With the rise in fees that banks are charging, have you ever thought about using your credit card as if it were a bank account? I know it sounds crazy, but it just might work. Banks are charging fees for everything today including overdrafts, paper statements, ATM withdrawals and debit card transactions. You just might save money by using your credit card over your bank account. Let's take a look at some of these situations.
Suppose you need to pay a $500 bill and you only have $499.10 in your bank account. If you write the check for $500, your bank will clear the check and charge you a $35 overdraft fee for this transaction. But the fees don't just stop there! Every transaction that hits your account until it is out of the red is charged $35. You will pay $35 for a $3 cup of coffee or a 75 cent pack of gum. You will also be charged a $5 fee daily until you bring your account balance back positive again. You could end up owing hundreds of dollars just because you didn't have 90 cents in your account.
In the example above you would have actually come out ahead by using a combination of your credit card and your bank account. You could write the check for $400 and use a cash advance of $100 from your credit card. Cash advances are high interest loans from your credit card. Most credit card companies charge you anywhere from 20 to 24% for the advance plus 1 to 4% of the transaction amount. When you receive your statement you will owe about $104 plus interest. Would you rather have to repay just over $100 in 30 days or a few hundred dollars within a day or two? So the $100 cash advance is actually cheaper than the bank's overdraft charges. (Learn how to reduce your bank fees, check out Cut Your Bank Fees.)
You can see from the previous example that even a cash advance beats the amount paid in overdraft charges. Bank overdraft charges are averaging $35 per transaction and can be as high as $38 at some banks. This may make it worthwhile to use your credit card as a bank account. The basic purpose of bank accounts is for processing transactions. There are some cards that offer the advantages of a bank account without all of the fees.
The American Express Clear Card is an example of a credit card that could be substituted for a bank account. The Clear Card has no fees whatsoever. No late fees, annual fees, over the limit fees or cash advance fees. That's right! No cash advance fees. You even get a $25 gift card for every $2,500 that you spend. You could make all of your purchases on the Clear Card and pay the balance in full before the month is over and incur no charges!
The Simmons First National Bank Platinum Visa Card is a credit card with a low 7.25% interest rate and a cash advance rate of 11.25%. Iberia Bank offers credit cards with rates as low as 7.50% interest rate and 12.75% cash advance rates. These cards also offer convenience checks just like a checking account. There is a 25 day grace period and no transaction fees. You could use any of these cards just like a bank account and incur no fees.
Many credit unions offer special credit cards with low annual fees and no cash advance fees. As long as you have credit on your card, there are no fees for withdrawing cash from your credit card anytime. These cards often have very few fees overall and have lower interest rates than bank cards. (Find out about alternatives to traditional banks in Tired Of Banks? Try A Credit Union.)
So, should you get rid of your bank account? Don't do that! But it is good to be aware of all the options that exist to meet your financial needs. Although it may seem like counterintuitive advice, there are some situations where it may be beneficial to use your credit card over your bank account.