Marco Pantoja, AFC®, Extension Instructor, was recently interviewed by WalletHub for its “Ask the Experts” column on Secured Credit Cards.
Why don’t more secured credit cards pay interest on your security deposit?
The security deposit is a temporary exchange for a credit account. The lack of interest paid to the borrower, if interest is being earned on security deposits, could be seen as an invisible fee and additional compensation for the financial institution accepting the risks associated with extending credit to a high-risk borrower. Further, banks and credit unions face significant demand for access to credit and, for now, little incentive to provide additional benefits to borrowers.
How does a secured credit card with no annual fee make the issuer money?
Secured credit cards with no annual fee make the issuer money in the same way unsecured credit cards with no annual fee make money; some borrowers will carry a balance month-to-month resulting in interest charges plus any of the other possible fees associated with credit card usage. Typically, I try to steer people away from annual fee credit cards in any situation because, generally, the fee negates any of the benefits such as cash back or other rewards.