Visa Moves Towards One Click Payment System

By: Jason Steele

05/13/2011

I have written before about how Visa and other companies are working to deploying new systems that will allow you to use your phone as a credit card. I am not so hot on those systems for all sorts of reasons. What I am excited about is the standardized one click payment system that they are now developing. As an Amazon customer, I have gotten used to the idea of purchasing things without going through pages and pages of forms. I am constantly astonished at how much time and effort it takes to something through PayPal. It is something like an 18 step process that includes such valuable experiences as signing in again, clicking through ads, specifying the payment method (the love to default to your checking account), and reconfirming your choices a few times. There has got to be a better way. By shooting for a single login, one click system, Visa has the potential to be a real disruptor to the PayPal monopoly. If they integrate this system with some sort of chip in your telephone, so much the better.

How This System Will Work

Credit Cards Staying Out Of Interchange Fee Fight For Now

By: Jason Steele

05/12/2011

If you follow the credit card industry or the retail sector, you know that one of the biggest fights out there is over interchange fees. These charges, also known as swipe fees, are a constant source of debate as the retailers perpetually propose to do away with them. The retailers achieved a huge victory over the banks when the Durbin Amendment was attached to the Dodd-Frank financial reform bill that has since become law. The Durbin Amendment would vastly curtail the interchange fees that banks could charge retailers, but only for debit cards, not for credit cards.

Durbin In The News Again

How Credit Card Interest Works

By: Jason Steele

05/10/2011

I was talking to a friend of mine the other day about credit cards. Him and I are both deadbeats. We make a lifelong habit of paying our bills on time and in full every month. In that way, we always avoid paying interest. Nevertheless, he did not seem to understand exactly how credit cards calculate interest. In his defense, it is not a simple subject. While it is hard to explain, allow me to give it a shot.

How Credit Card Companies Calculate Interest

If you read the terms and conditions of any credit card, it will tell you that interest is calculated on the basis of your average daily balance. In this way, it is much like the interest you earn in a savings account. With your savings account, the earlier you make a deposit, the more interest you will have earned when you receive your balance. Likewise, with a credit card, the earlier you make a charge, the more interest you will owe by the time you get your statement.

What makes credit cards so unusual is that they have the possibility of a grace period. If you did not carry a balance at the end of your last statement, and you pay your balance in full by the due date following your current statement, all of the interest you would have owed is now forgiven. Congratulations, you are now the recipient of an interest free loan!

If you fail to pay off your entire balance, or you pay it late, you are still on the hook for all the interest accrued for each purchase. With the average daily balance computation, each purchase is essentially accruing interest from the moment of the transaction until the your payment is credited. Once your payment is credited, your balance falls by that amount for that day going forward. Don’t forget, that had you been continuing to make purchases after your statement closed, those purchases will also be accruing interest that will appear on your next statement. By failing to pay your balance in full and on time, you not only have to pay interest on all of the charges on your statement, but on all subsequent charges until such time that you pay off your entire balance. In this way, failing to pay off your balance on just one month, by just one dollar, will result in interest being owed on all charges during the 50 or so days(depending on the length of the month) from the first day of your last billing cycle up until your payment is received. Being short one dollar, or late one day, can easily result in hundreds of dollars of interest being owed that would not have been otherwise.

The Two Ways Of Looking At Credit Card Interest

There are two ways of looking at the seemingly bizarre fact that being short a dollar can cost you hundreds. The way the banks explain it, you are always earning interest on all of your purchases. That interest can be forgiven if you pay your balance in full during the time called the grace period. There is a certain logic to the fact that there is no free lunch, you are always incurring interest.

On the other hand, there is a free lunch if you pay your entire balance on time. I always thought it was outrageous that a bank could legally charge hundreds of dollars of interest just for being a penny short of your balance when you make your payment.

Two Other Ways Of Calculating Interest

Until the CARD Act of 2009, credit card interest was always calculated using an obscure formula known as double cycle billing. This strange method was only used for credit cards. What they did was average out your balance over the last two billing cycles and charge you interest on that alone. If you had been carrying a balance, but had paid it in full, it would take two billing cycles until you no longer owed any interest. In this way, you were essentially paying interest on part of a balance you had already paid. While this method was outlawed for personal cards by the CARD Act, it is still permissible in the instance of business cards, so beware.

The other exception is for members of Chase’s Blueprint program. With this program, you can designate certain charges as “Full Pay” and others as “Split Pay”. In this way, you can pay some charges in full with no interest while carrying a balance in the traditional way on other charges.

Conclusions

No matter if you carry a balance or pay every statement in full, it helps to know exactly how credit card interest is calculated. Knowing the consequences can influence your decision whether or not to pay your balance on time and in full.

Are Higher Annual Fees Better?

By: Jason Steele

05/09/2011

What a strange question. How could a higher annual fee possibly be better than a lower one? To understand how that can be the case, you must look at the totality of your credit card’s benefits and its fees. Here are two instances where a company is offering nearly identical credit cards, one with an annual fee and one without. In both cases, I would have to recommend the card with the more expensive annual fee to anyone who uses this card even occasionally.

Southwest Rapid Rewards Cards From Chase

Chase and Southwest Airlines offer two cards, the Classic card and the Premier card. Both accrue identical benefits in Southwest’s Rapid Rewards programs. What’s the difference? The Classic card has a $69 annual fee and the Premier card has a $99 annual fee. Both waive their fees the first year so you only pay the annual fee on the second year. When you pay the $69 annual fee for the Classic card, you receive 3,000 Rapid Rewards points worth $50 towards a Southwest Airlines purchase. Essentially, you are paying a net $19 to renew. The Premier card offers 6,000 miles, worth $100 towards a Southwest Airlines flight. With the Premier card, you end up ahead by $1.

If that wasn’t enough, the Premier card allows you to earn Tier Qualifying points so that you can reach higher status levels in their program. Even if I didn’t card about this benefit, I would much rather pay $99 to earn $100 than $69 to earn $50. Wouldn’t you?

Capital One Venture Card Vs. VentureOne Rewards

Capital One offers two very similar cards in its new Venture series. The standard Venture rewards card has a $59 annual fee while the VentureOne card has no annual fee. The other difference is that the Venture card offers 2 “miles” per dollar spent while the VentureOne card only gives you 1.25 “miles” per dollar. Since each “mile” in their system is worth one cent towards a statement credit on any travel expense, you are earning .75 cents more per dollar spent with the higher annual fee card. If you spend $4,720 dollars a year or more, you will save money with the standard card over the fee free Venture One.

Lessons Learned

People simply don’t like annual fees and that is understandable. Credit cards make plenty of money off of us from interest rates and merchant fees, they don’t have to charge us just for the privilege of merely using that card. At the same time, credit card rewards are not always a straightforward proposition. As I have shown, there are all sorts of ways that a rewards credit card can offer direct value to its cardholders. Other examples I have run across recently are the Chase Sapphire and Sapphire Preferred cards. There are several benefits offered by the Sapphire Preferred that exceed the standard card such as higher reward rates and waived foreign transaction fees. This may also be a case where some people are better off with the Preferred card, even with it’s higher annual fee. Another instance may be the American Express Platinum card. Although its $450 annual fee is high, and there is no directly related card that offers similar benefits without the fee, you can still make a case that their fee is worth it. You will get a $200 airline travel fee credit and $100 towards the Global Entry membership. Those two can account for most of the fee, and it has plenty of other benefits that could account for rest. If the added benefits vastly exceed the additional annual fee, it can make much more sense to apply for the card with the higher annual fee.

Sharing Your Points And Miles

By: Jason Steele

05/06/2011

Thanks to the recent promotion from British Airways and Chase, myself and two other of my family members will be receiving the 100,000 miles in British Airways Executive Club. That’s a lot of miles, but it won’t get you everywhere even if you are traveling alone. In order to really utilize these miles, it would be best if you could collect them into a single account. Fortunately, British Airways is one of the few programs that will allow you to do that. Their Executive Club program has a feature called household accounts where multiple people can pool their miles together. This program is unique to my knowledge in that redemptions will be deducted equally from all of the accounts in the household. They also restrict you from adding or removing more than one person every six months.

Other Programs That Allow You To Share Miles

Hawaiian airlines program has traditionally allowed family members to share miles between accounts. At some point, they changed the rules to require that the account holders have their credit card. The Starwood Hotels Preferred guest program also allows people to share miles between family members living at the same house. This is in keeping with so many of the amazing features of the Starwood program. Since you get a 5,000 point bonus when you transfer 20,000 Starpoints to miles, you would be crazy not to pool your miles in order to get the bonus. Keep in mind that transfers can take a few days with their program. I am sure that there are some other programs that allow this, but these are the only ones I know of. None of the major domestic airlines allow these free transfers of miles.

Other Options To Share Miles

In many cases, sharing miles is unnecessary. There is absolutely nothing wrong with redeeming an award from your account in the name of someone else.If you do not have enough miles in one account for the award you are looking to redeem, consider booking multiple one-way awards from different accounts. Most programs now allow one way awards, although you they may not allow you to book them online.

The only problem with redeeming an award for someone else is when you sell or barter the miles. Doing so is not illegal, it is merely against the rules of just about every loyalty program. If caught, the airlines are within their rights to void the ticket and suspend your account. The airlines are far more likely to catch you doing so if the person flying on the award is not flying with the account holder and he or she has a different last name. In those circumstances, it may be wise to provide that person with a gift letter stating that the award is provided without any compensation or consideration. Include your name and your contact information on that letter.

It is fairly common for people in my family to give each other mileage awards. Certainly we expect to be repaid by each other, but short of subjecting us to a polygraph, I am not sure how the airlines would ever prove these are not gifts. As far as I am concerned, their rules cannot apply to our intentions which are none of their business.

Paying To Give Or Transfer Miles

The airlines are happy to charge you to transfer your miles to another person’s account. The prices they charge just to transfer existing miles are often more than a reasonable person would value those miles to be. On occasion, some airlines will offer additional bonus miles for these transactions that can make it worth your while under the right circumstances. US Airways has offered such generous transfer bonuses that some have found it worth their money to transfer miles back and forth between each other.

Conclusions

So whatever you do, always be sure to investigate the possibilities of pooling your resources when you are planning an award. Your airline may not have a free way to do so, but there are other creative ways to utilize all your available miles to get you to your destination.

Which Chase Blueprint Card Is Right For You?

By: Jason Steele

05/04/2011

The Chase Blueprint program is a remarkable feature that is only available on four of lines of cards: Freedom, Ink, Sapphire, and Slate. Blueprint allows customers to pay off certain purchases in full within their interest free grace periods, while carrying a balance on other purchases for a period of time that they can designate. Blueprint also includes other powerful budgeting tools that allow customers to create and execute a plan to pay off their balance on their schedule. The ability to pay off some transactions within the grace period while carrying a balance on the other can result in a far lower amount interest paid than any other card without Blueprint. So valuable is this feature, that I though it was worth looking into the various Chase cards that offer Blueprint, so that you can figure out which card is best for your needs.

Let’s Take A Look At The Chase Offerings With Blueprint

Airtran and Southwest Is Done And Done

By: Jason Steele

05/02/2011

I vaguely recall hearing about some kind of royal wedding last week in England, but I don’t have all of the details on that. What I am excited about is that the merger of Southwest and Airtran has finally concluded. Since arriving in Denver in 2006, Southwest has been my favorite airline. They deliver a quality product in a friendly and efficient manner. In most other industries, that would be expected from any company, but in the airline industry, that makes them a superstar. Airtran was not a bad airline. They offer inexpensive first class upgrades while eschewing the fare gouging formula that has been the staple for Atlanta based rival Delta. Cities have mourned the loss of Airtran whenever they have been forced to pull out of a market, as Delta has been known to quickly multiply its fares in the absence of competition.

What Is Next For Southwest And Airtran

Who Won For Best Credit Card In The Frequent Flier Awards?

By: Jason Steele

04/29/2011

Last night, the dean of all frequent flier guru’s Randy Peterson, held the 21st annual Freddie Awards in Ft. Lauderdale Florida. While I don’t have the space to go through every award, I thought I would take a look at the awards for credit cards.

About The Freddies

Peterson started handing out frequent flier awards back in 1988. He named the awards after the legendary British airline entrepreneur Sir Freddie Laker, who later passed away in 2006. Each year, people can vote online in numerous categories such as the best frequent flier programs, awards, bonuses and credit cards. The winners are announced at a banquet and Randy Petersen presents the awards.

Best Affinity Credit Cards

What's Going On In Denver, And Why You Should Care – Frontier Lowers Fees And Guess What United Does?

By: Jason Steele

04/27/2011

The airline industry in this country is going through a host of changes. They are trying to work out a business model that allows them to compete with each other while withstanding the soaring price of oil. In one corner, you have the remaining legacy carriers, United, US Airways, Delta, and American. In another corner, you have the discount carriers such as JetBlue, Frontier, Alaska, and Virgin America. Finally, you have Southwest airlines, which is unique for a number of reasons.

The legacy carriers are addicted to fees. They can call it unbundled, ancillary revenue, or even happy fun charges, but it doesn’t change the fact that they are trying to charge money for things that were once free. Their hope is that while pissing off many customers, they will make more money from the fees than they will lose from alienating their passengers, assuming they have paused to thing about their passengers in the first place. Southwest has taken the opposite view, holding steadfast to their offer of two free checked bags, no change fees, and rational limits on the fees they do charge. That has left the other discount carriers left to choose which path they want to follow.

What Does This Have To Do With Denver?