Ever hear of a bank holding your deposit check–even if it’s a cashier’s check–for 15 days before it will credit your account? Some of them do it, believe it or not, on secured-credit-card accounts.
Secured cards are carried by folks who have had previous credit problems or no previous credit at all. They’re trying to rebuild their credit history by going this route, because it’s the only type of card they can get.
With a secured card, you must deposit money into a special savings account that acts as collateral against your card purchases in case you default. You’re granted a credit line of typically between 100 and 200 percent of your total deposit. As you tap into that amount by using your card, you keep replenishing the account by making payments.
And that’s where the shocking delays on check desposits come into play. In most banking transactions, it’s the law that local checks must clear in two days, out-of-state checks in five.
But a Bank Rate Monitor survey of major secured-card issuers turned up two banks that hold personal check and cashier’s checks for 15 days before crediting the account. It’s a bummer, especially considering that when the poor working stiff gets a cashier’s check at his local bank, to send to his secured-card bank, his institution debits his account immediately. He doesn’t have use of that cash for more than two weeks.
It’s all legal, according to something called the Federal Reserve’s Regulation CC, which says a bank may justifiably have “cause to doubt the collectibility” on a check.
Secured-card bankers I’ve talked to argue that they must stick to that policy because of a rising number of cases involving fraud and counterfeiting.
Problem is, when the average Joe with bad credit signs up for a secured card, he’s so anxious to get his hands on the piece of plastic–which allows him to charge purchases and rent cars and hotel rooms, just like everybody else–he doesn’t check the downsides of many of these deals.
As a result, he gets hooked with a sky-high interest rate, stiff charges and extra fees that regular cardholders don’t pay.
If you fit the profile and receive a juicy secured-card offer in the mail, as millions of other people do, shop the offer as you would any standard card. First, read the flyspeck print on the literature.
– What’s the interest rate? BRM’s study shows it can range from a low of a 9.72 percent variable rate at Federal Savings Bank in Rogers, Ark. (800-290-9060) to 22 percent at Sterling Bank, Southfield, Mich. (800-767-0923), 21.9 percent at First Deposit National Bank, Manchester, N.H. (800-405-2632) and 21.24 percent at Cross Country Bank, New Castle, Del. (302-322-3210).
Check-hold policies are stiffest at Community Bank of Parker, Colo., (800-779-8472) and First Premier Bank, Sioux Falls, S.D. (800-987-5521), which hold cashier’s checks, personal checks and even money orders for 15 days. By contrast, they’ll credit a wire transfer or Western Union Quick Collect payment in only one day.
There’s a 10-day hold on personal checks at American Pacific Bank, Aumsville, Ore. (800-610-1201), Bank One in Tempe, Ariz. (800-544-4110), Key Bank and Trust, Havre de Grace, Md. (800-539-5398), Orchard Bank, Ontario, Ore. (800-873-7307) and Sterling Bank. Sterling also holds cashier’s checks for 10 days.
The most liberal outfit in BRM’s survey: Sanwa Bank, San Francisco (800-237-2692), which says there’s no hold regardless of the type of check.
What else you should shop:
– Grace period. This is the number of days before interest accrues on your card purchases. Generally it’s 25 or 30 days, either from the day you made a purchase or the date the bank’s bill went out. Be warned that Cross County Bank and First Deposit National offer no grace period whatsoever.
– Application fee. Standard-card issuers don’t whack you for one, but about one out of three secured-card issuers will hit you for $25 to $49 upfront, the latter figure courtesy of Sterling Bank.
– Annual fee. Expect to pay $25 to $45, but Sterling’s fee is $78.
– Minimum and maximum credit line. Anywhere from $200 to $15,000, but mostly in the $5,000 range.
– Requirements to qualify. A few issuers are as loose as a goose, even if you once filed bankruptcy. Others insist the bankruptcy be discharged, that you don’t have tons of credit-card debt and have no federal tax liens against you.
You can get a free list of the major secured-credit-card issuers on Bank Rate Monitor’s Web site (http://www.bankrate.com).
– Tip. When you shop, be sure your savings account earns interest; some outfits may not pay any. The rate will be minuscule, such as 2 percent, but balances of $1,000 or more pay 5 percent at First Deposit National Bank.
– Credit card tip. Prevent credit card fraud by drawing a line through any blank space above the total on the slip you sign. Also, make certain you rip up any carbons.
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Robert Heady publishes Bank Rate Monitor, a newsletter based in North Palm Beach, Fla.
