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Interest on her credit card? 703.8%

It's not quite as bad as it sounds, but you too could see this on your card statement.

By Karen Datko Jan 14, 2010 7:08PM

As the Feb. 22 deadline approaches for most of the new Credit CARD Act requirements to kick in, weirdness abounds. CBS MoneyWatch columnist Kathy Kristof can attest to that.


She opened up the first bill for her new Macy’s store credit card and read that the “minimum interest charge" on her average daily balance “worked out to ‘an actual annual percentage rate’ of 703.8%,” she wrote.


What, we thought -- are our eyes deceiving us? Sure enough, the headline on her post is “Credit reform and my new 703.8% card.” There is an explanation for this, and you should read it, lest you open your credit card bill and suffer a heart attack.


Here is what’s going on:

  • The card, issued by a company owned by Citi, charges a monthly $2 “minimum interest charge,” which works out to $24 for 12 months. It used to be $1 but, like lots of credit card fees in advance of the new credit card rules, it has gone up.
  • Kathy’s average daily balance was $3.41 (her monthly balance divided by 30).
  • New federal rules require that your actual APR has to be disclosed. Voila, it’s 703.8% ($24 divided by $3.41).
  • If you pay your balance in full and on time, that $2 fee is refunded.

But, wait a second: Didn’t that card come with a rate of 24.5% when she signed up in the department store while she was holiday shopping?

As a result of the $2 mimimum fee, “those who have a relatively low balance -- anything under, say, $500, will find that this fee is going to boost your effective annual interest rate well over 100% for that month,” Kathy wrote. “. . . It’s only the people who are goofy enough to charge up a storm that pay the advertised 24.5%.”

Don’t take that as incentive to go on a spending spree. It’s yet another reason to be a smart consumer. As Kathy recommends, if you can’t pay off your balance each month, don’t use a credit card.


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