An article by BudgetQueen
Do you remember your first credit card? You know –the one that kept you from starving in college, and helped build your credit as a young adult? I still have mine. Every time I call customer service for this card, they seem to be impressed that I have been a member for 20 years (mostly because that was before they were born).
As an adult, this card still made me smile! I carefully watched as my reward points accumulated and I could get that $10 coffee card at the end of the year! How exciting!
Well, it seems like the relationship has evolved. My beloved credit card turned from a “quarterly compounding” credit card into a “daily compounding” credit card. What does this mean? It means that interest is compounded every day. It means that even if I pay the card off before the payment is due, I will still owe interest on the time that the billing cycle ends until the time they get my payment.
Here is the breakdown. I use the card for a one time purchase of $550. At the end of the month I get the statement. It says that I owe the $550. I pay the whole amount of $550.00, but 20 days after the billing cycle (still before the payment is due). So I should be fine, right? I am wrong. I get another statement the next month saying that I owe $5.00! In the 20 days between the ending cycle and my payment, I was charged nearly $5.00 in interest. They had even charged me a day’s worth of interest before the bill had left the processing center!
I am sad. I do not want to use this card any longer. But I don’t want to close out this card. Not only was it my first credit card, but if I close it out, that can affect my credit rating (the more unused credit you have, the higher your credit rating tends to be). So I will continue to hang onto it and store it safely away in case an emergency comes up.
There are many credit cards out there that are not daily compounding cards. There are many daily compounding cards that still have many benefits to the consumer. Just be aware that credit cards, like many businesses are in the business to make money. Be aware of your credit card and its terms. Compare and calculate the interest charged every month.
Not all compounding interest rates are bad! For instance, compounding interest rates are good in a high yield money market account! To view a list of banks offering high yield money market and savings accounts click here
Gone are the carefree college days where my card and I went on spring break together. Gone are the days when the card surprised me with massages or resort stays (I think this card even bought me some flowers or two when I was down). We are still together — but now just for the kids (the kid’s braces down payment that is…)