Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes “Cashing In,” a weekly column about credit card rewards programs, for CreditCards.com
Dear Cashing In,
Every month with my credit card billing statement, my bank sends me checks to use. It seems like that would be a good way to earn some extra reward points, by paying my mortgage with the checks then paying my credit card bill from my checking account. Should I do that? – John
In a word: no.
The checks that come inside your monthly credit card bill look enticing. They are easy to use. They appear just like normal checks. You write them, they are accepted as payment, and your account is debited. They are known as “convenience checks,” and they are indeed convenient.
But if you read the fine print, you will find that using these checks is very dangerous and financially unwise. Not only do they not give you rewards, but they cost you a bunch of extra money.
That’s because banks do not treat those checks as mere purchases, which you can then pay off every month and pay no fees or interest. Instead, those checks with your monthly statement count as cash advances. Cash advances typically carry an interest rate even higher than the rates for purchases, and interest begins accruing immediately.
A May 2017 CreditCards.com survey found that the average cash advance APR was 23.68 percent – about 8 percentage points higher than the annual rate for purchases. Of 100 cards surveyed, none gave a grace period for interest. In addition, 99 of the 100 cards charged a fee for a cash advance – typically 5 percent of the amount, or $10, whichever was greater.
A little math here shows that if you wrote a $1,000 check and took a month to pay it off, you would pay on average $19.60 in interest plus $50 in fees. So in sum, that $1,000 check actually costs you $1,069.60.
In addition, every card rewards program that I know excludes cash advances from the list of transactions that award reward points. Typically, points accrue only for purchases. Other activity, such as balance transfers and paying for annual fees and interest, does not count toward reward balances.
As far as paying your mortgage in a way that earns you points, there really are no good solutions. Mortgage companies typically do not allow you to pay with a credit card, and those that do charge a fee that covers their card processing costs and makes charging it undesirable.
There are also online services that can make mortgage payments, car payments or credit card payments linked to your credit card, but they also charge a fee. For instance, there is a service called Plastiq that sends the bank a check or bank transfer linked to your credit card account. It charges a 2.5 percent fee. Because most credit card rewards average 2 percent or less, you’re typically not going to come out ahead by using such a service. However, if you are trying to meet a minimum spending requirement in order to earn a sign-up bonus, then taking advantage of a service such as this might make sense in limited circumstances.
But whatever you do, do not use those checks that come with your card statement every month. Pursuing credit card rewards makes sense only if you avoid interest and fees. Cash advances are pure interest and fees. The two just don’t mix.
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