By Effie Zahos,
, May 2008
Judging by our mail, credit cards bugged a few of our readers last month and rightly so! One reader wrote to Money with some earth- shattering news.
Could it be possible that one major credit card issuer actually penalises its cardholders for paying off their balance in full each month?
"We received a letter from Citibank informing us that customers who pay their card in full by the due date for 10 out of 12 consecutive months may have the maximum interest-free period reduced from 55 days to 44 days,” wrote Karen in an email to Money.
Surely Karen misunderstood the letter. What institution penalises its good customers?
I for one had never heard of such a condition and when I quizzed Cannex, Australia's largest financial research house, they too were just as surprised.
But Citibank confirmed it as true.
"The decision was made by Citibank to bring the product into alignment with other products offered by competitors in the market," said Citibank in a statement to Money.
Citibank's head of branded cards, Jessica Power, confirms there's a rising trend for card issuers to offer 44 interest-free days rather than the standard 55 days.
It all comes back to profit. By extending less credit on an interest-free basis, card issuers save more money.
Given Citibank has not changed the payment due date, they simply now send statements earlier to cardholders, cutting the period from 55 days to 44 days. Citibank says their customers have not been placed in a position that would cause them to unexpectedly or accidentally pay their account late.
"Our research shows the customers whose cards have changed don't require the whole 55 days to pay off their outstanding balance. They always pay it off by the due date and since this hasn't changed, then we don't believe it will affect them," says Power.
Fine if you never need the whole 55 days but what if, just what if, you need those extra 11 days to pay off your balance in full.
Wouldn't it have made more sense if Citibank just explained why they needed to reduce the number of interest free days rather than penalise their good customers?
"Until now our Citibank card has proved to be the best card," says Karen. "But 55 days interest free is a lot better than 44 days interest free."
I guess for Karen that says it all.
There is a bright side. If you're a Citibank customer who doesn’t pay their balance in full each month you'll pay less interest. That's because interest would be backdated over 44 days rather than the standard 55 days. Who says it doesn't pay to be bad?
Other credit card traps that Money has reported include: cards that have low minimum monthly repayments (the fact that a $3000 debt can take over 40 years to clear and cost over $21,000 in interest is reason enough to pay off more than just the minimum repayments); cards that calculate interest the most expensive way; cards that charge two different interest rates; and the trap with balance transfer cards never use them until you clear your old debt.
When it comes to plastic it pays to read the fine print.
Money Magazine's May 2008 issue is out now. Subscribe now.