This is a deal???

So I have to ask myself... does my credit card company think I'm an idiot? They send me these cheques, see, and they offer me an astounding interest rate on them. I'm looking at a package from Canadian Tire right now, and they're offering me 0.9% on any cheques I cash in the next six weeks. And the offerr me that rate for about four months. It's like free money, right?





Well, no, it isn't. As always, the devil is in the details, and in this case, that means the fine print. In the fine print of the offer. That's where they point out that any payments you make are applied first to interest, then to cash advances (such as these cheques) and then to your purchases. In the end, some of your cheque will get the 0.9% rate, but some of it will get the standard 18.9% rate. For a person like me, that means that I'll end up paying about 11% for that free money. Not so free any more, is it?




This is how I figure it. I don't spend very much on this account - about $200 each month. I also pay off the full amount each month, which means that I don't normally pay any interest on this card. Over the next four months, I'd expect to see something like:




	Purchases	Payment	Interest
March	$200	$200	$0
April	$200	$200	$0
May	$200	$200	$0
June	$200	$200	$0
Total			$0




Now let's imagine that I cashed one of those cheques for $1000.00 and paid the full amount just before it comes due in June. By a quick calculation, I should pay $0.75 per month in interest, resulting in a total interest hit of about $3.00. But with the "pay down the advance first" policy, it would look more like this:




	Purchases (Advance)		Purchase Balance	Advance Balance	Payment	Interest
March	$200 +$1000		$200	$1000	$200	$3.90
April	$200		$400	$800	$200	$6.90
May	$200		$600	$600	$200	$9.90
June	$200		$200	$0	$1200	$12.90
Total						$33.60







So I've paid about $33.60 instead of the $3.00 I was expecting to pay ($1000 @ 0.9% for four months). That works out to about 11.5% annually. It would actually be a bit worse than this, because I've ignored the compounding interest, and I've ignored the fact that most credit cards only forgive interest charges on purchases if you paid both this month and last month's bill in full - so that would mean that I'd pay another $3.15 in July. Adding those two factors in would put the total interest to about $41.50, or about 12.5% annually.




The only way that these "low interest cheques" can work for me is if I use them, but stop using my credit card for the duration of the low interest offer. So is my credit card company asking me to stop being a customer, or do they think I'm stupid enough to use their cheques?




Since they send cheques to me every four or six months, I have to assume that somebody, somewhere is buying into this scheme. And it's not just Canadian tire - I get similar offers from two other credit card companies, so I'd guess that this kind of thing goes on everywhere.




To consumers out there, I'd suggest you do the same thing that I do with those cheques - tear them up. And to credit card companies out there, please get a clue. Stop trying to fleece your customers, stop wasting your money on junk mail, and start treating your customers with just a shred of respect.