collapse, saying “a poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower.”
Said Bankman-Fried: “My #1 priority–by far–is doing right by users,” he wrote. “Right now, we’re spending the week doing everything we can to raise liquidity. I can’t make any promises about that.”
Binance, the world’s largest crypto exchange, is abandoning its proposed acquisition of the non-U.S. assets of rival FTX, amid the latter’s liquidity crunch.
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” according to a tweet by Binance’s official account Wednesday.
“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance wrote.
Executives at Binance have found a gap, likely in billions and possibly more than $6 billion, between the liabilities and assets of FTX, Bloomberg reported Wednesday, citing an anonymous source familiar with the matter.
Representatives at Binance and FTX didn’t immediately respond to a request seeking comments.
On Tuesday, Changpeng Zhao, Binance’s chief executive, said the exchange had signed a letter of intent to acquire FTX.com, a separate entity from FTX.US, after FTX “asked for help.”
Investors are worried about any contagion, as concerns over FTX’s solvency spilled over to the already battered crypto market. BitcoinBTCUSD plunged Wednesday to as low as $16,863, the lowest level since November 2020.
FTX is the third largest crypto exchange by trading volume, according to CoinMarketCap.
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Seeing if you’re prequalified is a common first step to applying for a new credit card. It’s a way to evaluate potential credit card offers and see where you stand based on your credit profile before you take the risk of submitting to a credit check.
But a lot of people misunderstand what it means to be prequalified for a credit card, and credit card companies are all too happy to perpetuate that confusion.
In this guide, we’ll show you exactly what prequalifying actually means (and how it’s different from “pre-approval”), how to see if you’re prequalified for a credit card and what to do when you see a prequalified offer.
What Is Prequalifying for a Credit Card?
“Prequalifying” for a credit card is a way of seeing which credit cards you have a chance of receiving if you apply and at what interest rates and credit limits. Prequalified offers aren’t official offers of credit and you can’t start in with your online retail purchases right away. They’re just a way for credit card issuers to market their products and encourage likely creditworthy borrowers to apply.
Card issuers don’t know what’s in your bank accounts and they don’t look at your credit score or credit report from a credit bureau for prequalification. Instead, they do what’s called a soft credit inquiry, where they use your Social Security number to pull basic credit information about you, including employment status, total annual income, assets and monthly debt payments.
In some cases, you won’t even enter a Social Security number. You can just give a lender or comparison site information about your financial situation and see prequalified offers.
Seeing if you’re prequalified for a credit card can be a useful step before officially applying for credit, especially if you have a poor credit score, fair credit score or a lot of outstanding debt.
Being prequalified isn’t a guarantee of approval, and you’re not likely to receive the exact terms listed in your prequalified offer. But this step can help you avoid applying for credit and submitting to a hard credit inquiry in situations when you’re not likely to be approved.
Prequalification vs. Preapproval
Prequalification and preapproval are often conflated, but they’re not the same thing. Prequalification is a very early step in the credit application process that gives you a broad idea of the type of credit card or loan you might qualify for. Preapproval is further down the line and is an assurance from a lender that you can qualify for a type of credit or loan based on your actual credit profile.
The Consumer Financial Protection Bureau (CFPB) shares a clear distinction between prequalification and preapproval: Preapproval requires that the financial institution evaluates your credit using the same method it uses to make a credit offer; prequalification may, but isn’t required to, use the same comprehensive process.
When you compare credit cards and other lending products online, or you get an ad in the mail inviting you to apply for a credit card, that’s almost always prequalification, not preapproval — even though some credit card issuers and lenders unethically use the phrase “you’re preapproved” in their marketing. An actual pre-approval requires a hard credit inquiry, which you have to agree to let the lender make because it affects your credit. If you haven’t agreed to a credit check, you’re no closer to approval, regardless of the language a company uses.
Preapproval typically only happens for installment loans, most often with mortgages. It’s not a guarantee of approval — it’s a step before approval — but it’s a stronger sign that you’ll be approved if you apply for a loan.
Often, if you’re in the market for a house, you can work with a bank or lender to get a letter of pre-approval that certifies that you’d be able to qualify for a mortgage of a certain amount. Buyers use those letters to ensure real estate agents and sellers that they can afford the monthly housing payment for the homes they’re shopping for.
Does Checking If You’re Prequalified for a Credit Card Hurt Your Credit?
Seeing if you’re prequalified for a credit card doesn’t affect your credit. Prequalification requires only a soft inquiry into your finances and credit history, so it won’t show up on your credit report as a request for new credit — the line item on your credit file that could temporarily hurt your credit score.
The CFPB doesn’t require financial institutions to report prequalification requests the same way it requires them to report pre-approval requests or applications for credit.
Be careful as you compare credit cards and evaluate offers not to submit to a hard credit check before you’re ready. This is usually pretty clear as you’re browsing, but be aware of what to look for so you know which stage you’re at in the process.
Before you submit an official application for credit, you’ll be asked to agree to let the lender run a credit check. That’s when they’ll run a hard credit inquiry and ping your credit report. Before that, you’ll usually see prompts to “see prequalified offers” or something similar, and the site will be clear that this doesn’t affect your credit score.
Agreeing to see prequalified offers isn’t an official application for credit, and it won’t hurt your credit score — whether you do it through an individual credit card company or through a comparison site.
Will You Get Approved If You Prequalify?
Prequalifying for a credit card doesn’t give you guaranteed approval. Prequalification is just a way to see card offers you’re likely to be approved for because of the information you shared. Your next step is to choose an offer and apply.
When you put in the official application for a credit card, the card issuer will run a hard credit inquiry and request your credit report from a bureau, then calculate your creditworthiness based on its preferred formula (which could follow FICO, Vantage or something else). Based on your score and the rest of your credit profile — including your income and outstanding debt — the card issuer will make a decision whether to approve or decline you for the card and at what interest rate.
It’s not uncommon to see a prequalified offer at a low interest rate for a loan or credit card and receive a different offer after you apply. That might be intentional on the part of the credit card companies to entice you further into the process, or it might be the result of the imprecise nature of prequalification.
How to See If You’re Prequalified for a Credit Card
Several sources can tell you if you’re prequalified for a credit card, including:
Marketing from credit card companies: The classic way to be prequalified is to receive a letter in the mail from a credit card company that tells you you’re prequalified. (As mentioned above, it might say “preapproved,” but that’s not accurate under CFPB regulation.) This is a pretty loose prequalification, since you never gave the company any information. It might have chosen your address based on information like median household income or other demographics in your area, or it might just be sending marketing materials to anyone. This kind of prequalified offer isn’t a useful indication of your ability to be approved for a credit card offer.
Advertising supported comparison service: Most marketplaces that let you compare several prequalified credit card offers side by side are supported by ad money from those credit card companies. They’re more useful than mailers, because you have to enter information about your finances to see prequalified offers. These services can help you quickly see whether you have a chance to get a credit card with your credit profile. But they rely on advertising support from credit card companies (you use the service for free), so they’re not impartial. Some sites let lenders pay ad fees to appear higher or more often in searches, which could affect how likely you are to see an offer regardless of your credit. Some sites only get paid by advertisers after you sign up for a card, which is a little better but could still sway how often offers appear in searches.
Direct prequalification with credit card issuers: Most credit card issuers let you see if you’re prequalified directly on their site. This is more work than using a comparison service, but it guarantees you’ll see whether or not you prequalify for cards with that issuer, unaffected by an advertising relationship. It’s not a stronger guarantee of approval, though.
What to Do If You Prequalify
After you see that you prequalify for a credit card offer, your next step is to apply for the offer. If you’re doing it online, this application process is usually pretty easy. The card issuer or comparison tool can use the information you already entered, plus your Social Security number if you haven’t shared it already, and run a hard credit inquiry.
When you agree to a credit check and move forward with the application, you’re applying for a single credit card offer. Read the details of the prequalified offer to make sure you’re choosing the one you want, especially if you’re browsing several offers with a comparison tool.
After the credit check, you may receive an instant decision from the card issuer. If you’re immediately approved, you’ll receive your official offer with credit terms that include your interest rate and credit limit. You’re not obligated to accept this offer, so don’t sign up if the terms turn out to be less favorable than you expected. Just know that if you apply for another offer, that’ll be another hard inquiry on your credit history.
If you want to accept the offer, you can sign up online and usually get a digital card number you can start using right away, with a physical card coming a few days later through the mail.
Some applications require additional information, like proof of income. In that case, you won’t get an instant credit decision, and the card issuer will follow up with you via email or phone to verify the additional information before making a decision.
How to Improve Your Chances of Being Prequalified
Being prequalified for a credit card is fairly easy, so don’t put too much weight on it. Remember, you could receive a prequalified offer in the mail without giving a credit card company any of your information at all.
Still, being prequalified in some cases can be a sign that you’re more likely to be approved for credit, so this process is a great test when you’re working on improving your credit score. Seeing if you prequalify is a smart step to take before submitting to a hard credit inquiry and being denied for a credit card.
Getting prequalified offers doesn’t impact your credit score, so it doesn’t hurt to check out your chances in a few comparison tools to see where you stand. Be aware that this could open you up to getting emails or phone calls from credit card companies that want to entice you to apply — unsubscribe and tell them you’re not interested if you want the marketing to stop.
To get more comprehensive information about your creditworthiness, get a hold of your free credit score and credit report to see what creditors are seeing.
Per the CFPB, you’re entitled to receive your credit report for free every 12 months from each of the three major credit reporting bureaus, TransUnion, Experian and Equifax. You can request all three at once or stagger than throughout the year. You can request a free report through AnnualCreditReport.com — this is the only free credit report site regulated by federal law.
Your credit report won’t include your credit score. It’s useful for other reasons: It lets you see everything reported in your credit history, so you can see whether anyone has opened credit or taken out a loan fraudulently in your name. It’ll also show you the factors affecting your creditworthiness, so you can make a plan to improve it.
To see your free credit score, use a private service, including:
Credit Sesame or CreditKarma, both sites that show you VantageScore credit scores and break down the items on your credit report.
Your current credit card issuer, which may show you your FICO score.
FreeCreditReport.com by Experian, which gives you your Experian credit report and FICO score.
Note that a credit card issuer might not use the same formulas to assess your credit as any of these services. They’re likely pulling your information from one of the three bureaus, but many companies use proprietary credit scoring models rather than FICO or VantageScore to determine your creditworthiness.
You might discover your credit score doesn’t fall in the range most credit card issuers want to see (cards for excellent credit, they want to see 720 or above; some issuers make offers to borrowers with fair credit down to 660 or so). In that case, take steps to raise your credit score, including:
Open a secured credit card, a card you can open with a security deposit as low as a couple hundred dollars. They usually give you a credit limit equal to your deposit but may make a different offer based on your credit.
Use a credit-builder account, similar to a secured card. Banks including Chime and Varo offer credit-builder cards that let you start with any deposit amount and repay your balance in installments to build a credit profile.
Pay off outstanding debts, if you have the resources, to clear them from your credit report and reduce your total monthly debt obligations.
Increase your income to reduce your debt-to-income ratio, which impacts your approval odds and terms.
Settle debts with collections agencies to pay them off quickly or at least get up to date on monthly payments.
Check your credit report and dispute any charges or requests for credit that you didn’t initiate.
Negotiate payment terms for medical debt with your providers to avoid having bills sent to collections.
Prequalification: Information, Not a Guarantee
Seeing if you’re prequalified for a credit card offer can be useful information in your quest to open a new credit card or build your credit history. But nothing can guarantee approval for credit — or receive a particular offer — until you receive an official offer and sign the credit card contract.
Use prequalification as a way to see what kind of credit card offers are out there and to determine your approval odds based on your credit profile. If you don’t see prequalified offers? That’s a great sign to keep working on your credit before submitting an application.
Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.
Tons of tools exist to help you compare credit card offers side by side. But what exactly are you looking for? How can you tell what’s a good offer for you?
A credit card’s APR is often the most commonly promoted feature of a card, and it’s the one feature that you can easily compare across cards. Here’s how to recognize what is a good APR versus a bad one and choose the card that’s right for you.
What Is APR?
An APR is the annual percentage rate for a credit card or loan and it’s a way to express the interest you pay to borrow money. It represents the interest if it were applied by the year (though credit card interest is typically applied daily).
For credit cards, the main purpose of the APR is to compare one offer against another. You can’t know how much it’ll actually cost you to use the credit card without knowing exactly how much of a balance you’d carry and for how long, but comparing APRs can help you see which card would be cheapest to carry a balance on.
Types of credit card APRs include:
Variable APR: A variable interest rate is tied to the prime rate, an industry norm that fluctuates with the Federal Reserve Rate that goes up and down with economic conditions. A variable interest rate will rise and fall over time, typically changing around once per quarter, over the life of the loan or credit card.
Fixed APR: A fixed rate isn’t tied to the prime rate, so lenders can only change it if your credit score and history change, and they have to give you 45 days’ notice of any change. Fixed APRs are rare for credit cards but might be available for mortgages or other loans.
When you sign up for a credit card, your agreement could include several APRs that apply to different uses of the card: a purchase APR is for transactions where you buy stuff with the card, introductory APR is a lower promotional rate for a period when you first start using the card, penalty APR is a higher rate for a period if you make too many late monthly payments, cash advance APR is for money you withdraw using the card (a.k.a. cash advances) and balance transfer APR applies to any debt you move over from another credit card.
What Is a Good APR?
The average credit card interest rate in the United States was 16.27% as of August 2022, according to the Federal Reserve’s October Consumer Credit report. For those accounts that were charged interest (users who carried a balance), the average rate was 18.43%.
The rate you can expect on a credit card offers varies greatly depending on what’s on your credit report, so what’s considered a “good” credit card APR is different for each person.
According to the CFPB’s 2021 Consumer Credit Card Market Report, average credit card interest rates by borrower type for 2020 (the latest year available) were the following.
Average Credit Card Interest Rates
Type
Credit Score
Appox. Average APR
Superprime
720+
17%
Prime
660–719
20.5%
Near-prime
620–659
22.5%
Subprime
580–619
23.5%
Deep Subprime
579 or lower
24%
Though the CFPB hasn’t shared later data on average APRs by credit score, the average interest rates have likely gone up slightly as the Fed rate has increased (and will go down as the Fed rate decreases).
How to Qualify for a Good Credit Card APR
Your credit card’s interest rate is based largely on your credit history, so improving and maintaining a high credit score is the best way to get a low APR. Raise or maintain your credit score by:
Paying your bills on time. Payment history weighs heavily on your credit score, so make credit card payments (at least the minimum amount due) by the due date every month, and stay on top of your other debt payments and bills to avoid delinquent reports to credit bureaus.
Opening a credit builder account. Some companies cater to folks who are new to credit with credit builder loans, cards or accounts. Take out a credit builder loan with Self; or open an account with Chime or Varo, both of which offer a credit card secured with a bank account.
Using a secured credit card. Whether you’re new to credit or have a poor credit history, a secured credit card is a viable way to build your credit. You’ll have to make a deposit, which could be as low as $200, and you’ll start with a low credit limit. Many secured credit cards will raise your limit over time as you use the card and pay your credit card bill on time.
Raising your credit limit — but not spending more. A higher credit limit can immediately decrease your credit utilization ratio, which is good for your credit score.
Paying off outstanding debt, starting with credit cards. Paying down credit card debt will decrease your credit utilization, and paying off other debt will decrease your overall debt, both factors in your credit score.
Not applying for new credit too often. A lot of hard inquiries — the kind of credit checks that happen when you apply for a new card — can ding your credit report and hurt your score. Instead, get prequalified offers for a card to get an idea of your potential interest rate and credit limit before officially applying.
Of course, your best bet to avoid paying interest at all is to pay off your balance in full each month. You’re only charged interest on a balance you carry past the due date.
How to Lower Your Credit Card’s APR
If you want a lower interest rate on a credit card you’re already using, your best chance is to improve your credit score and stay on top of payments. Those factors could contribute to a lower score the next time the credit card issuer evaluates your interest rate.
You might also be able to find a lower interest with a different credit card. If that’s the case, it could be time to switch. Just check in on any rewards you’ve earned with your existing card and figure out how long you have to use them before they expire. Don’t close that card when you stop using it; keeping it open is good for your credit age and utilization.
If you’re carrying a balance on an old card and want a lower APR, look for a lower-APR card that allows a balance transfer. Moving your balance to the new card could help you save money while you pay it down.
You might also be able to reduce the interest you’re paying by replacing your credit card debt with a debt consolidation loan. These loans pay off your credit card balance — or balances — so you just have one payment to make to the new lender. They’re best if you can get a loan with a lower interest rate than your credit card.
How to Compare Credit Card APRs
Aside from rewards, APR is often the most prominently advertised feature of a credit card. The purpose of the APR calculation is to give you an easy way to compare offers from multiple companies, so looking at these numbers side-by-side can give you a good idea of which offer is best for you.
But other factors can affect how much it’ll cost you to use a credit card, too. Look for annual fees and late fees.
Also consider promotional offers. Many credit cards offer an introductory APR, a lower rate for a period of around six to 12 months after you sign up for the card. Sometimes this rate is as low as 0%, which is incredibly enticing. After that, your APR will jump to your normal rate, though, and the normal rate applies to any balance you’re carrying, even if you made the initial charges during the introductory period.
Make sure you’re comparing apples to apples when you look at prequalified credit card offers. Triple-check the fine print to determine whether the offer advertised is promotional and what your regular rate would be.
Contributor Dana Miranda is a Certified Educator in Personal Finance who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine.
If you already have a credit card, it’s super easy to get a cash advance.
But it can also be super expensive. Before you borrow money from your credit card, make sure you understand how a cash advance works, how you can minimize cash advance fees, and if there are any better alternatives.
How Do Cash Advances Work?
A cash advance is a way to borrow cash from your credit card company. You can initiate your cash advance online, through cash advance checks sent with your credit card statement, or through an ATM.
To take money out of an ATM via a cash advance, you will need the PIN number associated with your credit card. You’ll then have to agree to all the cash advance fees before you can get your money. You might also incur ATM fees.
If you initiate the cash advance online, you can set it up to be directly deposited into your checking account via ACH transfer. You will have to agree to all the cash advance fees before getting your money this way, too.
Another way you might be able to take out a cash advance is with convenience checks that your credit card issuer sends with your statements. These might come with every statement, every few months, or once a year at renewal depending on your credit card issuer. As soon as you sign and hand over the check, you’re agreeing to the terms of the cash advance.
Your cash advance limit is likely to be smaller than the purchase limit for your credit card. Check your documentation or contact your card issuer to find your credit limit for a cash advance.
What Makes Credit Card Cash Advances so Expensive?
Cash advances are an extremely expensive way to borrow — even more expensive than using your credit card to make a purchase. Cash advances come with extra transaction fees, and higher APRs than regular credit card purchases. And that APR starts accruing immediately unlike credit card purchases.
Transaction Fees
The first expense to take into account is the transaction fee. This fee is usually somewhere between 3% and 5%. Typically, there is a minimum fee that’s somewhere around $10.
Let’s say you took out a $250 credit card cash advance with a transaction fee of 3%, but a minimum transaction fee of $10. Three percent of $250 is $7.50, but that’s less than the minimum fee. So you would be charged a $10 transaction fee — even though it’s more than 3%.
But if you’re taking out a $1,500 cash advance, 3% would be $45. Since 3% is more than the minimum transaction fee of $10, you’d pay $45 in transaction fees.
High APR
Credit cards almost always come with a high APR. But each card actually comes with at least two APRS: one for purchases, and then another for cash advances. The cash advance APR is almost always higher.
This is true even if you sign up for a card with a 0% introductory APR. This 0% rate typically applies for a set period — say, 12 months — and it usually only applies to credit card purchases or balance transfers. It usually does not apply to the APR for cash advances.
Interest Starts Accruing Immediately
Not only do credit card cash advances come with a higher APR, but that interest starts accumulating immediately. With credit card purchases, you’ll get a grace period, and won’t pay interest if you pay off your balance in full before your first statement due date after purchase.
Not so with cash advances. There is no grace period. You start owing interest the moment the money comes out of the ATM (or gets transferred to your bank account.) Because interest starts accumulating immediately, it gets much more expensive to pay off much more quickly.
What Is the Average Cost of a Cash Advance?
The cost of your credit card cash advance varies depending on how much you borrow. To make this analysis simple, let’s say you’re borrowing $1,000. The average cash advance fees and interest rates on a cash advance are:
3%-5% transaction fee
24.99% APR
On a $1,000 balance, your transaction fee may be anywhere from $30 to $50. With an APR of 24.99%, if you paid off your balance on Day 30, you’d owe somewhere around $20.83 in interest. If it only took one month to pay back the money, the total financing costs would be somewhere between $50.83 and $70.83.
The longer it takes you to pay off the debt, the more expensive it gets. Credit card interest usually compounds daily. This means what seems like a manageable dollar amount of interest at the beginning can spiral out of control quickly.
How to Reduce the Costs of a Cash Advance
A credit card cash advance is an expensive way to borrow, and one that you should avoid if possible. But if you find yourself in a situation where you absolutely need one, there are a couple ways to slow the bleeding. They’re simple concepts, but they may not be easy to implement.
Minimize How Much You Borrow
The fees and interest on your cash advance are a percentage of the amount you borrow. That means one of the best ways to limit your interest and fees is to lessen the amount you borrow.
If you’re borrowing this money to pay for a down payment on a car loan so you have transportation to your place of employment, maybe don’t get the fanciest model vehicle. Get something functional, safe and affordable instead — without all the bells and whistles.
You could also try negotiating with the dealership on the base price, which should lower the amount required for a down payment by the bank.
Anything you can do to lower the amount you borrow via a credit card cash advance is worth considering.
Pay Off Your Cash Advance as Quickly as Possible
Just trying to get enough money together for groceries until payday? Then make sure you pay back your cash advance as soon as your paycheck hits your account.
Because interest compounds daily, every day you owe money will cause your total due to grow noticeably the longer it takes you to pay it off.
Alternatives to Cash Advances
If you need money quickly, there are other products you could consider. Some are better than credit card cash advances – and some are worse.
Personal Loan vs. Cash advance
Personal loans tend to be cheaper than cash advances if you have good credit. Unsecured personal loans require no collateral, and you ideally want to get one with a fixed interest rate for predictable monthly payments.
If you have good to excellent credit, you might expect these loans to come with an APR somewhere between 7% and 20%. If you have poor credit, though, interest rates could be even higher than those found on cash advances.
Personal loans sometimes come with origination fees, too, which are an additional fee but are also already figured into the cost of the APR. If you take out one of these loans, it’s ideal to find one without any prepayment penalties. That way if you pay off the loan early to save money on interest, you won’t incur any extra expenses.
Also be wary of personal loans that come with balloon payments. With these loans, your monthly payment will be lower at first, but then you’ll have one, lump-sum payment at the end. If you can’t afford the balloon payment, you’re right back where you started – needing to borrow more money.
One con of these loans is that they tend to have terms that last at least a year, though you can find some with shorter terms. Another problem is that if you only need to borrow a few hundred dollars, most financial institutions offer a minimum amount between $500 and $1,000. So you might end up borrowing more than you need.
In many cases, a personal loan is preferable to a cash advance. But be mindful that if you have poor credit or the interest rate offered to you is higher than 20%, that might not be the case. Run your own personal numbers carefully.
Payday Loan vs. Cash Advance
The interest rate advertised by payday loan lenders is rarely in terms of APR. If it were, it would often be over 100%.
Different states have different laws regulating exactly how much payday lenders are allowed to charge, but even still, a cash advance will be dramatically cheaper than a payday loan.
Borrowing Money From Family & Friends vs. Cash Advance
If you’re in a rough financial spot, you could always reach out to a family member or friend for help. Depending on your relationship and the amount of money, they may keep the debt informal or write out an official contract with or without interest.
Before you borrow money from family or friends, make sure you can afford to pay them back in the near future. If you cannot, it may damage your relationship. However, if you can find a favorable, realistic arrangement, this method is highly likely to be less expensive than taking out a cash advance.
Ask for Assistance vs. Cash Advance
Taking out a cash advance to cover something like a utility bill? There may be a program available to help you so that you don’t have to borrow from your credit card company.
If your utility company sets you up on a payment plan, they may be willing to spread your current balance out over the course of several months, making repayment more achievable than owing it all in one lump sum. They may also set you up on a plan that estimates equal payments over the course of a year, so you’re not paying $20 for heat in July and $300 in January. Instead, you might get a more steady monthly bill of $150 or something along those lines.
If there is a state, government, or charitable program associated with your utility, they may have funds on hand to help people who are going through economic hardship. It may bruise your ego to apply for a program like this, but the amount of interest and principal it saves you can give you a clean slate and help keep the lights on without going into unaffordable debt.
Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder.
Rewards credit cards entice consumers with travel points, cash back for swipes and unique perks like cell phone protection and free baggage check at airports. While these longer-term rewards and benefits are important to consider when opening a credit card, you should also pay attention to the sign-up bonus, sometimes called a welcome offer.
The best credit card sign-up bonuses can put serious cash in your pocket just for using the card for everyday expenses. Each bonus will have its own terms, usually something like:
Earn X amount of cash, points or miles for Y amount of dollars spent in Z amount of months.
How much can you earn? That depends on the card. Credit card sign-up bonuses can reach 100,000 points or $800 cash back — or more. Sometimes, to get the best credit card sign-up bonuses on offer, you’ve got to be willing to pay a higher annual fee or spend more money with the card in a short amount of time.
Choosing a credit card solely for the sign-up bonus may not be the best long-term plan, but if you’ve got a healthy mix of credit cards in your wallet already and want to open another exclusively for the welcome perks, it might not be a bad idea. Not sure where to start? We’ve assembled a list of the seven best credit cards with sign-up bonuses to guide your search.
The Best Credit Cards with Sign Up Bonuses
Chase Sapphire Preferred Card: Best Overall Credit Card for Bonuses
Discover it Cash Back: Best Cash Back Credit Card for Sign-Up Bonuses
Capital One Venture Rewards Credit Card: Best Travel Credit Card for Sign-Up Bonuses
United Quest Card: Best Airline Credit Card for Sign-Up Bonuses
Marriott Bonvoy Boundless Credit Card : Best Hotel Credit Card for Sign-Up Bonuses
The Platinum Card from American Express: Biggest Credit Card Sign-Up Bonus
The Chase Sapphire Preferred Card is the best overall credit card for bonuses. For a low annual fee, this card has a generous welcome offer (60,000 points, worth $750 when redeemed for travel through Chase Ultimate Rewards) but also boasts ongoing bonuses for referrals and anniversaries. Plus, its overall rewards program is nice for everyday purchases, and there isn’t a foreign transaction fee.
Chase Sapphire Preferred Card
Annual fee
$95
Rewards
1x to 5x points
Sign-up bonus
60,000 bonus points
Regular APR
18.99% to 25.99%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
5% per balance transfer ($5 minimum balance transfer fee)
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About Chase Sapphire Preferred Card
The Chase Sapphire Preferred Card is a great all-around credit card. For just $95 a year, you’ll unlock one of the best travel credit cards available. To earn 60,000 bonus points, just spend $4,000 in purchases in the first three months from account opening. Each point is worth 1 cent, so that’s a $600 value.
But when you redeem your points for travel purchases through Chase Ultimate Rewards, they’re worth 25% more. That means your 60,000 bonus points could be worth $750 toward your next big vacation.
Beyond the sign-up bonus, you can expect 15,000 bonus points every time you refer a friend to the Chase Sapphire Preferred Card, up to 75,000 points a year. You’ll also get bonus points every account anniversary equal to 10% of your total purchases that year. So if you spend $50,000 with the card, that’s 5,000 bonus points on your anniversary.
And the Chase Sapphire Preferred Card certainly incentivizes you to spend. You’ll earn:
5x points on travel purchased through Chase Ultimate Rewards (excluding hotel stays that qualify for the annual Ultimate Rewards Hotel Credit)
3x points on online grocery shopping (excluding Walmart, Target and wholesale clubs)
3x points on dining (including dining out, delivery services and takeout)
3x points on select streaming services
2x points on travel purchases made outside Chase Ultimate Rewards
1x point per dollar on all other eligible purchases
You’ll also get up to $50 in statement credits every year when you book hotel stays directly through Chase Ultimate Rewards.
Discover it Cash Back
Best Cash Back Card for Sign-Up Bonuses
Key Features
Unlimited Cashback Match bonus program
Up to 5% cash back
No annual fee or foreign transaction fees
If you’re willing to wait a year to get your hands on your bonus, the Discover it Cash Back can pay off big time: Whatever cash back you earn in your first year, Discover will match. That’s double cash back on every purchase. In addition to this unique sign-up bonus, the Discover it Cash Back card has no annual fee or foreign transaction fee and offers rotating 5% cash back bonus categories.
Discover it Cash Back
Annual fee
$0
Rewards
1% to 5% cash back
Sign-up bonus
Unlimited Cashback Match
Regular APR
14.99% to 25.99%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
3% intro balance transfer fee; 5% balance transfer fee on future balance transfers
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About Discover it Cash Back
The Discover it Cash Back is one of the top cash back rewards credit cards, not just because of its great bonus program but also because of its unique rotating cash back rewards. For 2022, cardholders earn 5% cash back in select categories depending on the month:
January to March: 5% cash back at grocery stores, gyms and fitness clubs
April to June:5% cash back at Target and gas stations
July to September:5% cash back at restaurants and when spending via PayPal
October to December:5% cash back on Amazon and when spending via digital wallets
The 5% cash back is capped at $1,500 in purchases in the relevant category per quarter. Consumers earn 1% cash back on all other eligible purchases, year-round.
Since the bonus program doubles your cash back total for the entire first year from account opening, you can earn a significant chunk of change — and all for no annual fee. But it’s not just annual fees; you won’t pay any foreign transaction fees for swiping abroad either.
The Discover it Cash Back isn’t the only Discover credit card to offer this unique sign-up bonus. Consumers who open a Discover it Student Cash Back card or even the Discover it Secured Credit Card can access the same Cashback Match. That’s why we named the latter the best secured credit card for borrowers with bad credit.
Capital One Venture Rewards Credit Card
Capital One Venture Rewards Credit Card
Key Features
75,000 bonus miles
Multiple travel perks
No foreign transaction fees
The Capital One Venture Rewards Credit Card is a top travel card with a sign-up bonus. For a low annual fee, you’ll earn between 2x and 5x points per dollar spent, and you’ll get 75,000 bonus points to boot. The lack of foreign transaction fees, two lounge visits, and TSA Precheck or Global Entry reimbursement make this a high-quality travel card without the high fees of more luxe travel cards.
Capital One Venture Rewards Credit Card
Annual fee
$95
Rewards
2x to 5x miles per dollar
Sign-up bonus
75,000 bonus miles
Regular APR
18.99% to 26.99%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
None for balance transfers at regular APR; 3% per transfer for any promotional APR
Minimum credit score requirement
Excellent credit (740 and higher)
More Information About Capital One Venture Rewards Credit Card
You’ll find travel credit cards offering more perks and higher rewards rates than the Capital One Venture Rewards Credit Card — but they usually come at a higher annual fee. We love how much this credit card offers for what’s considered a low annual fee ($95) in the travel credit card arena. You’ll get two free lounge visits every year, automatic Hertz Five Star Status and up to a $100 statement credit for Global Entry or TSA PreCheck.
More importantly, you can earn 75,000 bonus miles for spending $4,000 on purchases in the first three months from account opening. Plus, you can earn 5x points when booking hotels and rental cars through Capital One Travel — and unlimited 2x points on all other eligible purchases.
With no foreign transaction fees, 24-hour travel assistance, rental car insurance and travel accident insurance, the Capital One Venture Rewards Credit Card should be in every serious traveler’s wallet.
United Quest Card
Best Airline Card for Sign-Up Bonuses
Key Features
$125 annual United purchase credit
United anniversary award flight credits
Referral bonuses
Airline credit cards serve a niche audience — you’ve got to be a loyalist to a specific airline for them to make sense. But if you’re happy to choose an airline based on the credit card you open, go for the United Quest Card. Hands down, it’s got one of the best bonus programs of any airline credit card but also offers a reasonable annual fee, great rewards and even more travel perks.
United Quest Card
Annual fee
$250
Rewards
1x to 3x miles
Sign-up bonus
70,000 bonus miles
Regular APR
19.49% to 26.49%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
5% per balance transfer ($5 minimum balance transfer fee)
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About United Quest Card
With the United Quest Card, you can earn 70,000 bonus miles when you spend $4,000 in purchases in the first three months from account opening. You can also earn 10,000 bonus miles for every referral — up to 100,000 bonus miles a year. But the United Quest Card offers value far beyond welcome offers and referral bonuses.
For starters, you’ll earn a $125 statement credit each year for United purchases made on the Quest Card. Beyond that, you can expect to earn:
3x miles for every dollar spent on United Airlines purchases (after the $125 in statement credits)
2x miles for every dollar spent on all other travel purchases, including airfare, hotels, rental cars, cruises, rideshare, tolls, trains, local transit and more
2x miles for every dollar spent on dining, which includes eligible delivery services
2x miles for every dollar spent on select streaming services
1x mile for every dollar spent on all other eligible purchases
Cardholders also get 5,000 miles back after taking a United or United Express flight booked with miles — up to two times a year. That’s up to 10,000 extra miles just for booking the United flights you probably planned to purchase anyway.
Finally, you won’t be charged a foreign transaction fee for swiping your United Quest Card abroad, and you’ll get two free checked bags for every trip ($320 in savings for every round trip you book).
Marriott Bonvoy Boundless Credit Card
Best Hotel Card for Sign-Up Bonuses
Key Features
Up to 17x points at Marriott
Free Night Award each year
Referral bonuses
Like with airline cards, hotel credit cards are targeted at travelers who are loyal to a specific hotel chain. Luckily, Marriott has more than 7,000 participating hotels, making the Marriott Bonvoy Boundless Credit Card easy to use for most travelers. You’ll enjoy up to 17x points for every dollar spent at a Marriott — plus, you’ll start off with 100,000 bonus points if you meet the requirements.
Marriott Bonvoy Boundless Credit Card
Annual fee
$95
Rewards
1x to 17x points
Sign-up bonus
100,000 bonus points
Regular APR
18.99% to 25.99%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
5% per balance transfer ($5 minimum balance transfer fee)
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About Marriott Bonvoy Boundless Credit Card
To earn the sign-up bonus from the Marriott Bonvoy Boundless Credit Card, just make $3,000 in purchases in the first three months from account opening. If you do, you’ll receive 100,000 bonus points, good for roughly $900 in hotel stays with Marriott. You can also rack up 40,000 bonus points for each referral, up to 200,000 bonus points a year.
Beyond the sign-up bonus, the Boundless card offers a tremendous rewards rate — when you spend at Marriott hotels. Again, hotel cards really only make sense for frequent travelers loyal to hotel chains. If you regularly stay at a Marriott, however, this card can pay off big time. You’ll earn:
Up to 17x points for spending on Marriott hotels
6x points for booking hotels with the card
10x points from being a Marriott Bonvoy member
1x point from Marriott with Silver Elite Status (you get this perk for being a cardmember)
3x points for every dollar spent on groceries, gas and dining (up to $6,000 spent)
2x points for every dollar on all other eligible purchases
Another perk of this card: You get one Free Night Award each year on your account anniversary, valid for one night at any hotel with a redemption level up to 35,000 points.
The Platinum Card from American Express
Biggest Card Sign-Up Bonus
Key Features
Abundance of statement credits
High rewards points on travel purchases
Access to travel counselors
By a large margin, the Platinum Card from American Express offers the best credit card sign-up bonus, the best statement credits and the best perks for cardholders. The only problem? It costs nearly $700 a year to keep in your wallet. But if you’re a credit card power user who will make the most out of this Amex, it could be worth your while: 125,000 bonus points are ready to be claimed.
The Platinum Card from American Express
Annual fee
$695
Rewards
1x to 5x points
Sign-up bonus
125,000 bonus points
Regular APR
18.99% to 25.99%
Foreign transaction fees
No foreign transaction fee
Balance transfer fees
Balance transfers not permitted
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About The Platinum Card from American Express
Let’s address the elephant in the room: At $695 a year, the Platinum Card from American Express is the most expensive credit card on our list. But you’ll get a lot more perks and bonus points with this card than you would with any other card that we ranked.
For starters, you’ll get 125,000 bonus points after you spend $6,000 on purchases in the first six months from account opening. Points are good for purchases with more than 500 leading brands in dining, travel, entertainment and shopping.
You’ll earn more than just the bonus points, too. Here’s how the Platinum Card’s rewards rate breaks down:
5x points for every dollar spent on flights (up to $500,000 spent each year)
5x points on prepaid hotels (booked through AmexTravel.com)
1x points on all other eligible purchases
But this card is about so much more than bonus points and rewards points. Here are just some of the perks you’ll get from the Platinum Card:
Up to $100 reimbursement for TSA PreCheck or Global Entry
$200 annual airline fee credit for expenses such as flight changes and checked bags
$200 annual hotel credit on prepaid Fine Hotels and Resorts
$15 monthly Uber Cash (plus an extra $20 in December) for rideshare and Uber Eats
$20 monthly digital entertainment credit (The New York Times, Disney+, The Disney Bundle, ESPN+, Hulu, Audible, Peacock and SiriusXM)
$25 monthly credit for eligible Equinox club memberships
$155 annual Walmart+ credit
$100 annual statement credits for purchases made at Saks Fifth Avenue
$189 back each year for CLEAR membership
Altogether, that’s nearly $1,700, more than double the annual fee. Plus, with the Platinum Card, you won’t ever pay a foreign transaction fee, you’ll get special status with multiple hotel chains, and you’ll get access to the Global Lounge Collection (more than 1,400 around the world).
Chase Freedom Flex
Easiest-to-Earn Sign-Up Bonus
Key Features
Up to $800 welcome bonus
Revolving 5% cash back categories
No annual fee
Tracking Marriott points or United miles can get challenging; the Chase Freedom Flex makes it much simpler. Just earn cash back with every swipe — and it only takes $500 in purchases over three months to earn the $200 bonus. And for the first year, you’ll earn 5% cash back on groceries as an added bonus, up to $600 in additional cash back.
Chase Freedom Flex
Annual fee
$0
Rewards
1% to 5% cash back
Sign-up bonus
Up to $800
Regular APR
17.99% to 26.74%
Foreign transaction fees
3% per transaction
Balance transfer fees
3% intro balance transfer fee ($5 minimum fee); 5% balance transfer fee on future balance transfers
Minimum credit score requirement
Good to excellent credit (670 and higher)
More Information About Chase Freedom Flex
The Chase Freedom Flex is a great no-frills cash back credit card. Earning the standard $200 sign-up bonus is easy; just spend $500 in the first three months. But what sets this bonus offer apart from similar offers (the Capital One Quicksilver’s $200 bonus is just as easy to earn) is the additional 5% grocery cash back bonus offered through the first year. With 5% cash back on every grocery purchase up to $12,000, you can add $600 to your full sign-up bonus offer within the first year.
Speaking of 5% cash back, the Chase Freedom Flex always has some kind of 5% cash back offer. For 2022, cardholders earn 5% cash back per the following schedule:
January to March: 5% cash back at grocery stores (excludes Walmart and Target) and on eBay purchases
April to June:5% cash back on select streaming services and on Amazon purchases
July to September:5% cash back at movie theaters, car rental agencies and gas stations, as well as on select live entertainment
October to December:5% cash back at Walmart and purchases via PayPal
Cardholders always earn 5% cash back on travel purchased through Chase Ultimate Rewards, plus 3% cash back on restaurant and drugstore purchases and 1% cashback on all other eligible purchases.
The Chase Freedom Flex doesn’t boast a bunch of special travel perks, and you’ll pay a foreign transaction fee when swiping abroad. But overall, this card is a great cash back option, and earning the bonus requires little effort. Plus, you can earn up to $500 a year in referral bonuses ($100 per referral).
What Is a Sign-Up Bonus?
A sign-up bonus on a credit card is a reward that consumers can earn by meeting some basic criteria within a set number of months from opening the card. Once the consumer has met the requirements, they’ll earn a bonus, usually in the form of cash, points or miles.
Credit card issuers use sign-up bonuses to entice new consumers to apply for a credit card. These bonuses are typically only available on rewards credit cards, like cash back credit cards and travel credit cards, meaning they’re aimed at borrowers with good to excellent credit scores.
Pro Tip
A credit card issuer may also refer to its sign-up bonus as a sign-up offer, welcome bonus or welcome offer.
Credit card sign-up bonuses are mostly formulaic: Earn X amount of cash (or points or miles) when you spend Y amount of money on the card in Z amount of months. Some of the best credit card sign-up bonuses include additional incentives, like extra cash back for the first year in certain spend categories or even cash back matches for the first year.
Types of Sign-Up Bonuses
Welcome offers are usually straightforward, but some credit card issuers get more creative with their sign-up bonus programs. Here are some of the common sign-up bonuses you may encounter when shopping around for credit cards:
Standard Sign-Up Bonus
The most straightforward credit card welcome offer is the promise of a set amount of cash, miles or points for a set amount of spending in a set amount of months.
For example, the Capital One Quicksilver card offers one of the most straightforward bonus programs available: Spend $500 in the first three months, and you’ll earn a $200 bonus.
Matching Bonus
Discover’s suite of rewards credit cards is famous for Discover’s unique bonus program. Rather than earn your reward after a few months, you’ll have to hold out for a whole year — but it’s totally worth it.
In these matching bonus programs, credit card issuers like Discover offer an unlimited bonus match. Whatever you earn in cash back during your first year, the credit credit issuer will double, dollar-for-dollar.
We named the Discover it Cash Back card to our list of the best credit cards with sign-up bonuses for its Unlimited Cashback Match program, but other rewards cards in the Discover family offer this program as well. For example, students should consider the Discover it Student Cash Back. In fact, we just named it the overall best student credit card available.
Bonus Rewards
Some credit card issuers may offer a bonus on top of the standard sign-up bonus. This typically looks like extra cash back or points in specific spend categories for a set amount of time.
For example, the Chase Freedom Flex, which earned a spot on our list of the best credit cards for sign-up bonuses, is currently offering a $200 bonus for $500 in purchases within the first three months and 5% cash back at grocery stores for the first year (up to $12,000 spent). The latter is worth an additional $600.
Dual-Stage Bonus
Though it’s less common, some credit card issuers may offer double bonuses. You’ll earn a set amount of cash for meeting one level of criteria — and then a second bonus if you meet a second set of criteria.
Take the United Business Card, for example. This airline credit card is designed for business travelers who regularly fly United, so it has a limited audience — but the welcome bonus is enticing for those who fit the bill. You’ll get 75,000 bonus miles if you spend $5,000 in the first three months and then another 75,000 bonus points if you spend $20,000 total in your first six months.
Approval Bonus
Less commonly, a credit card may come with an instant bonus upon approval. While you won’t find offers like this from Chase, Capital One, Citi or American Express, retailers are more likely to incentivize card sign-ups with approval bonuses.
For example, the Amazon Prime Rewards Visa Card offers a $100 Amazon gift card the moment you’re approved.
Sign-up bonuses aren’t the only type of credit card bonus. For example, in addition to the welcome offer, the Chase Sapphire Preferred Card offers referral bonuses (up to 75,000 points a year) and an anniversary bonus (10% of your total purchases for the year).
Pros and Cons of Credit Cards With Welcome Offers
Welcome offers on credit cards can put extra cash in your pocket, but they may also encourage increased spending and add to your credit card debt. Weigh the pros and cons of credit card sign-up bonuses before applying.
Pros
Extra cash: Whether the bonus payout is in cash, points or miles to redeem for a future purchase, it’s money that you didn’t have before — and depending on the card, the bonus could be big.
Incentivized spending: Because bonuses usually require spending in the first few months from account opening, they get you in the habit of using the card, which helps you earn even more perks.
Credit score improvement: If you use your rewards credit card responsibly (maintain a low credit utilization by paying it off in full every month), you should see an increase in your credit sco
Credit score improvement: If you use you pay off your rewards credit card every month, you should see an increase in your credit score.
Other perks and rewards: The best credit cards with sign-up bonuses usually have great long-term value via rewards and special perks, statement credits and other benefits.
Cons
Credit score requirement: Sign-up offers are great, but you’ve got to have a good enough credit score to qualify. Most credit cards with welcome bonuses require good or excellent credit.
High APR: In general, rewards credit cards carry a higher interest rate. If you carry a balance from month to month, the credit card debt can grow quickly.
Overspending: To earn your bonus, you may have to spend more on the card than you otherwise would in that timeframe.
Short-term benefit: Choosing a credit card solely based on its sign-up bonus may be a bad move. Consider: Card A may offer an extra $100 over Card B, but Card B may offer more long-term value.
What to Look For in a Credit Card Sign-Up Bonus
The actual bonus amount — and the steps required to earn the bonus — are the number one thing you should consider when choosing a credit card solely for its welcome bonus. But don’t stop there: You should also consider a card’s fees, rewards and interest rate.
Bonus Amount
When you’re researching the best credit cards for sign-up bonuses, you’ll obviously want to find a card with a generous welcome offer. If you’re considering travel cards that pay out points or miles instead of cash back, make sure you understand the value of those points and miles.
And don’t just look at the bonus amount. When considering similar cards, review what each card requires for you to earn the bonus. If one welcome offer is easier to obtain than the other and the cards are otherwise similar, go with that option.
A sign-up bonus can be enticing, but you should consider the long-term value of a credit card before opening. For example, if the card has a high annual fee and you won’t use it enough to get continued value after the bonus, it’s not a good fit for your wallet.
Annual Fee
Some rewards credit cards have no annual fee, but their cash back or travel points tend to be lower than what you’d get with a card charging a fee. That holds true with welcome bonuses as well. If you’re willing to pay an annual fee, the bonus is likely to be larger.
Just remember: The welcome bonus is a one-time thing, but you’ll have to pay that annual fee each year. Make sure that the credit card offers enough long-term perks to justify any fee.
Additional Fees
It’s not just the annual fee you should consider. If you travel abroad often, find a card that won’t charge a foreign transaction fee every time you swipe. And if you’re considering a balance transfer to consolidate debt, you’ll want a card with low balance transfer fees.
If you’re really serious about a balance transfer, however, don’t prioritize a sign-up bonus. Instead, check out our list of the best balance transfer credit cards to find one with a 0% intro APR and low fees.
Rewards Rate
Credit card sign-up bonuses offer a one-time value. Some bonuses are big enough to make a serious (but temporary) impact on your finances, but after you’ve spent the money, you’re back at square one.
To make sure you’ll continue getting value out of your credit card, look for one with a stellar rewards rate. If you travel often — especially if you prefer luxury hotels and first-class flight accommodations — consider a travel card with points or miles. Otherwise, a cash back credit card that rewards everyday purchases may be right for you.
Additional Perks
Not all credit cards are created equal. Read the fine print to see what additional perks they offer. For example, some credit cards on our list offer referral bonuses while others have amazing statement credits for expenses like Disney+ and airfare. Choose a card with a great sign-up bonus — but don’t forget to compare the other perks as well.
APR
In general, rewards credit cards carry higher-than-average interest rates. If you think you’ll struggle to pay off your card in full each month, don’t bother with a rewards card. Otherwise, that interest will quickly outweigh any sign-up bonus you earn early on.
Frequently Asked Questions (FAQs) About Sign-up Bonus Credit Cards
We’ve found the answers to the most commonly asked questions about sign-up bonus credit cards.
Are Credit Card Sign-Up Bonuses Worth It?
Credit card sign-up bonuses offer great value: You can earn extra cash, points or miles just for spending money as you normally do. However, you should also consider a credit card’s annual fee, rewards rate, foreign transaction fee and APR before applying. A shiny sign-up bonus may offer great value at the start, but you want a credit card that delivers value in the long term.
Are Sign-Up Bonuses Taxable?
You won’t generally pay taxes on credit card sign-up bonuses because the IRS considers credit card bonuses as rebates rather than earned income. Other credit card rewards, however, may be taxable just like interest in a bank account — but you can count on the credit card issuer to send you a 1099 form each tax season for any money you need to pay taxes on.
Can You Open Multiple Cards with Sign-Up Bonuses?
You can open multiple credit cards with sign-up bonuses, though it’s not a good idea to open multiple cards at once because of the hard inquiries on your credit report for each application. In general, you should wait at least six months between each credit card application to avoid lasting damage to your credit score.
Contributor Timothy Moore is a writer and editor in Cincinnati who covers banks, loans, insurance, travel and automotive topics for The Penny Hoarder.
If you’re planning a trip out of the U.S., you’ve probably started to worry about how you’re going to pay for things once you get there.
To avoid running around with a pocket full of cash — a situation we DON’T recommend — a no foreign transaction fee credit card might be your solution.
No foreign transaction fees means you can pay for things without being dinged for the privilege of using a foreign bank.
However, most credit cards do charge foreign transaction fees, so we’ve gathered a list of the best no foreign transaction fee credit cards on the market to meet your traveling needs.
The Best Credit Cards with No Foreign Transaction Fees
Chase Sapphire Preferred Credit Card: Best Overall
Capital One Venture X Credit Card: Best Premium Travel Cards
American Express Gold Credit Card: Best for Foodies
Discover it Cashback Credit Card: Best for No Annual Fee
Capital One QuickSilver Credit Cash Rewards: Best for Simple Cash Back
United Explorer Credit Card: Best Airline Credit Card
Ink Business Preferred Credit Card: Best for Business Travelers
Bank of America Travel Rewards Card for Students: Best for Students
Petal 1 “No Annual Fee” Credit Card: Best for Bad Credit
Chase Sapphire Preferred Credit Card
Best Overall
Key Features
60K sign-up bonus points
$50 annual hotel credit
The Chase Sapphire Preferred credit card is our overall winner for the best no foreign transaction fee credit card because it has good reward rates, a lucrative sign up bonus, and lots of peace of mind travel perks to keep you protected while you travel.
Chase Sapphire Preferred Credit Card
Annual Cost
$95
Regular APR
18.24-25.24% variable APR
Reward Rate
1 – 5 points per $1
Credit Score
Good to excellent credit (670 and higher)
More Information about Chase Sapphire Preferred Credit Card
The Chase Sapphire Preferred credit card offers a whopping 5x points on travel purchased through Chase Ultimate Rewards. You then get 2x points on all other travel purchases, 3x points on online grocery purchases, dining purchases, and streaming services, and 1x points on all other purchases. Plus, for a limited time, you’ll get 5x points on Lyft (until March 31, 2025).
When you’re ready to cash in your points, you can log on to the Chase Ultimate Rewards portal or transfer your points at a 1:1 ratio to any of Chase’s 11 airline partners or 3 hotel partners. However, you’ll get more value booking travel on the Chase Ultimate Rewards website because your points are worth 25% more when you book through Chase.
This 25% value addition also amplifies your sign up bonus. When you sign up, you’ll receive 60,000 bonus points after you spend $4,000 in the first three months. With the 25% increase, these points are worth approximately $750 when redeemed for travel purchased through Chase Ultimate Rewards.
Chase also rewards you for booking hotels through their website with their annual hotel credit. You can receive up to $50 in statement credits each year if you purchase hotels through Ultimate Rewards.
As if all that wasn’t enough, to top it off you’ll get 10% of your total points back each anniversary as a reward for keeping your credit card account open.
The Chase Sapphire Preferred card of course has no foreign transaction fee for international purchases, but it doesn’t offer any Global Entry reimbursement or airport lounge access which is a bummer.
However, you do get Auto Rental Collision Damage Waiver, Trip Cancellation/Trip Interruption Insurance, travel and emergency assistance services, extended warranty protection, and purchase protection–some nice perks if you’re using this card for an oversea adventure but you want to keep it from becoming too adventurous.
Capital One Venture X Credit Card
Best Premium Travel Card
Key Features
75,000 bonus miles with eligible purchases
10,000 anniversary miles bonus
The Capital One Venture X credit card offers lots of premium perks and credits that help make up for the hefty annual cost.
Capital One Venture X Credit Card
Annual Cost
$395
Regular APR
19.99% – 26.99% variable APR
Reward Rate
2 – 10 points per $1
Credit Score
Excellent (750 and above)
More Information about Capital One Venture X Credit Card
The Capital One Venture X credit card claims to be an elevated rewards card and, for the most part, it delivers.
First off, you get 75,000 bonus miles when you spend $4,000 on purchases within the first 3 months of the account opening.
This large sign up bonus isn’t the end of Capital One’s bonus points, with 10,000 points each account anniversary year. Plus, they’ll reimburse up to $300 in travel when booked through Capital One Travel.
When booking travel, you can feel secure you’re always getting Capital One’s best prices with their free price drop protection and free 24 hour price match.
These perks start to make the hefty $395 annual fee feel much more manageable.
When it comes to earning points, you’ll get 10x points for hotels and rental cars booked through Capital One Travel and 5x points for flights when they are also booked through Capital One Travel. All other purchases get 2x points for every dollar spent.
You also get access to the Capital One Lounges and their partner lounge network. You can get you and 2 guests into the lounge each visit. While the partner lounge network is pretty vast, there is only one actual Capital One Lounge located in Dallas/Fort Worth International Airport, with two being built in the Denver and Dulles airports.
Capital One adds TSA Precheck or Global Entry reimbursement to their no foreign transaction fees and travel perks. You also get peace of mind with cell phone protection, primary auto insurance, and travel accident insurance.
American Express Gold Credit Card
Best for Foodies
Key Features
90K membership rewards points
$120 dining credit
This card is almost a no-brainer for foodies for whom travel is incomplete without the local dining experience. While the annual fee is a little high, the 4x returns on restaurants worldwide and $120 dining credit make the American Express Gold Card a tasty choice for international dining enthusiasts.
American Express Gold Credit Card
Annual Cost
$250
Regular APR
18.99% – 25.99% variable APR
Reward Rate
1 – 4 points per $1
Credit Score
Good to excellent credit (670 and higher)
More Information about American Express Gold Credit Card
In many ways, the American Express Gold Card is an international foodie’s dream. With the combination of no foreign transaction fees and 4x points for restaurants worldwide, this card rewards you for sampling the newest international cuisine.
You also receive 4x points on US supermarket purchases (up to $25,000 annually), 3x points on flights booked with airlines or at amextravel.com, and 1x points on all other purchases.
American Express Gold Card also offers a $120 dining credit. Basically, you earn $10 in statement credit monthly when you use your card to pay at select restaurants. Enrollment is required, but it’s like free food money.
Speaking of free money, the Gold Card also offers $120 Uber cash credit. All you have to do is add the card to your Uber account and you’ll get $10 of Uber Cash each month to spend on Uber eats or Uber rides in the US.
You also can get 60,000 membership rewards points in a sign up bonus after you spend $4,000 in the first 6 months.
These points can be transferred to American Express’ 17 airline partners and 3 hotel partners. Most of the transfers are 1:1, but know that you will be charged $0.00006 per point with a maximum fee of $99 when you send them to US airlines.
While these perks are great, the annual fee is higher than most other similar credit cards. If you’re raking in points, it can still definitely be worth it, but it’s worth checking that you’ll be spending enough in those categories.
Discover it Cashback Credit Card
Best for No Annual Fee
Key Features
5% cash back in rotating categories
0% introductory APR
The Discover it Cashback card offers good rewards rates to earn cash rewards. You do have to activate rotating bonus categories each quarter, but with no annual fee, the Discover it Cashback is still a solid no foreign transaction fee choice.
More Information about Discover it Cashback Credit Card
The Discover it Cashback card offers 5% cash back on rotating bonus categories that change quarterly. You have to activate these categories because you aren’t signed up for the bonus automatically, but we think the 5% return makes a little work worth it.
The rotating categories are:
January through March – 5% back on grocery stores (excluding Walmart, Target, and warehouse stores) and fitness clubs or gym memberships
April through June – 5% on gas stations and Target
July through September – 5% on restaurants and Paypal
October through December – 5% on Amazon.com and digital wallet purchases
You have to log onto your account to activate the bonus category each quarter. Also, each category has a $1,500 maximum rewards return. All other purchases receive 1%.
While getting your extra 5% cash back bonus category is a little complicated, getting your rewards into your pocket couldn’t be easier. With Discover, your cash rewards can be deposited directly to your bank account, applied as a statement credit, or sent to Amazon.com or Paypal.
As icing on the cake, you’ll also get Discover’s Unlimited Cashback Match where they’ll give you a dollar-for-dollar match of your cashback earned automatically at the end of your first year.
While there are no specific travel rewards with this card (Discover does have a travel specific card, but the reward rate of this card is better), it does have awesome customer service that’s available to help you 24/7.
One of people’s main concerns with Discover is that it’s not as widely accepted. Within the US, this is no longer true with Discover being accepted 99% of the time. Outside of the US, however, Discover’s coverage is more limited in Africa, the Middle East, and Eastern Europe, which is why we couldn’t give it 5 stars.
Capital One QuickSilver Cash Reward
Best for Simple Cash Back
Key Features
$200 new card member offer
No annual fee
With no annual fee, the Capital One QuickSilver Cash Rewards card’s flat rate of 1.5% cash back on everything makes it an easy card to feel comfortable with. It’s simple; you don’t have to activate bonus categories or watch that you’re purchasing the right things. You just spend and earn.
More Information about Capital One QuickSilver Cash Rewards Credit Card
The Capital One QuickSilver Cash Rewards card is a no fuss credit card that offers a decent return on all purchases. This simplicity does cost you a little in reward returns, but you can get 5% back on hotels and rental cars booked through Capital One Travel.
We love the low intro APR with 0% for 15 months on purchases and balance transfers, then 17.99% to 27.99 % after that. Plus, they also currently offer a $200 cash bonus if you spend $500 on purchases in the first three months.
Because Mastercard is the credit card issuer, the Capital One QuickSilver is accepted pretty widely internationally, so the no foreign transaction fees will come in handy.
Besides that, they offer $0 fraud liability, 24 hour travel assistance services, extended warranty, and travel accident insurance.
It might not be the way to earn rewards quickly, but the Capital One QuickSilver is a good option for simple earning and easy foreign spending.
United Explorer Credit Card
Best Airline Credit Card
Key Features
50K sign-up bonus miles
$0 fee for the first year, then $95
The United Explorer Card is one of our favorite airline cards with a $0 introductory fee, good reward returns, and some airport perks not offered by other mid-tier cards. If you fly with United, this card offers some really good perks for not that much out-of-pocket and is probably a good choice for your no foreign transaction fees card.
United Explorer Credit Card
Annual Cost
$0 introductory annual fee then $95
Regular APR
18.74-25.74% variable APR
Reward Rate
1 -2 miles per $1
Credit Score
Good to excellent credit (670 and higher)
More Information about United Explorer Credit Card
The United Explorer Card offers 2 miles for every dollar spent at United Airlines, restaurants, and hotels. All other purchases earn you 1 mile per dollar.
You can also currently earn 50,000 miles in a sign up bonus when you spend $3,000 in the first 3 months. Plus, you can claim a $0 introductory rate for the annual fee, making the card an easy financial decision.
While traveling with the United Explorer Card, you get no forieign transaction fees, priority boarding, and a free checked bag for you and a friend.
You can also get a $100 TSA PreCheck, Global Entry, or NEXUS fee credit and two one-time passes to the United Club airport lounge. It’s not a yearly membership, but for the annual fee, it’s a nice perk.
As you earn points, you can achieve United’s Premier Status which gives you preferred seating, upgrades, waived fees and access to Saver Award flights–flights offered at a lower miles rate.
The key value to an airline credit card is that it matches where you fly. Check out our 5 best airline credit cards to find the airline card that matches your flight pattern.
Ink Business Preferred Credit Card
Best for Business Travel
Key Features
100K bonus points
Chase Ultimate Rewards
Offered by Chase, the Ink Business Preferred credit card is a good choice for most business owners. It earns you 3x points back on common business expenses and 25% more value when you redeem points through Chase Ultimate Rewards.
Ink Business Preferred Credit Card
Annual Cost
$95
Regular APR
18.99% – 23.99 % variable APR
Reward Rate
1 – 3x points per $1
Credit Score
Good to excellent credit (670 and higher)
More Information about Ink Business Preferred Credit Card
One of the biggest draws to the Ink Business Preferred card is the huge sign up bonus. You’re rewarded 100,000 bonus points after you spend $15,000 on purchases in the first 3 months of opening your account. That’s about $1,000 in cash or $1,250 in travel points on Chase Ultimate Rewards.
Off the bat, that’s a great start for a business card.
You can also earn points on your business spending, earning 3 points for every dollar spent (up to $150,000 each year) on common business expense like:
Shipping
Advertising purchases with social media sites and search engines
Internet, cable, phone purchases
Business travel
Everything else earns 1 point per dollar, but these common business spending returns will probably more than compensate for the $95 annual fee.
Like other cards offered by Chase, you get 25% more value with your points when you redeem them for travel through Chase Ultimate Rewards or you can transfer them to Chase’s airline or hotel partners on a 1:1 basis.
Other business perks with the Ink Business Preferred card include free employee cards, 24/7 access to quarterly reports, fraud protection, trip cancellation insurance, and more. We especially like the cell phone protection plan which will give you up to $1,000 per claim for you and any of your employees listed on your bill.
Petal 1 “No Annual Fee” Credit Card
Best for Bad Credit
Key Features
No Annual Fee
Starter credit limits
Petal 1 “No Annual Fee” Visa Credit Card is for borrowers with bad or no credit history that struggle to qualify for other credit cards. The card offers cash back at select merchants and a potentially high credit limit.
Petal 1 “No Annual Fee” Credit Card
Annual Cost
$0
Regular APR
22.99% to 32.49% Variable APR
Reward Rate
2% – 10% cash back
Credit Score
Poor to no credit history (300 and higher)
More Information about Petal 1 “No Annual Fee” Visa Credit Card
If you’re looking at this list and worried that you won’t qualify for any of the cards above, the Petal 1 “No Annual Fee” Visa Credit Card might be the right choice for you. It’s an unsecured card that offers no annual fee and no foreign transaction fees.
With this card, credit limits start around $300 but can go as high as $5,000. You can qualify for a credit increase each 6 months by making qualifying on-time payments and keeping your credit score within a specific, personalized range. Many “bad credit” cards have much lower credit limits, so we love the possibility of such a high limit.
As expected, this card has a high APR that can really hurt you if you carry a balance. However, many similar credit cards charge an annual fee, so the fact that this one doesn’t and you can still receive cashback at select merchants is a nice feature.
What is a Foreign Transaction Fee?
A foreign transaction fee is a fee that credit card holders pay for transactions that pass through a foreign bank. While we mostly think of foreign transaction fees applying when you visit a foreign country, they are also assessed when you purchase something from a foreign merchant or in a foreign currency online.
A credit card’s foreign transaction fee is normally somewhere between 1% to 3% of the transaction. While this fee technically includes an issuer fee and a network fee, it is shown as one composite percentage to help you understand how much each transaction will cost you. Legally, this percentage must be communicated to the consumer, so you should be able to find it on your card membership agreement.
How much are Foreign Transaction Fees?
Foreign transaction fees normally range from 1% to 3% per transaction. Credit card companies are required to publish these fees, but make sure to read the fine print.
For example, some cards also have a minimum charge amount. This means for each foreign transaction you will be charged the greater of the percentage of the purchase or a set dollar amount (typically $1) — that makes your $2 water bottle purchases significantly more expensive.
Foreign Transaction Fee Comparison
Issuer
Foreign Transaction Fee
American Express
2.7%
Bank of America
3%
Barclays
3%
Capital One*
None
Chase
3%
Citi
3%
Discover*
None
US Bank
Up to 3%
Wells Fargo
3%
*Capital One and Discover do not charge foreign transaction fees on any of their cards
What to Look for in a No Foreign Transaction Fees Credit Card?
What makes a good no foreign transaction fee card looks pretty similar to a normal credit card — namely: APR, annual fees vs. rewards, and sign-up bonuses — but unlike a normal credit card, we also pay attention to the offered travel benefits.
APR
In an ideal world, you’ll never need to worry about your credit card’s APR. But, in case you end up not being able to pay your balance off in full each month, we think it’s important to understand what you might be charged in interest.
You’ll want to pick a card with a low APR, just in case you ever end up carrying a balance. We especially love the cards that offer a 0% APR as an introductory offer.
Annual Fee vs. Rewards
In essence, you want to make sure that this card isn’t costing you more than the service it’s providing you. While some cards offer $0 annual fees, the more expensive cards tend to offer more rewards — just make sure you’ll be able to take advantage of them.
One thing you might check is that your spending habits line up with the card’s reward system. It won’t benefit you at all that your card offers 8% on Lyft if you never rideshare.
The other thing you should check is the amount of spending you plan on doing on this card. If you’re not planning on using it for many purchases, then you will be hard-pressed to justify paying a steep annual fee.
It can take some strategizing, but you always want the annual fee/reward scale to tip in your favor, so make sure you’re able to make the card worth it.
Sign-up Bonuses
Cards often offer extra miles or points as a welcome bonus if you spend a set amount on purchases within a certain period of time. This can be a really quick way to rack up points to use on rewards or travel.
Just make sure that the bonus requirements are achievable for you and your budget. Are you really going to spend $6,000 in 6 months with this card or would it be better to go with a card that requires $500 over 3 month for the bonus?
Travel Benefits
If you’re looking into no foreign transaction fees cards, it’s probably because you’re thinking about traveling soon. Some credit cards offer some nice travel benefits that will make your traveling experience more enjoyable and less stressful.
Think about your future travel plans and what conveniences and features will enhance or protect your trip. Will you have a long layover where access to an airport lounge would be nice? Are you planning on springing for Global Entry or TSA Precheck so a card that reimburses you for these fees would be an added benefit? Check things like rental car insurance, lost luggage insurance, or even trip cancellation insurance.
These travel perks don’t cancel out the importance of APR and the annual fee, but knowing what your card offers ahead of time will allow you to take advantage of all the perks and help the card to work the best for you.
Alternatives to No Foreign Transaction Fees Credit Cards
If opening up a new line of credit just isn’t in the cards for you right now, there are other options available to help avoid fees and other costs from transactions overseas..
Exchanging Money Before You Leave
To avoid a new credit card, you can exchange your money for the local currency before you leave on your trip. Normally your local bank or credit union will have a better rate than if you wait to do it once you land. As a warning, one of the worst places to exchange money is at an airport kiosk where you’ll pay a marked up exchange rate.
While working with cash may seem easier than opening a new card, we don’t recommend it. Traveling with that much cash is a security risk. Plus, if your wallet is lost or stolen, you’re just out of luck where a credit card would be able to be canceled and your money protected.
International ATMs
International ATMs allow you to avoid the safety risk of a large wad of cash by pulling money out as you need it. This is convenient, but you need to watch out for out-of-network ATM fees and even sometimes some foreign transaction fees. Some debit or credit cards reimburse you for out-of-network ATMs, but it’s important to know your card’s fees ahead of time.
Debit Cards
Debit cards can work as an option for international travel because it provides a lot of flexibility. You can often pull money from an ATM to pay with cash or just use it as you buy. Some like Discover even avoid all foreign transaction fees (but remember, Discover isn’t as widely accepted internationally, so check before you go). Just remember that debit cards have less fraud protection than credit cards, so if it’s stolen it’s a lot harder to get your money back.
Prepaid Cards
Prepaid cards are cards that you can preload with the foreign currency. You can even load your card when the exchange rate is in your favor which means you’ll be protected if the exchange rate jumps while you’re traveling. These cards often come with fees like ATM fees or inactivity fees so make sure to read the fine print. They also aren’t as widely accepted as credit cards so check with places like hotels before you go.
Frequently Asked Questions (FAQs) about Foreign Transaction Fees
We’ve rounded up the answers to the most commonly asked questions about foreign transaction fees and credit cards that don’t charge them.
Are Foreign Transaction Fees Affected by Currency Exchange Rates?
Foreign transaction fees are not affected by currency exchange rates. A credit card’s foreign transaction fee is set and published ahead of time, normally a 0-3% fee. This percentage is applied after the transaction has been converted to US dollars, so the exchange rate does not affect the foreign transaction fee.
What is Dynamic-Currency Conversion (DCC)?
Dynamic-Currency Conversion (DCC) is a type of currency conversion fee that is often offered for credit card transactions at touristy locations. Unlike other currency conversion fees which are from your credit card, the dynamic-currency conversion fee is charged from the merchant. The merchant charges you for the convenience of converting your purchase amount from the local currency to your home currency (known as the cardholder’s preferred currency) at the point of sale.
The convenience is that you get to understand how much the conversion is costing you upfront while you normally have to look up the cost later. The downside is it normally comes with an inflated exchange rate and fees. DCC might seem convenient, but it comes at a literal cost.
Plus, because the transaction still runs through a foreign bank, you’re still charged a foreign transaction fee if your credit card doesn’t already cover those.
Because of that, we suggest you avoid dynamic-currency conversion and simply purchase things in the local currency.
When Do I Pay a Foreign Transaction Fee?
You pay foreign transaction fees when you use your credit card to make a purchase in a foreign country or with a foreign merchant — basically whenever your money has to go through a foreign bank. Mostly, this is pretty straightforward because you’ll be paying for something with a foreign currency, but there are a few countries, like Panama or Turks and Caicos, that claim the U.S. dollar as their national currency. You’ll still be charged a foreign transaction fee because your transaction will still be routed through a foreign bank.
How Do I Avoid Foreign Transaction Fees?
The easiest way to avoid paying foreign transaction fees is to use a credit card that has no foreign transaction fees.
If a new credit card isn’t an option for you, then you can avoid foreign transaction fees by exchanging your money ahead of time at your local bank. There is some risk to traveling with a large amount of money, so we don’t recommend it.
You could also withdraw money using your debit card at ATMs in the country. Just make sure to check whether your bank offers ATM withdrawals for free and that there are ATMs you can use in this country.
Contributor Whitney Hansen covers banking, credit cards and investing for The Penny Hoarder. She also writes on other personal finance topics.
For most credit card users, being able to withdraw cash from an ATM seems like a revelation. After all, who wouldn’t want to take advantage of being able to borrow cash from their credit card now and again when money gets low in your bank account?
But getting cash from an ATM using your credit card isn’t something you’ll want to get in the habit of doing. The main reason? Banks see it as a risky behavior, and besides costing you a lot of money in interest payments and fees, regularly getting cash advances can also damage your credit score. We’ve got the details on what you need to know about using your credit card at the ATM and why cash advances from your credit card issuer should only be used in cases of emergency.
Can You Use a Credit Card to Get Cash at an ATM?
Yes, you can use a credit card to get cash from an ATM. Unlike withdrawing money from a debit account, withdrawing cash from your credit card is equivalent to getting a cash advance — which comes with its own unique set of costs, including higher interest rates and increased fees. Although many credit cards will allow you to withdraw cash from an ATM, it isn’t something you should get in the habit of doing.
Because credit card cash advances are typically applied to a different (and much smaller) line of credit than your other credit card purchases, they can also disproportionately affect your credit score. All of these circumstances make banks see cash advances as a risky behavior, which is why withdrawing cash from an ATM using your credit card is best reserved as a worst-case scenario, and not just something you do instead of using your debit card.
What Is a Cash Advance?
A cash advance is a means of borrowing cash against your credit line. Not all credit card companies offer cash advances, but many do. The key thing to keep in mind is that cash advances are often treated differently than normal credit card use, and they typically cost more than a regular ATM transaction. And there will be a cash advance limit.
For example, many cash advances come with higher interest rates (also called a cash advance APR) that can be as much as 25-30%. These interest charges are also usually applied to your account right away and without the usual 20-day grace period of other credit card transactions. You should study these details more closely on your credit card statement.
This means that even if you pay your credit card bill in full every month, using cash advances is a near-guarantee that you will owe a high percentage of interest on the cash you withdrew in that billing cycle, which can easily translate into credit card debt.
In addition to the high cash advance APR, a credit card company will often charge a cash advance fee at the time of the withdrawal. This may be a flare rate fee of $5-10 or a percentage of the amount of cash you withdraw, depending on which is greater. You may also have to pay an ATM surcharge if making the cash advance from a bank that isn’t also your card issuer.
Besides all the fees, it’s important to note that cash advances typically come from a different line of credit than your other credit card purchases. This line of credit is usually much smaller, meaning that even a relatively insignificant credit card cash advance can have a much larger impact on your credit utilization ratio, and in turn, negatively impact your credit score.
Most banks will view you as a greater credit risk after you make a cash advance, since they are generally only used as a last resort when someone needs cash but can’t afford to withdraw it from their checking account.
How to Use Your Credit Card at the ATM
If you want to withdraw money from an ATM using your credit card, follow these steps:
Insert your credit card into the ATM
Enter your credit card PIN — make sure you have one before you start the process.
Select the option for “cash withdrawal” or “cash advance”
Select the “credit” option (if asked to choose between checking, debit, or credit)
Enter the amount of cash you’d like to withdraw
Accept any associated fees that come with the transaction
Follow all prompts on the screen to complete the transaction and don’t forget to take your cash and receipt.
Using your credit card at an ATM isn’t all that different from using a debit card, just be sure to follow all the prompts on the machine for withdrawing cash, then accept the additional fees or charges and collect your cash and receipt.
What to Consider Before Taking a Cash Advance
Higher interest rates, cash advance fees and negative effects on your credit score are the three biggest results of taking out a cash advance on credit.
Higher Interest Rates
There are a few things to consider before taking out a cash advance. The first of these are the higher interest rates. Since most cash advances come with a cash advance APR that’s between 20-30% (without a grace period), you’re almost guaranteed to pay it. This means that a cash advance of $500 could cost you an extra $150 in interest.
Cash Advance Fees
Besides the increased interest rates, many banks charge a fee that’s either a flat rate of $5 to $10 or a percentage of your withdrawal amount. Be sure to read the fine print and understand what fees you’ll be charged, before making a cash advance.
Negative Effects on Credit Scores
Since cash advances are usually taken from a different, smaller credit line than your credit card purchases, you can increase your credit utilization ratio relatively quickly, which can result in a decreased credit score.
In general, most banks consider those who use cash advances to be a greater credit risk since they are likely using the funds to cover an expense that requires cash but that they cannot afford to pay using their debit card or checking account. All of these things can negatively impact your credit score, and make it harder to apply for other forms of credit in the future.
Alternatives to a Cash Advance
If you’re considering taking out a cash advance, it’s worth exploring other options which may cost less and can also help avoid damaging your credit score. Here are a few such alternatives to cash advances.
Debit Card
If you need cash and can afford to withdraw it from your account, a debit card is by far your best option. You can use your debit card at an ATM or a bank to withdraw the amount of cash you need quickly, or even to make a payment online.
You can also use the checking account associated with your debit card to either deposit or cash a check, and then use this money to make a purchase or payment.
Peer-to-Peer Payment Apps
Apps like Venmo or Paypal (among others) allow you to pay back a friend or family member who also uses the app, without the need to take out a cash advance. Use these apps to request payments from friends who owe you money or to send a payment for anything from a meal, to shared living expenses like rent or utilities.
Personal Loan
For those who need larger sums of cash and can’t afford to withdraw that amount from their checking account should consider taking out a personal loan. Personal loans will allow you to access a lump sum of cash immediately upon approval, without the higher interest rates (most personal loans have interest rates around 10%) or the potential damage to your credit score. Most personal loans also have a more reasonable grace period and repayment schedule than cash advances.
For Emergencies Only
Although it might be tempting to use cash advances in lieu of other payment methods, it’s really something best left for emergencies. Due to the higher interest rates, fees and potential damage to your credit score, you’re better off using an alternative payment method like a debit card or even a personal loan whenever possible and thereby avoiding any unexpected fees and interest payments.
Contributor Larissa Runkle frequently writes on finance, real estate, and lifestyle topics for The Penny Hoarder.
Credit cards can be a useful tool in your personal finance arsenal. These cards can help you build credit, cover costs in an emergency situation, or just earn you points toward travel and cash back.
While credit cards can be important to build your credit history, it’s essential that you charge any purchases mindfully. Because if you don’t pay off your credit statement at the end of each month, your balance will accrue interest. And unless you have a 0% intro APR or other special-rate card, these fees can add up fast: The average credit card interest rate was 16.27% in August 2022, the most recent figure provided, according to the U.S. Federal Reserve.
Whether you’re in the market for your first credit card or are pursuing the latest rewards credit cards, here’s an overview of what the current landscape looks like.
What Is the Average Interest Rate for a Credit Card?
The average interest rate on a credit card is typically somewhere between 10% and 30%. Depending on the category of the card and your creditworthiness, you’ll traditionally pay more or less interest.
Credit card interest rates can fluctuate, and rates are currently on the rise: The average credit card interest rate has increased over a six-month period in 2022, from 16.17% to 16.65%, according to CNN. Credit card balances — and debt loads — have also grown.
The Consumer Financial Protection Bureau (CFPB) reviews the consumer credit card market — practices of credit card issuers, consumer debt levels, etc. — every two years. In the 2021 Consumer Credit Card Market Report, authors reported on credit scores and the average interest rates and reported the following.
Credit Scores and Interest Rates
Credit Score
Approximate Average Interest Rate
Superprime (720 and higher)
17%
Prime (660-719)
21%
Near-prime (620-659)
23%
Going deeper, here’s information on credit card rates by card type in the United States, according to Statista in a 2019 survey.
Credit Card Interest Rate Comparison
Type of Credit Card
Average Interest Rate
Secured credit card*
24.99%*
Student credit card
17.79%
Business credit card
15.24%
Instant approval credit card
20.06%
Airline credit card
17.50%
Rewards credit card
17.46%
Low interest credit card
14.61%
Balance transfer credit card
16.77%
*This rate was pulled from a CNBC article in 2022.
APR stands for annual percentage rate, the yearly interest of a credit card charged to the borrower. And as you can see in the tables, credit card APR can vary quite a bit — the average credit card APR will look different for each card and each applicant.
Both the card type and a person’a creditworthiness can influence interest rates on a credit card. For example, a secured credit card — one that a consumer uses to help build their payment history or credit to raise their credit score — usually carries a higher interest rate. Whereas a person with a high credit score and solid payment history would likely be approved for a rewards credit card with a lower (yet variable) APR.
Ultimately, the average credit card interest rate will vary depending on several factors. With that said, there are ways you can reduce interest rates on your credit card.
How to Reduce Your Interest Rate on a Credit Card
There are multiple ways for you to reduce the interest rate on your credit card. Here’s how you can trim your rate, either by sticking with your current card or through other methods.
Do a balance transfer. If you have a balance on a credit card with a high interest rate, you might be able to transfer your balance onto another credit card. Balance transfer credit cards usually charge varying rates (typically, a set price or a percentage of the balance amount you want to transfer), and some cards offer special rates like 0% intro APR for balances transferred within the first 60 days of you opening an account, for example. There are many balance transfer cards out there, but you typically need a Good or better credit score to qualify for one.
Take advantage of intro offers on credit cards. Jumping off that last point, there are tons of cards that offer special offers for new cardholders. You could look for a credit card with a 0% introductory APR or pursue one that offers a no-interest-generating balance transfer for 12+ months so you can pay off an existing amount over time.
Apply for a consolidation loan. A debt consolidation loan offers a path of relief for people struggling to manage credit card or other high-interest debt loads. Debt consolidation or personal loans are avenues to explore for generally better APR and loan terms if you find yourself unable to pay down your credit card debt under current circumstances.
You can also call your credit card issuer and see if you can negotiate a more favorable interest rate or raise your credit limit. Your mileage will vary, but If you’re a longtime client and have made regular, on-time payments, you have some leverage.
Finally, you can pay off your balance on your card each month to avoid accruing interest charges to your account altogether. If you’re in a position to do so, that’s your best-case scenario. (And that way you won’t need to factor in credit card APR so highly in your decision when choosing among different cards.)
How to Improve Your Credit Score
If you have a less-than-stellar credit history, you can take action to improve your creditworthiness. It won’t be an overnight fix, but with diligence, consistency and good habits, you can raise your credit score steadily over a period of time.
Here are five ways to improve your credit score:
Pay your bills on time. Missed and late payments can dent your credit score and cause all sorts of issues for your finances. Create a budget and set regular bill payments to autopay. And again, do your best to pay off your credit card bill fully at the end of each statement cycle to avoid paying interest on your credit card purchases.
Check your credit score regularly. A service like Credit Karma is free to use and can keep you up-to-date on your credit history. You can also access your reports for free at AnnualCreditReport.com. Many banks and credit card companies (where you’re a customer) will provide you with your credit score, too.
Prioritize paying down high-interest debt. Credit card interest, loan interest — it all adds up. Review the amounts, conditions and terms for all your interest-bearing debt and make a plan to pay it down. Make extra payments toward your debt when you can, too, to avoid paying more interest over time.
Keep your old accounts open. A long credit history contributes to your overall credit score, so it’s likely in your best interest to leave your credit card accounts open (though you’ll want to assess your options if a particular card has a high annual fee, for example). You can assign certain cards to regular bill payments to keep your cards both open and active.
Mindfully apply for credit. Building credit is important, but it’s essential that you do so the right way. For example, store credit cards usually have a high APR and you can only use them at a particular retailer, whereas cash back credit cards might not have as high of an APR, can be used anywhere they’re accepted and can net you regular rewards. Be selective when opening new credit card accounts and applying for any loans. Don’t take on credit card debt willy nilly in the name of building credit, especially if you don’t have a debt-payoff plan.
It’s especially helpful to raise your credit score ahead of a big purchase. If you’re looking to buy a house in a year and a half, for instance, you’ll want to work on shaping up your credit now to improve your chances of qualifying for a mortgage at a good rate later.
Credit card interest rates may be rising, but don’t let that deter you from applying for a card — as long as you’ve done your research and are responsible with it. And keep in mind that credit card accounts are not one-size-fits-all; it’s important that you review credit card APR, but also the other fees and potential rewards that are available with it.
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
Coinbase Global Inc. late Thursday reported a wider quarterly loss and a 54% drop in revenue, saying the headwinds for its business will continue and likely intensify next year.
Coinbase COIN, -8.09%
said it lost $545 million, or $2.43 a share, in the quarter, swinging from earnings of $406 million, or $1.62 a share, in the year-ago period.
Revenue dropped to $576 million from $1.24 billion a year ago.
Analysts surveyed by FactSet expected the crypto exchange to report a loss of $2.38 a share on revenue of $641 million.
Shares traded lower immediately after the report, but at last check were rising more than 8% in the extended session.
The quarter was “mixed” for Coinbase, the company said in a letter to shareholders. “Transaction revenue was significantly impacted by stronger macroeconomic and crypto market headwinds, as well as trading volume moving offshore.”
On the plus side, Coinbase saw “strong growth in our subscription and services revenue,” it said.
Those headwinds, however, continued to impact transaction revenue, which was down 44% quarter on quarter, Coinbase said in the letter.
Trading volume dropped to $159 billion in the quarter from $217 billion in the second quarter.
“For 2022, we remain cautiously optimistic that we will operate within the $500 million adjusted EBITDA loss guardrail that we previously communicated,” the company said. That assumes that the crypto market does not deteriorate further, it said.
For next year, however, Coinbase is “preparing with a conservative bias and assuming that the current macroeconomic headwinds will persist and possibly intensify,” the company said.
There are huge differences between swiping a debit card and swiping a credit card. And these differences go far beyond whether or not you’re racking up credit card debt.
Debit and credit cards give you different protection against fraudulent purchases, separate types of rewards, and have different effects on your ability to borrow money in the future. Here’s what to consider before you decide which type of plastic to pull out of your wallet.
What Is a Debit Card?
When you make a purchase with a debit card, the money will be drawn from an account where you already have money saved. Generally, debit cards are linked to checking accounts, but you can also get a debit card linked to your savings account or a prepaid card balance.
Debit Card Linked to Your Bank Account
Your bank will likely issue you a debit card linked to your checking account for free. Sometimes, you can get a free debit card for your savings account, too, though you may have to pay a small card issuance fee.
Debit Card Linked to Your Checking Account
When you are using a debit card linked to your checking account, the money will automatically be deducted from your account balance. Depending on the retailer and your bank, this ‘automatic’ transaction might not be immediate – it could take a couple days to reflect on your online statement.
Debit Card Linked to Your Savings Account
When your debit card is linked to your savings account, your bank may place restrictions on how many withdrawals (or transfers) you can make every month. Until April 24, 2020, there was a federal rule called Regulation D that required banks to set this limit at six withdrawals or transactions per month.
But Regulation D is no longer in effect. Just because the federal government has removed the regulation doesn’t mean every single bank has followed suit. Your bank may impose fees if you make more than a set amount of outbound transactions per month – it’s usually six as a matter of legacy, but check the fine print for your account.
Types of Debit Cards
There are four types of commonly used debit cards.
Standard Debit Card
This is the workhorse debit card that you likely use multiple times a day. Honestly, it’s practically a way of life. The standard debit card is tied to your checking account or a money market account. With a standard debit card you can pay for goods and services in person or online, plus you can use it to withdraw money from ATMs. There is likely a cash limit to withdrawals and some institutions only let you withdraw money a certain amount of times per day.
ATM-Only Card
Less common and more restrictive than a standard debit card is the ATM-only card. With this limited-use card you can withdraw money from your checking and money-market accounts only from an ATM. Some issuers let you tie the card to your savings account.
Prepaid Debit Cards
Prepaid debit cards can be purchased at major retailers or drug stores. You pay a certain amount of money to load the card, and then you’ll be able to use it to make purchases wherever that card is accepted. Ideally, you’d look for a prepaid card issued by a major credit card company like MasterCard or Visa to ensure it will be accepted.
Prepaid cards are usually used by people who do not qualify for a traditional checking account because their name has ended up in ChexSystems. But prepaid cards tend to come with excessive fees that can eat away at your balance. A better option may be to open a checking account with a bank that does not use ChexSystems and will give you a second chance checking account.
EBT Debit Cards
Technically, EBT cards are debit cards, too. You might receive an EBT debit card so you can access your SNAP/food stamp or cash benefits from the state. To get an EBT debit card, you’ll need to apply and qualify for specific social welfare programming.
Because EBT debit cards are so different from other types of debit cards, we won’t dig too deep into them in our analysis today.
What Is a Credit Card?
When you swipe a credit card, you’re borrowing money from the bank. At the end of your statement cycle every month, you’ll be required to pay the bank back in full — or pay a hefty interest rate.
If you can’t pay the full balance, it’s advisable to at least pay the minimum balance due. That’s because if you do pay this amount, it could show up as a positive mark on your credit report. If you don’t – and you’re at least 30 days late – it could show up as a negative mark. Negative marks can lower your credit score in an especially big way when they’re tied to late payments.
Unsecured Credit Cards
Most credit cards are unsecured. That means you don’t have to put down a deposit or any collateral to open the credit card. If you meet the issuing financial institution’s minimum credit requirements, they’ll let you borrow money as needed, up to a set credit limit.
Unsecured cards can be issued by a bank or other financial institution directly. You’ll also frequently see unsecured credit cards issued as store credit cards, branded by a particular retailer.
Secured Credit Cards
Don’t meet the bank’s minimum credit requirements? Some financial institutions will help you rebuild your credit by issuing a secured credit card. To open this credit card, you will need to put down a deposit.
Let’s say you put down a deposit of $500. The bank will issue you a line of credit for $500. They know you’re good for it because they’ve already got your money in their pocket.
Then, when you swipe and borrow with your secured credit card, hopefully you’re paying the bank back every month. Ideally you’ll pay in full so you don’t have to pay interest charges, but the entire point of this card is to pay at least the minimum due every month to start putting some positive marks on your credit report, which could up your credit score.
If you use this card responsibly for a set period of time — anywhere from six months to two years – most financial institutions will usually give you the opportunity to upgrade to an unsecured credit card. If you take them up on the offer, your deposit will be returned to you.
Getty Images
Pros & Cons of Debit vs Credit Cards
There is a time and season for everything. That includes credit and debit cards. Which one you choose to use will depend entirely on your personal circumstances. Let’s look at some of the pros and cons of each.
Credit Cards
Pros
Heightened fraud protection on purchases
Fringe benefits like cash back or airline miles
Can help you build or rebuild your credit
Cons
Interest rates tend to be substantial
Can hurt your credit history if not used properly
May encourage excessive spending
More likely to pay annual fees
The Upside of Credit Cards
Credit cards are more secure than debit cards. That’s why some experts recommend using them over debit cards for online purchases. If your credit card information is stolen and then used to make purchases, there is a federal law called the Fair Credit Billing Act that restricts your burden of the fraudulent charges to $50. But it isn’t hard to find a credit card company who will issue you a $0 liability benefit.
Plus, if there is a fraudulent charge made on your account, with credit cards you have some time to sort it out. You should immediately report the issue as soon as you become aware of it, but it’s not like your checking account where a fraudulent charge could cause your rent check to bounce.
Credit cards can also help you establish or rebuild your credit history when used responsibly. A positive credit history not only means more banks will be willing to lend you money, but also that they’ll be willing to do so at a lower interest rate.
Finally, credit cards tend to come with extra perks like cash back, airline miles, or points towards free stays at hotels. These freebies aren’t available with debit cards.
It’s not uncommon for the signup offer alone on a travel rewards credit card to end up equating to $500 – $1,000 worth of travel freebies. Then, there are the points you earn on each and every purchase.
Cash back credit cards don’t come with signup bonuses as regularly, but the rewards are more flexible. If you’re earning 1% – 5% cash back on every purchase, often you’ll be able to use this cash back to pay off a portion of your credit card bill. Or, in many cases, you could even transfer the cash directly to your bank account.
The Downside of Credit Cards
It’s important to remember that the reason credit card issuers offer such great perks is because enough people get into trouble with credit cards that they’re still able to turn a profit. A free plane ticket isn’t worth paying hundreds or thousands of dollars in interest. If you’re not paying off your credit card bill in full every month, the bank is likely pulling in a bigger “reward” than you are.
Plus, there are other expenses to worry about — like annual fees. Some credit card companies will waive this fee for the first year, but then you’ll be charged every year on your credit card anniversary.
And make no mistake: Interest rates on credit cards tend to be extremely high. It’s rare to find a card that offers an APR in the single digits. Most cards have an APR range with a high end between 20% and 30%.
This makes credit card debt an extremely expensive way to borrow – though they are still cheaper than payday loans, or even some personal loans if you don’t have perfect credit. If you dare to take out a cash advance against your card, the rate can climb even higher.
Potential Impact on Your Credit Scores
If you do get into trouble with credit cards to a point where you’re making late payments, it’s highly likely that you’ll start to see negative line items on your credit report. This can lower your credit score, which will make less banks willing to lend you money in the future. When they do, it is likely to be with a higher interest rate.
Aside from late payments, another key factor in your credit score is credit utilization. To figure out your credit utilization, you’d take the total amount of money you currently owe and divide it by the total amount of your credit lines.
Let’s say you have three credit cards. You’ve borrowed $0 from a card with a $2,000 limit, $750 from a card with a $1,000 limit, and $150 from a card with a $500 limit. The total amount you borrowed was $900, and your total credit limit is $3,500. That makes your credit utilization about 26%.
Generally speaking, you want to keep your credit utilization below 30% to preserve your credit score.
Debit Cards
Pros
No chance of paying interest charges
Don’t have an impact on your credit score
You’re not borrowing money from anyone – this card is linked to money you already have in your bank account
No annual fees
Cons
Less protection and more inconvenience in instances of fraud
Can’t help you build your credit history
Doesn’t come with perks on every dollar spent
The Upside of Debit Cards
When we look at the behavioral aspect of personal finance, debit cards tend to be a lot safer. That’s because you’re not incurring debt when you swipe your debit card. Because you’re not incurring debt, the purchases you make with your debit card will not directly affect your credit report or credit score.
Also because you’re not borrowing money, you won’t have to worry about racking up expensive interest charges. Debit cards tend not to come with annual fees like a credit card would, but the checking account your debit card is linked to might come with a monthly maintenance fee – even though the debit card itself isn’t costing you anything.
Generally speaking, you won’t be able to spend more money than you have. In some instances, you may be able to overdraw your account (which is likely to come with an overdraft fee,) but most banks won’t let you do this more than once or twice before freezing your account.
The Downside of Debit Cards
While debit cards won’t hurt your credit report, they also won’t help it. Responsibly managing your checking account doesn’t matter in the eyes of the credit bureaus.
Debit cards also make you more vulnerable in instances of card theft or fraudulent purchases. The money behind your debit card is real, and it is yours. If someone takes it, even after you report the theft it could take a not-insignificant amount of time before the bank corrects your balance. Plus, you can be held liable for up to $500 of the loss rather than the $50 max for credit cards.
Debit cards rarely come with the fancy perks you’ll find with credit cards, either. Coming across a debit card that offers any version of cash back or airline miles is like spotting a double rainbow.
Alternate Rewards for Debit Cards
That’s not to say there’s never any bonuses for the bank account associated with your debit card, though. Signup bonuses (typically issued in a lump sum of cash) are common, and tend to be dramatically larger on savings accounts over checking accounts.
Checking account bonuses tend to be found on accounts with higher balance requirements and monthly maintenance fees. These bonuses tend to be linked to the amount of direct deposits you receive within the first 30, 60, or 90 days of account opening. It’s not uncommon to see these bonuses range from $100-$300, but they tend to be on the lower end of that spectrum.
Savings account bonuses are a little larger, and tend to hinge on the amount of deposits made over a 30-, 60- or 90-day period – whether they’re direct deposits or not. The quantity of the deposit requirements tends to be larger. Think five digits.
But savings account bonuses also tend to be higher. It’s not uncommon to see offers for $300-$500 if you meet the bonus offer’s requirements.
Should I Use a Credit Card or a Debit Card?
The decision to use a debit or credit card is contextual and should be considered with nuance. If you know you tend to have trouble with overspending, it might be wise to shy away from credit card use. If you’re still concerned about security while shopping online, you could use a third-party service — like PayPal or Venmo — for additional potential protections.
If you have a history of using credit cards responsibly and pay them off every month without fail, it might be worth getting a free hotel room or two to swipe the plastic. It’s also safer to use a credit card if you’re worried about fraud.
But remember that no one is perfect at anything. You’re only good with credit cards until you’re not. With a credit card, any one among us is just one financial emergency or indulgent purchase away from sky-high interest rates and a spotty credit report.
Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder.
Whether you have a big purchase on the horizon or want to take some time to pay down an amount over a period of time, a 0% intro APR credit card could be a good option for you.
APR stands for annual percentage rate. This rate represents the yearly interest of a credit card (or other lines of credit, like a loan) charged to the borrower. While this number can be pretty high — the average hovered around 16% in summer 2022, according to the U.S. Federal Reserve — lower-interest rates are available. Enter 0% APR credit cards.
This article reviews our picks for the best 0% APR credit cards, including the lengths of interest-free rates, common qualifying factors, pros and cons, and what else you need to consider with these cards.
The 8 Best 0% Intro APR Credit Cards
Wells Fargo Reflect Card: Best for Members Who Want a Long 0% APR Period
Citi Custom Cash Card: Best for Users Who Need Time to Earn a Cash Bonus
Chase Freedom Flex Credit Card: Best for Users to Earn Cash Back at Grocery Stores
BankAmericard Credit Card: Best for Users Who Want Low-Fee Balance Transfers
Capital One SavorOne Cash Rewards Credit Card: Best for Cardmembers Who Travel and Dine Out Often
Blue Cash Everyday Card: Best for Users Who Want to Save on Streaming Costs
Chase Freedom Unlimited Credit Card: Best for Cardmembers Who Want 1.5% Cash Back
U.S. Bank Cash+ Visa Signature Card: Best for Users Who Value High Cash-Back Categories
Wells Fargo Reflect Card
Best for Long 0% APR Period
Key Features
Up to 21 months 0% APR
Up to $600 of cell phone protection
24/7 on-demand roadside dispatch
While this Wells Fargo card doesn’t offer a sign up bonus or credit cards rewards (others in the WF umbrella do, though), we chose this one since it offers one of the longer 0% intro APR at 18 months — and up to 21 if you make your minimum monthly payments during the introductory period. You can also get benefits like cell phone protection when you use your Wells Fargo card to pay your bill.
Wells Fargo Reflect Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
Up to 21 months
Sign up bonus
None
Balance transfer fee
$5 or 3% of the transfer amount (whichever is greater)
More information on Wells Fargo Reflect Card
The Wells Fargo Reflect Card offers up to 21 months of 0% APR, which includes an intro APR extension of three months with on-time minimum payments. Afterward, interest is at a 15.99%-27.99% variable rate. While this card does not have a sign up bonus or credit card points, there are other benefits like cell phone protection (when you pay your monthly cell phone bill with the card) and roadside assistance.
Citi Custom Cash Card
Best for Extra Time to Earn a Cash Bonus
Key Features
$200 cash back bonus
15 months 0% APR
Unlimited 1% cash back
The Citi Custom Cash Card offers a variety of benefits, from a long period 0% APR period to a cash sign up bonus to 1%-5% cash back. Cardmembers can earn 5% cash back on a spend category (such as gas stations or drugstores) and then unlimited 1% cash back on all other purchases. You can redeem points a few ways, including a statement credit, check, gift card or even shop with points on Amazon.
Citi Custom Cash Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
$200 cash back
Balance transfer
$5 or 5% of the transfer amount (whichever is greater)
More information on Citi Custom Cash Card
To earn the $200 cash back bonus, users must spend $1,500 on eligible purchases in the first six months of the account opening — compared to other card bonuses, this is a pretty generous period of time. Cardmembers can earn 5% cash back on a particular spend category up to $500, and then it goes to 1% thereafter. After the intro period, the variable APR goes to 16.99%-26.99%.
Chase Freedom Flex Credit Card
Best for Cash Back at Grocery Stores
Key Features
$200 bonus, plus 5% cash back
15 months 0% APR
Up to $500 for referring friends
The Chase Freedom Flex Credit Card offers users lots of opportunities to get cash back. New members can earn a $200 cash bonus, plus 5% cash back on grocery store purchases (sans Walmart and Target) up to $12K in the first year for a possible additional $600 cash back. On top of 15 months of 0% APR, there are perks like a three-month complimentary membership to both DashPass and Instacart+, too.
Chase Freedom Flex Credit Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
$200 bonus, plus 5% grocery store offer
Balance transfer fee
$5 or 3% of the transfer amount (whichever is greater)
More information on Chase Freedom Flex Credit Card
You can earn the intro $200 cash back bonus after you spend $500 in the first three months of getting the card. After the 0% intro period, the variable APR is between 17.99%-26.74%. Chase Ultimate Rewards cash rewards don’t expire as long as your account is active, and there’s no minimum amount required to redeem cash back.
BankAmericard Credit Card
Best for Low-Fee Balance Transfers
Key Features
21 months 0% APR
No penalty APR
3% balance transfer fee
The BankAmericard Credit Card from Bank of America offers a lengthy 21-month-long 0% APR period. Compared to stipulations with other cards, the balance transfer fee with this card is a straightforward 3% (minimum of $10) for all transfers. If members have a linked Bank of America checking account, they can also take advantage of Balance Connect for overdraft protection.
BankAmericard Credit Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
21 months
Sign up bonus
None
Balance transfer fee
3%
More information on BankAmericard Credit Card
For a $95 annual fee, the Premium Rewards Credit Card from Bank of America is a solid option to earn rewards, though there is no introductory APR rate or rewards or sign-up bonus. Still, it’s a good option if you need to make balance transfers or want a long intro APR. After the intro rate, a variable APR of 14.99% to 24.99% will apply. There’s also a no-penalty APR with this card, which means that making a late payment won’t automatically raise your APR.
Capital One SavorOne Cash Rewards Credit
Best for Travel and Dining Out
Key Features
15 months 0% APR
$200 cash bonus
Unlimited 5% cash back on hotels and rental cars
With the Capital One SavorOne card, clients can get an unlimited 3% cash back on dining, streaming services, grocery stores and entertainment (plus, higher cash back on travel booked through its online portal). Members can enjoy a relatively easy-to-earn $200 bonus and a lengthy 0% APR period with this card, too.
Capital One SavorOne Cash Rewards Credit
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
$200 cash bonus
Balance transfer fee
3%
More information on Capital One SavorOne Cash Rewards Credit Card
New members can get a $200 cash bonus after spending $500 within the first three months of account opening. If you go to a lot of live events, you’ll appreciate 8% cash back on tickets at Vivid Seats, too. After the intro rate, the variable APR is 17.99%-27.99%.
Blue Cash Everyday Card
Best for Saving on Streaming Costs
Key Features
15 months 0% APR
Up to $250 statement credit
3% cash back on groceries
With the American Express Blue Cash Everyday Card, users get 0% APR and 3% cash back on select categories for no annual fee. There’s also a new member offer of $100 cash, plus up to $150 back when the card is used to check out with PayPal. As an added bonus, users can get $7 back a month when they use their card to pay for The Disney Bundle (Disney+, Hulu and ESPN+) — that’s half off the cost.
Blue Cash Everyday Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
Up to $250 statement credit
Balance transfer fee
$5 or 3% of the transfer amount (whichever is greater)
More information on Blue Cash Everyday Card
To secure the $250 statement credit, you need to spend $2,000 in six months to earn $100 and 20% back (up to $150) as a credit when you use your card on PayPal purchases in the first six months. After 15 months, the variable APR sets to 16.99%-27.99%, depending on your creditworthiness.
Chase Freedom Unlimited Credit Card
Best for 1.5% Cash Back
Key Features
$200 cash back bonus
15 months 0% APR
3% on dining at restaurants
The Chase Freedom Unlimited Credit Card has a new-member sign-up bonus, cash-back rewards and a long 0% APR period. Users can score 3%-5% cash back on certain categories, as well as 1.5% — a half-percentage more than the typical 1% — on all other eligible purchases. Chase Ultimate Rewards don’t expire as long as the account is open, too.
Chase Freedom Unlimited Credit Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
$200 cash back
Balance transfer fee
$5 or 3% of the transfer amount (whichever is greater)
More information on Chase Freedom Unlimited Credit Card
You can get $200 cash back after spending $500 in the first three months of the card. Other perks include travel and auto rental protections when you use your card. After the 0% APR period, the interest reverts to 17.99%-26.74%.
U.S. Bank Cash+ Visa Signature Card
Best for Cash-Back Categories
Key Features
3% balance transfer fee
$200 reward bonus
5% cash back on two categories of your choice
The U.S. Bank Cash+ Visa Signature Card is an all-around solid choice for consumers who want 0% APR, cash-back rewards and a new-member bonus. Members get to choose two categories to earn 5% cash back in, such as fast food and home utilities. The U.S. Bank website also has a cash-back calculator that lets users easily see how much cash back they can earn with the card.
U.S. Bank Cash+ Visa Signature Card
Credit requirement
Good to Excellent
Annual fee
$0
Intro APR length
15 months
Sign up bonus
$200 rewards bonus
Balance transfer fee
3%
More information on U.S. Bank Cash+ Visa Signature Card
You can get a $200 rewards bonus after you spend $1,000 in eligible purchases in the first 120 days. You’ll be able to score more cash back when you make purchases online at U.S. Bank’s Rewards Center Earn Mall. After the intro rate, the variable APR will be 17.49%-27.49%.
What Is a 0% Intro APR Credit Card?
A 0% intro APR credit card is a card that does not accumulate interest on any purchases you make during a set amount of time. These cards are popular options for balance transfers and often have perks (think: bonus categories and cash rewards) like other credit cards on the market.
How Do 0% APR Credit Cards Work?
A 0% APR credit card usually has 12, 15, and even longer 0% introductory rates for new users. Once the card has reached the end of its introductory period, the cardholder will begin paying interest on any balances carried over month to month.
Pros and Cons of 0% APR Credit Cards
Like all cards, there are pros and cons when it comes to getting a 0% APR credit card.
Pros
If you need to fund a big purchase all at once or need some leeway to pay it off, 0% APR credit cards come in handy.
These cards are a popular option if you want to do a balance transfer to save money on interest.
Lots of credit card issuers offer 0% APR cards, so there are many available options.
0% APR credit cards often have other perks like traditional cards, such as cash back, low or no annual fees and rewards.
Some credit cards have long introductory-rate periods, such as 15, 18 or 21 months.
If you have good to excellent credit, you’re likely to be approved for a card quickly.
Cons
Jumping off that last point, you typically need a credit score in the Good range (and better) to qualify for these types of cards.
It’s common to pay a fee for balance transfers, but the math usually works out if you’re transferring a high balance to a 0% APR card.
You’ll likely need to complete a balance transfer within a set period of time after opening the 0% APR, so don’t dawdle.
A card’s 0% introductory rates may not apply across the board. For example, a balance transfer may not qualify 12 months of no APR, but new purchases will. Read the terms and conditions carefully.
The introductory 0% APR is temporary, so you’ll need to be mindful of your payback schedule before the higher rate kicks in (usually between 10%-30% APR).
You’ll want to be aware of foreign transaction fees and cash advance fees.
Some of these cards don’t offer perks beyond a 0% APR.
It’s important to seek out the best 0% APR credit cards for you and your situation before you apply for one.
What to Look for in a 0% APR Credit Card
When searching for the best 0% APR credit cards, take a look at the following:
The number of months for the 0% APR
Qualifying balance transfers, fees and conditions (like the APR on balance transfers)
Whether there’s a sign-up bonus and how to qualify for it
The opportunity to earn cash rewards
If there’s an annual fee
Additional perks such as cell phone protection, unlimited cash back match or special savings (like an eligible delivery service)
Any foreign transaction fees or cash advance fees
If the credit card company has online banking or a mobile banking app
What Happens After the 0% Intro APR Period Ends?
Once the card has reached the end of its introductory period, the APR will resume to its usual rate, which will vary depending on your creditworthiness. So, for example, if you put $5,000 on a 0% APR credit card for 15 months and don’t make any payments on the amount, you’ll still owe $5,000 at the end of your introductory rate period. However, the monthly interest (say, 27.99% variable APR) will kick in, so it’s important you keep that in mind if you want to avoid that charge.
Frequently Asked Questions (FAQs) About 0% APR Credit Cards
Here are the answers to the most commonly asked questions about 0% APR credit cards.
Intro APR is a low (or no) rate offered to new cardholders for a set period of time. It’s an attractive option if you need to make purchases but don’t want to incur interest charges while you pay off the balance.
Purchase APR is the amount of interest you pay on purchases made with a credit card when you carry a balance on it. APR typically ranges from 10%-30%.
What Is the Longest 0% Intro Period I Can Get on a Credit Card?
You can find a 0% intro APR period up to 21 billing cycles. Some cards with short periods offer intro APR extensions, too. If you need a longer 0% intro period, keep your eyes out, as cards with longer periods could enter the market.
Can I Request 0% APR on My Credit Card?
If you have a credit card without a 0% APR, your request will likely be denied. However, you could transfer your balance to a 0% APR card. And if you have a card with a 0% APR currently, you could call the credit card company and see if they’ll offer an extension.
Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and covers banking for The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.
This is a transcribed excerpt of the “Bitcoin Magazine Podcast,” hosted by P and Q. In this episode, they are joined by John Carvalho to talk about building on top of Bitcoin, Bitcoin philosophy and what is happening with the Lightning Network.
Listen To The Episode Here:
Q: Is credit not “fiat” in nature or is there a way to create a healthy credit system through sound money? I feel like this is often debated and discussed and I don’t act or claim to know the right answer to this, I’m just genuinely curious if you feel as though there are components of credit that just make it inherently fiat.
John Carvalho: No, I mean, I think that’s kind of — I’m not trying to be rude or anything, but that’s just a word salad. They have definitions; these things had definitions. To you guys and everybody in the audience, if you want to try to have a tighter grasp of both the dynamics of Bitcoin and the economics that are relevant to it, read “Cryptoeconomics” by Eric Voskuil. There’s no Bitcoiner that understands these things on that level better. My interactions with him and reading with him helped me understand these things a lot more deeply as well.
He would describe Bitcoin as a market fiat. It’s almost like how some people would joke and say it’s a headless Ponzi. There’s no promise that you will get a trade value of bitcoin in the future for any specific amount.
Like bitcoin could be gone and nobody would be accountable. Bitcoin could be the most popular thing on Earth and you could buy a house with something that you only paid $5 for, but there’s no enforcement of the price by anything in the Bitcoin system. The only enforcement in bitcoin is just the quantity of them that you have in the system.
So you don’t know what you’re gonna get for your bitcoin until you try to sell it and it’s all relative to the person you’re selling it to. There’s no enforcement of the price. In a way, bitcoin itself is like a market fiat, a new type of fiat because there’s no controller, there’s no central issuer.
It’s something the market created to be able to have this concept of, and use this abstracted resource as a money. Credit and fiat are just two totally separate concepts. Credit is just simply saying [that] you have people that trust each other. So you have bitcoin for trustlessness. The market fiat, the trustless system, is simply saying, “If I want to have a unit of account where I don’t have to trust anybody to be able to use that, the ultimate store of value in the abstract, you have bitcoin. Everything else is credit.
You can say that fiat is a type of credit where they promise nothing. Fiat is just fiat by decree. You’re saying, “This is money.” You have no promise that the issuer will give you something for that money. Unless you wanna get philosophical and say, “Oh, they’re gonna give you an army for that money if you agree to have that money inflated or taken from you at will.” I don’t wanna get philosophical, so we’ll just say there’s no actual promise behind fiat, but credit is a trusted system. It’s acknowledging the fact that two people that trust each other can accomplish more than one person alone.
You can have a kind of singular nature. There’s kind of this dichotomy with humans, you have competition and cooperation. You wouldn’t have society if everybody was competing on everything all the time. When you have cooperation, you have society. Society is trust.
If you want to now cooperate with people over abstractions of economic concepts, you need credit systems. You need to be able to say, “I have one coffee shop. I have proven to my friends P over here that I can run a pretty great coffee shop and I want to have two coffee shops, but my profit margin to open two coffee shops would take me 10 years to open my second coffee shop and I want to open one next year.” And so if he says, “I think John can handle that, I’ll trust John with my money.” Now this is just a form of financing. Credit is like the minimum form of finance. It’s just saying, “I trust you for something in the future.”
I could say, “Ok. I am Starbucks. And I don’t wanna involve P,” I want to say to my customers, “Hey, I’m to sell coffees and I want you to buy them for the future at say a 20% discount.” And now you say, “Well I plan on buying coffees from John or Starbucks for the next five years. That’s a great deal and I’m gonna pre-buy them.” I can now take that and I can leverage that trust and I can use that extra money to open the second coffee shop as long as I can meet my commitments to the redemptions of the coffee.
So you can see how credit is not that much different than finance because you can kind of independently finance things if you take risks on leveraging your credit obligations.
It is three weeks before Black Friday, but the Federal Reserve is about to make the post-holiday debt hangover a little more intense.
By the time the latest rate hikes filter through the very rate-sensitive credit card industry and pump up customers’ annual percentage rates a little more, experts say it will be some point in December 2022 or January 2023. Right in time for many holiday gifts and expenses to post on credit cards bills — and there to make the costs of a carried balance a little extra expensive.
What’s different now is the presence of four-decade high inflation, coupled with fast-rising interest rates that the Fed hopes will ultimately cool those rising prices, although without sending the economy to a recessionary thud.
Wednesday’s rate move is the fourth straight 75-basis-point rate hike to the federal funds rate, taking it to the 3.75% -4% range, when it was near zero last year’s holiday season. By now, Americans are all too acquainted with 2022’s fast-rising interest rates. They just haven’t gone through a Christmas and Hanakkuh with it yet.
“It’s not the time to overspend and have a problem with paying your bills later. We know the economy is sending mixed messages,” said Michele Raneri, vice president of financial services research and consulting at TransUnion TRU, -4.31%,
one of the country’s three major credit reporting companies.
It’s extra important to think through a holiday budget and how much relies on credit, she said. “People need to think about how much they can afford to repay and how long it will take to repay it.”
Holiday spending could be the same as 2021 for many people — but not everyone
Now, two forecasts suggest many people ready to spend the same amount for this year’s holiday cheer as they did last year.
People are planning to spend an average $1,430 on gifts, travel and entertainment this year, which is around the $1,447 spent last year, according to PwC researchers. Three-quarters of people said they were planning to spend the same or more than last year and respondents said credit cards were one of their top ways to pay.
“ Compared to last year, credit card balances are getting bigger, more people are sitting on balances and debt costs are getting pricier.”
By another measure, Americans will pay an average $1,455 on holiday-related gifts and experiences, essentially flat from last year, say Deloitte researchers.
More than one-third of surveyed consumers say their financial outlook is worse than the same point last year. Nearly one-quarter of people were concerned about credit card debt as of late September, Deloitte’s numbers show in an ongoing tracking of consumer mood.
It’s understandable to see the concern with households amassing a collective $890 billion in credit card debt through the second quarter. Compared to last year, balances are getting bigger, more people are sitting on balances and debt costs are getting pricier because the interest rates applied to those balances are rising.
When people were carrying a credit card balance month to month, the sum was $5,474 on average, according to Raneri. That’s through the end of September and it’s a nearly 13% rise year over year, she said. The 164 million people carrying a balance is a 5% increase from last year, she noted.
Credit cards carrying a balance during the third quarter had an average 18.43% APR, Federal Reserve data shows. That’s up from 16.65% in the second quarter and up from 17.13% in 2021’s third quarter.
How the Fed influences credit card rates
Credit card issuers typically determine their rates by applying a “prime rate” — typically three percentage points on top of the federal funds rate — and the issuer’s profit margin, said Ted Rossman, senior industry analyst at Bankrate.com.
By late October, the rate on new card offers was 18.73%, according to Bankrate data. At this point last year, it was 16.31%, Rossman said. In a few weeks, the rates on new offers should beat the all-time record of an average 19% APR, exclusive to new offers, he added.
While it can take a billing cycle or two for a higher APR to make its way to an existing credit card account, Rossman noted the APRs on new offers could rise in a matter of days.
Here’s a hypothetical to show how much more expensive credit card debt becomes with every extra hike. Suppose the $5,474 balance is on a credit card with the current 18.73% average. If a person has to resort to minimum payments, Rossman said, they’d be paying $7,118 just in interest to pay off the debt.
“ In a few weeks, the rates on new credit card offers should beat the all-time record of an average 19% APR.”
What if the 18.73% APR gets kicked up 75 basis points to 19.48%? If that same borrower has to pay minimums, they are now paying $7,417 in interest to snuff the principal debt of $5,474, Rossman said.
The example has its limits because people may pay more than the minimum and they may incur more credit card debt as they pay off the old one. But it shows a bigger point: “Unfortunately, anybody dealing with credit card debt is a loser from the series of rate hikes. It was already expensive. It’s getting more so,” Rossman said.
When do rate hikes stop?
While decisions during the Fed’s November meeting can have a ripple effect on holiday-time borrowing costs, observers say the real question about Wednesday is the clues Federal Reserve Chairman Jerome Powell drops for what’s next. The central bank’s committee voting on interest rate increases reconvenes in mid-December.
On Wednesday, the Fed said in a statement it expected further rate increases, but also said it would be watching to see if there were lag effects with its tightening policies, which could slow or limit the total amount of increases.
“People, when they hear lags, they think about a pause. It’s very premature, in my view, to think about or be talking about pausing our rate hike. We have a ways to go,” Powell told reporters at a Wednesday afternoon press conference.
The economy is strong enough to handle higher rates, Powell said. For one thing, households have “strong balance sheets” and “strong spending power,” he noted.
Stock markets first jumped higher after the latest interest rate announcement. But they gave up the gains — and then some — by the end of the day. The Dow Jones Industrial Average DJIA, -1.55%
was down more than 500 points, or 1.6% while the S&P 500 SPX, -2.50%
was down 2.5% and the Nasdaq Composite COMP, -3.36%
closed 3.4% lower.
Top economists in major North American-based banks forecasted the Fed will keep raising interest rates “until the first quarter of next year before potentially lowering rates through the end of 2023,” Sayee Srinivasan, chief economist at the American Bankers Association, the banking sector’s trade association, said ahead of Wednesday’s latest rate hike.
“Top economists polled as part of a banking industry panel expect Fed rate increases through at least the first quarter of 2023.”
The forecast, coming through an ABA advisory committee, is no sure thing. “Everything depends on the ability of the Fed to bring inflation down, so that will remain their clear priority,” said Srinivasan.
Meanwhile, rising costs may cause more people to put the holiday cheer on plastic, even their decorations. The majority of Christmas tree growers in one poll are expecting wholesale prices to climb 5% to 15% for this season.
Investors cheered when a report last week showed the economy expanded in the third quarter after back-to-back contractions.
But it’s too early to get excited, because the Federal Reserve hasn’t given any sign yet that it is about to stop raising interest rates at the fastest pace in decades.
Below is a list of dividend stocks that have had low price volatility over the past 12 months, culled from three large exchange traded funds that screen for high yields and quality in different ways.
In a year when the S&P 500 SPX, -0.40%
is down 18%, the three ETFs have widely outperformed, with the best of the group falling only 1%.
That said, last week was a very good one for U.S. stocks, with the S&P 500 returning 4% and the Dow Jones Industrial Average DJIA, -0.32%
having its best October ever.
This week, investors’ eyes turn back to the Federal Reserve. Following a two-day policy meeting, the Federal Open Market Committee is expected to make its fourth consecutive increase of 0.75% to the federal funds rate on Wednesday.
The inverted yield curve, with yields on two-year U.S. Treasury notes TMUBMUSD02Y, 4.540%
exceeding yields on 10-year notes TMUBMUSD10Y, 4.064%,
indicates investors in the bond market expect a recession. Meanwhile, this has been a difficult earnings season for many companies and analysts have reacted by lowering their earnings estimates.
The weighted rolling consensus 12-month earning estimate for the S&P 500, based on estimates of analysts polled by FactSet, has declined 2% over the past month to $230.60. In a healthy economy, investors expect this number to rise every quarter, at least slightly.
Low-volatility stocks are working in 2022
Take a look at this chart, showing year-to-date total returns for the three ETFs against the S&P 500 through October:
FactSet
The three dividend-stock ETFs take different approaches:
The $40.6 billion Schwab U.S. Dividend Equity ETF SCHD, +0.15%
tracks the Dow Jones U.S. Dividend 100 Indexed quarterly. This approach incorporates 10-year screens for cash flow, debt, return on equity and dividend growth for quality and safety. It excludes real estate investment trusts (REITs). The ETF’s 30-day SEC yield was 3.79% as of Sept. 30.
The iShares Select Dividend ETF DVY, +0.45%
has $21.7 billion in assets. It tracks the Dow Jones U.S. Select Dividend Index, which is weighted by dividend yield and “skews toward smaller firms paying consistent dividends,” according to FactSet. It holds about 100 stocks, includes REITs and looks back five years for dividend growth and payout ratios. The ETF’s 30-day yield was 4.07% as of Sept. 30.
The SPDR Portfolio S&P 500 High Dividend ETF SPYD, +0.60%
has $7.8 billion in assets and holds 80 stocks, taking an equal-weighted approach to investing in the top-yielding stocks among the S&P 500. It’s 30-day yield was 4.07% as of Sept. 30.
All three ETFs have fared well this year relative to the S&P 500. The funds’ beta — a measure of price volatility against that of the S&P 500 (in this case) — have ranged this year from 0.75 to 0.76, according to FactSet. A beta of 1 would indicate volatility matching that of the index, while a beta above 1 would indicate higher volatility.
Now look at this five-year total return chart showing the three ETFs against the S&P 500 over the past five years:
FactSet
The Schwab U.S. Dividend Equity ETF ranks highest for five-year total return with dividends reinvested — it is the only one of the three to beat the index for this period.
Screening for the least volatile dividend stocks
Together, the three ETFs hold 194 stocks. Here are the 20 with the lowest 12-month beta. The list is sorted by beta, ascending, and dividend yields range from 2.45% to 8.13%:
Any list of stocks will have its dogs, but 16 of these 20 have outperformed the S&P 500 so far in 2022, and 14 have had positive total returns.
You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.
