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May 24, 2007

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I'm currently getting 1.25% reward for all purchases from Capital One. (1% cash back plus 25% annual bonus)

I have a few cards that gives me 5% on gas, supermarket, and drugs.

I think I'm good.

Don't you all realize that this is lining the pockets of these credit card companies? You are not getting richer, they are. How naive can you be people?

Tyler --

Did you miss the part where I said it made me almost $500 last year? Exactly how is that not a benefit to me?

>> Exactly how is that not a benefit to me?

One valid response is credit card companies impose very high transaction costs on every purchase made, typically 2.5% -- and even more -- of the transaction price. Sure, retailers are responsible for the fee, but you darn well these fees get passed right back to consumers.

Credit card transaction fees drive up everybody's prices. They are, essentially, a national, and even global, 2%+ tax on retail purchases.

And you should research the numerous lawsuits brought by such heavyweights as Wal*Mart and others, against these greedy middlemen for antitrust violations, collusion, etc.

Jack --

Yeah, and if we all stopped driving, gas prices would be lower too.

Credit cards are here to stay and if used correctly that are not only convenient, but can also make you money.

Any transaction costs associated with them are here to stay as well and while they do add to retail prices, so do lots of things -- like paying with a check, having AC and lights on in a store, so on. I could take a whole lot of costs out of the system if reality wasn't an issue.

I would also like to point out that cash back cards tend to carry a higher interest rate.

A lot of the cash back cards are meant to be financed by people who don't pay off their balances in full every month.

Yes, by using credit cards, ultimately the fees will be passed down to the consumer. But that's an argument similar to saying building highways and roads are bad because you will end up having to pay a higher tax bill.

And like you said, the credit card companies are too big. The lawsuits basically mean that they are so big that they can charge some hefty fees due to a lack of competition. The fees are there whether or not we are earning money off these credit cards.

Your argument would have been stronger if there is enough competition to set the market prices. Bringing up the lawsuits only weakened your case.

FYI -- Note I said "used correctly" which in my book, in part, means that you never carry a balance.

I used AmEx's reward calculator and it was not very compelling for my CC spending level (~12K annually). IMHO, the 5%/1.5% > 6500 is mainly marketing glitz: intended to sweeten the deal for a limited subset of their customers, encourage the rest to charge more, but be just high enough to be out of reach of 80% of their base.

I agree with FMF here. The way I see it, there are two choices. (1) Use a credit card with no rewards and pay the built-in 2.5% transaction costs. (2) Use a credit card that pays rewards while paying the built-in 2.5% transaction costs. These transaction costs are part of the "cost of doing business" and are indeed here to stay, no matter if you use a rewards card, no rewards card, or even if you pay cash.

The only time I can see that it might be beneficial to avoid "lining the pockets of the credit card companies" is if a store offers a cash discount. A restaurant I eat lunch at sometimes offers a 10% discount if you pay in cash. Therefore, I pay in cash. But for everything else, it definitely is most beneficial if you use a rewards-paying credit card.

I do have a question about this Blue Cash card, for anyone who uses it. Are the 5% rewards calculated for the entire charged amount, or simply the amount above $6500? In other words, if I charge $9000 in a year of qualifying purchases, do I get 5% * 9000, or (1% * 6500) + (5% * 2500)? The information on Amex's website seemed ambiguous to me.

Thanks.

>> Credit cards are here to stay and if used correctly that are not only convenient, but can also make you money.


You don't make money by spending money with an Amex card. Look, from your perspective you use the Amex card, get some cash back, and you think that's a good deal. And perhaps it is. But if you broaden your view, and take a macro-economic look, it's a net loss. The card companies are middlemen, taking their 2.5% slice every time you swipe that card -- a cost that gets passed on to *you.*

No one is assigning blame. The behavior of millions of plastic-wielding Americans will not change, and the whopping fees the card companies earn is here to stay, so from the individual perspective, yes, it may make sense to go for the cash back.

But no matter how you slice-it-or-dice-it, 2.5% transaction cost fee > 1% cash back. Card company wins every time. Period.

So I disagree you "earn" money using a credit card. For the convenience of plastic and unsecured loans, Americans pay higher prices for goods and services, a 2.5% cost (and sometimes far higher) that simply is not offset by Amex giving 1% cashback to people. It's a net win for the card companies, and a net loss for American consumers.


>> Any transaction costs associated with them are here to stay as well and while they do add to retail prices, so do lots of things -- like paying with a check, having AC and lights on in a store, so on. I could take a whole lot of costs out of the system if reality wasn't an issue.


But we're talking about credit cards. Not lights or air conditioning or roads. I pay with cash whenever I can locally. I use a credit card for internet purchases, and some bills, so I too am feeding the middleman monster.


>> Your argument would have been stronger if there is enough competition to set the market prices. Bringing up the lawsuits only weakened your case.


Well, since Visa and Mastercard settled some of those cases, and paid billions of dollars to do so, I fail to see your point. And really, there is no market competition. That's why the fees are sky-high. Here's one view:

"On the other side of the cash register, retailers complain 'interchange' fees they pay for plastic payment handling more than doubled since 2001 and tripled since 1998.

"The latest tally: $36-billion in 2006. Some of it's because more people put stuff on plastic now. But it's also ever-rising rates, more premium cards and a bewildering plethora of extras such as that mountain of card reward points piling up for stuff cardholders may never actually want.

"'Interchange fees are the biggest fee you've never heard of,' said Mallory Duncan, chairman of the Merchant Trade Coalition, a lobbying group of retail trade associations battling card-issuing bankers, processors and the companies that run Visa and MasterCard.

"Card deals for stores used to be pretty simple. Now the Visa rate card runs on for 25 pages. Many retailers have no written contract with processors and little clue how to analyze billings. An unregulated army of 'acquirers' who earn commissions to sign new clients bombard stores so often that Chiadmi gets 60 pitches a year.

"For years some retailers declined to honor American Express cards because of the company's higher fees. Now pushback over fees has spread to Visa and MasterCard, which are catching up as their rates hover around 2 percent on average, but get higher with the perks of premium cards. Retailers have been emboldened since an antitrust lawsuit filed by several major chains over debit card fees ended in 2003 with a $2-billion settlement from Visa and $1-billion from MasterCard. Fees have multiplied like minks since then. Rates vary with risk linked to types of card. A corporate card costs more than a swiped card, which costs more than a PIN card. There are dozens of other charges, but you can't tell the hidden charges buried in a card by looking at it. Stores learn when the bill comes."

http://www.sptimes.com/2007/05/23/Business/Cards_bring_few_rewar.shtml

>> Are the 5% rewards calculated for the entire charged amount, or simply the amount above $6500?

Rick, it's the latter. Only the amount spent above $6,500 is what earns the 5/1.5%.

>> I used AmEx's reward calculator and it was not very compelling for my CC spending level (~12K annually)

Blue Schmoo - you're right... at $12K annually, the Blue Cash card is not the highest-paying card. A card like the Citi Dividend Platinum Select or the Chase Freedom Cash Visa would be better at that level.

I was thinking about signing up for this card. I might just do that now.

Jack --

The transaction fees are fixed costs. If I do nothing, I still pay it. Isn't it better to earn back 1.8% (which is what I got last year?)

Rick --

Yes, Jim is correct. The Amex Blue card is good for "big spenders." Last year I charged $26k and earned over 1.8% overall. Not bad.

I've used this card for 6 months and it has been great! I use the card for EVERYTHING. I do not carry a balance and will spend about 28k a year on it. It looks like I'll end with a REBATE of about $600 for the year. If I am going to spend the money, I might as well get something back for doing it. I don't view the $600 as "making money" - I view it as a rebate of the purchases I make. Nice card.

Blue Cash® from American Express is designed for those with good or excellent credit who plan to take advantage of the cash back reward program offered by this card, which Kiplinger's Personal Finance* named as the "best cash-rebate card."

Cardholders get unlimited cash back savings on eligible purchases with the card. Through the rebate program, cardholders earn a cash award that varies according to the amount spent per year. General purchases earn up to a 1.5% rebate. "Everyday Purchases" made at drugstores, gas stations, and supermarkets earn up to a 5% rebate.

Aside from the cash rebates, this card provides common benefits and services commonly found with American Express® credit cards, such as the buyer's assurance plan, purchase protection plan, and up to $100,000 in travel accident insurance.

This card has no annual fee and a reasonably low interest rate for purchases and balance transfers (for those who qualify), which makes it ideal for those who plan to occasionally carry a balance. The card has a 0% introductory rate for the first twelve months of membership that can be applied toward purchases. A 2.99% introductory rate is available on balance transfers for twelve months. It is important to note that the balance transfer introductory rate only applies to those who initiate a transfer when applying for the card.

Therefore, those who plan to take advantage of the cash back reward program for "Everyday Purchases" (to earn the highest rebate) and the various standard services provided will benefit most from what Blue Cash® from American Express has to offer.

*Notations to the Best Cash-Rebate Card appeared in the November 2006 edition of Kiplinger's Personal Finance. Based upon Kiplinger's Personal Finance assumptions of how their readers would use rebate cards. © 2006 The Kiplinger Washington Editors, Inc.

Jack, if everyone in America stopped using credit cards, prices would go down and we'd probably all save more than whatever we get back in cash from the credit card companies. However, that's impossible. Even if I stop using my credit card, millions of others are going to. Shouldn't I get some kind of benefit out of the spending I do anyway?

And if credit card companies want to make a profit, let them-- I much prefer the convenience of my Amex card, not to mention fraud protection and other benefits, over carrying around cash or even using a debit card.

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