I just came across the Schwab Bank Invest First Visa Credit Card. It offers a full %2 cash back on all purchases.

What Is The Catch?

I was immediately skeptical of this offer.   Few cards offer anything more than 1% cash back on all purchases, although many give you %2-%5 cash back for certain purchases.   I currently hold the Capitol One card that gives me 1% cash back immediately, and an additional .5% at the end of the year.

First, the Schwab card terms say that you have to have a Schwab One Brokerage account.   Aha!  I bet that it has a huge minimum balance requirement and/or a considerable monthly fee.     Then I saw their FAQ that bluntly states “There are no monthly account service fees and no minimum balance requirements for the Schwab One account when it is linked to your Schwab Bank Invest First card.”

Maybe there is some minimum amount of spending you must do to get the 2% back?    That darn FAQ addresses this concern as well: ” There is no minimum monthly purchase amount. All cash rewards accrued during the month will be automatically deposited into your Schwab One account at the end of each month.”

I Found A Catch

My exhaustive review of their terms and conditions turned up only one catch.   Schwab is not an FDIC insured bank.   In these days where banks are failing faster than a Falafel stand in Iowa, you want to be sure that all of your money is in a federally insured bank.    Schwab makes it very clear that, like all investment banks, your deposits are NOT insured by the FDIC.

The simple solution to this problem would be to withdraw you money from your Schwab account every month after you receive your cash back.    I am not a Schwab account holder, but it would surprise me if there is not a simple way to this, and probably an automated way as well.

Why Are They Offering This

It is hard to believe that they are making much money off the merchant fees on this Visa, rather they are most likely using it as a leader to encourage investors to use their services.    Schwab makes money on fees when investment vehicles such as stocks, bonds, and mutual funds are bought and sold.    These days, many people are fleeing the market as it has been volatile at best.   I am sure that Schwab figures that this feature will entice people to invest with them over their competitors.    Regardless of their motivation, it is a fantastic deal.   My biggest concern would be that they withdrawl the offer after six months or a year.   In that case, you still haven’t lost anything.

One More Cool Thing

In going over the details, I noticed that Schwab says that this card does not charge any foreign transaction fees.   More likely is that, like Capitol One and very few others,  they do not add anything on top the 1% that Visa and Mastercard charge.

American Express Card’s New Feature, Negative 2.7% Cash Back

That’s right, American Express will be charging you 2.7% to use their card from now on.    This is up from the previous 2% that they had charged you for years.   By now, perhaps you have figured out that I am talking about their foreign transaction fees.    This 35% increase is pure price gouging by our friends over at American Express, and another reason to consider the Schwab or Capitol One cards when you travel.    I only travel outside the country once or twice a year, but it just burns me up that most of the credit card companies take this opportunity to rip you off.    Wendy Perrin of Conde Naste Traveler offers a very usefull guide to making foreign transactions with your credit card.     The best reason she can come up with in defense of using your American Express outside of America is that they offer the best protection when disputing a charge.    The best rationale that I can come up with for the charge is that it is more expensive to deal with merchants in foreign countries when there are problems.   If that is the case, they should raise their merchant fees rather than try to pass it off as an implausible  %35 increase in their cost of converting currencies.

I am a rather frugal traveler who spends very little overseas, yet I will still use my Capitol One when I travel.    I am really not saving that much, I just do it mostly on principal.   On the other hand, for those who are reimbursed by their company for travel for expenses overseas, all of these concerns are moot.    In fact, if you are being reimbursed by your company, you are now just getting .7% more rewards!

This entry was posted on Thursday, December 4th, 2008 at 11:41 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.