Is my no fee, no interest Discover card too good to be true?

September 22, 2005 2:17 PM

I've always heard that something "too good to be true" usually is, so I'm a little skeptical about the Discover card I just got. Long story about why I got it, but I intended to cancel it immediately. Customer service assures me there's no interest for the first 6 months, no annual fee, and a cash-back rewards program. They'd be paying me to use the card. Does anyone use Discover, and is there a catch?

I only have one other card, a secured Visa I got because I'm young and have no credit (and because credit is safer than debit, which I'd always used before). I pay it off every month. I think I'm far more responsible financially than most of my peers, so running up massive debt isn't in the cards, so to speak. What I am concerned about is using my Discover a lot to get the cash back then getting hit for more than I expected.

Bonus question--Since there's supposedly no interest for 6 months, I'm thinking about paying the minimum and keeping the rest in my ING Direct savings account (at 3.3% interest or so) until the intro period ends, when I'd pay it all off to avoid interest while having made a small profit in the meantime. I can't believe I can do this, but I don't know why it wouldn't work. Do you?

posted by SuperNova to work & money (24 comments total)

I've had that- credit cards with no interest for 6 months. The offer is extended so you'll rack up debt, and then be charged interest on it (so the company assumes). But if you keep yourself under control, you won't pay a dime (I've had a card almost a year I've never payed a dime on).
posted by ThePinkSuperhero at 2:23 PM on September 22, 2005 [1 favorite]

I think one of the catches of the Discover card is that most places don't accept it.
posted by drezdn at 2:25 PM on September 22, 2005

Provided you pay off your balance on time each and every time you use the card, you will indeed be paid to use it. My mom swore by it for years and actually ended up "making" a few hundred dollars.

The catch is that the vast majority of credit card users in the US don't pay off their balance each month.

It sounds like your interest scheme would work as well. Again, most people don't think the way you do and would be far more interested in spending all that cash in the short term, rather than using it to generate long term interest.
posted by aladfar at 2:25 PM on September 22, 2005

Basically, ditto to the above. Your scheme will work, you'll make money, you win! The other responders have it right--Discover assumes you'll be like nearly everyone else and run up debt, which you will (eventually) pay finance fees on.
posted by MrMoonPie at 2:28 PM on September 22, 2005

Maybe I'm misunderstanding what you want to do, but if you're going to take money off the card and put it in a savings account you need to factor in the cash advance fee. Depending on how big it is, it could offset any money you'd make off interest over six months.
posted by InfidelZombie at 2:29 PM on September 22, 2005

I think he actually means that he will purchase things with it, and instead of paying the balance, put that money in a savings account. At the end of six months he'll pay the balance out of savings, pocket the interest he received from the savings account PLUS the cash back. This probably won't amount to much though.
posted by RustyBrooks at 2:31 PM on September 22, 2005

Credit Card Companies charge the businesses that accept the cards a percentage of the purchases made on the card. That's why you can get a cash discount some places. Even though the card company may be "paying you," they are likely making it up on the other end.
posted by Yorrick at 2:34 PM on September 22, 2005

I'd move the money out of ING Direct and into Emigrant Direct, which is 4% as of earlier this week. %)

And yeah, I'm doing that right now with a 0% into offer I got from Providian. Bought my airline ticket home for the holidays and a new laptop and am socking away money to pay it off next March.
posted by kindall at 2:49 PM on September 22, 2005

The catch is that you will almost certainly spend more money than you save. Studies have shown that the average person spends about 25% more when they use a card than when they use cash.

Plus, the money you make from this scheme is very small. Let's say your limit is $1000. If you charged that all on the first day, and actually do have the $1000 in your bank account to pay it off. At 3.3% interest, you will make a grand total of $16.50 interest in the 6-month promotional period.

You are considering taking a significant risk for less than a 20-spot.
posted by Invoke at 2:49 PM on September 22, 2005

The cash back amounts are small, and what they're counting on is that you'll run up a balance so they'll make their money back. You're safe.

Incidentally, I like the folks at Discover, out of the four credit cards I have, they're the most willing to work with me on APRs, credit limits, etc.
posted by Specklet at 2:50 PM on September 22, 2005

Plus, read the fine print. If something goes horribly wrong and you can't pay the balance off, you might be charged for 6 months worth of interest.

(Well however long for each purchase, but you get the idea.)
posted by sevenless at 2:53 PM on September 22, 2005

Also, it's not clear from your post if you still are planning to cancel the card after the 6-month period. So: Don't cancel it. The average age of any credit accounts you have is part of your credit score. So having an old credit card will help your score (in general, having too little credit or too much credit hurts your score).

If you do decide to cancel it, make sure you tell them to include in your credit report that the account was closed at the customer's request.
posted by skynxnex at 2:56 PM on September 22, 2005

skynxnex: If you do decide to cancel it, make sure you tell them to include in your credit report that the account was closed at the customer's request.

I just cancelled a card but didn't tell them this. Are you saying that without saying this, the cancelled card will automatically appear suspicious on my credit report?
posted by cybercoitus interruptus at 3:37 PM on September 22, 2005

There are a number of reasons why a card might be cancelled - some of them would make you look bad. By making sure that it's listed as cancelled by your request you are making sure that anyone who looks at your report doesn't jump to any wrong conclusions. In short, it's mainly a case of CYA.
posted by Rubber Soul at 3:39 PM on September 22, 2005

Another issue in the fine-print with Discover (last time I looked at an offer from them) is that you are obliged to charge $150/mo on the card in order to keep the rate.
posted by adamrice at 3:44 PM on September 22, 2005

Discover cards are fine, just be responsible with it and don't be lax on setting aside money to pay the full bill eventually.

As others have noted, credit card companies make money on every transaction, so if you spend $5k, they've probably pulled in $100, and kicked $50 back to you. Not a terrible situation for them.
posted by I Love Tacos at 3:49 PM on September 22, 2005

skynxnex: If you do decide to cancel it, make sure you tell them to include in your credit report that the account was closed at the customer's request.

You don't have to be this specific. You are the customer, you are requesting that the account be closed. It will be recorded as 'closed at the customers request.' I pull my credit history annually, and this is how closed accounts show up (like the Home Depot card I got to save 10% on a big purchase, paid off and closed).
posted by fixedgear at 4:04 PM on September 22, 2005

Discover card is fine, I've had one for many years. However, the caveat here is that the "cashback bonus" is tiny, and you can only deal with it in $20 increments. So, you have to charge a lot just to build up the bonus.

That said, if you have several utilities, you might be able to hook them up to autopay on the Discover card. As long as you pay it off monthly (easier said than done), you will build up cashback bonus AND only write one check each month. Also, check out their website. When you decide to cash out your bonus, they have several merchants that allow you to "double" your bonus, i.e. turn $20 of bonus into $40 of coupons.
posted by MrZero at 4:14 PM on September 22, 2005

The one thing I will say negatively about Discover is that they feel the need to call me constantly and send me letters about why I'm not using my card (I use it very rarely). That's kind of annoying.

They beat the hell out of BoA for my Visa. Now THAT'S a card I need to get rid of.
posted by selfnoise at 5:21 PM on September 22, 2005

I've had terrific luck with Discover - using it as my primary card throughout college until I shifted into a spending level that justified a higher end AMEX card (that certainly has it's benefits and is perhaps a better cost to benefit depending on your needs).

Don't be too surprised - you are not getting something for nothing. They charge merchants to use their card, and unlike others posting in this thread, almost every place takes it. I used it for everything that would take a credit card and only was lucked out roughly 5 times out of 2000. I actually have worst luck with my AMEX than I do my Discover.

Also to note - Discover offers a 5% cash back on gas, providing you have their Plat Gas card. Albeit, this tops out at 1500 and 3000 levels, but is effective as a leverage too for those spending points.

Head over to fatwallet.com for some more enthused discussion of these points. Luck.
posted by sled at 5:29 PM on September 22, 2005

If you are diligent about ontime payment, it's great. Discover has had good customer service and most places take it these days. They have periodic specials where you can get an even better deal with the cashback, like a 50 Borders gift cert for 40 discover dollars.
posted by Mom at 7:28 PM on September 22, 2005

We charge about $2k/mo on the Discover card and always pay it off right away. By doing so, we get $200 - 300 cash back/yr. The catch is you gotta pay it off every month. I guess technically we're a "bad" customer for Discover, although our credit rating looks real good!
posted by ZenMasterThis at 9:49 PM on September 22, 2005

sevenless accurately points out you need to be sure it's interest free and not interest DEFERRED, though I have never seen a standard D/MC/V do that with purchases - it's more common among the store cards like Best Buy, Circuit City, etc.

And actually ZMT, your credit doesn't look as good as it could; 0% utilization scores lower than 15-30% utilization. If you're carrying some balance on other cards it's one thing but a credit line with nothing on it yields a lower FICO. The difference is, as far as anyone can tell (the FICO model is secret so it's only conjecture and observation the EXACT impact) pretty minimal, however.
posted by phearlez at 6:41 AM on September 23, 2005

Even if you don't have a "Plat Gas" card, you can get 5% cashback on gas, movies, and other entertainment purchases for a limited time if you sign up for it (free) at the Discover Account Center site (also free, and very nicely done).

This spring they ran a similar 5% cashback on home improvement purchases.

This is with a regular Discover Platinum, which is the main card I use these days. Most places take it, and if they don't, I have a backup card. I don't pay any monthly fees, I get cash back, and I pay it in full every month. YMMV.
posted by jmcmurry at 10:59 AM on September 23, 2005