It seems like every day my wife and I get a letter from a credit card company with those “convenience” checks attached. The letters invariably talk about “simplifying” our finances and giving us “freedom” to do what we want with our money. It sounds fantastic, but the reality is those convenience checks are anything but.

The included letter (in this case, from Citi) suggests three uses for the checks: to transfer balances, make purchases or deposit directly into a bank account to “use the money however you’d like”. Thus, “freedom”. Which of course sounds great, until you look at the fees and interest rates associated with using them.
  • Making purchases – while this is the least expensive out of the three options, there are still some pitfalls here. According to the Terms and Conditions provided, the standard variable APR for purchases is 6.74% (subject to a credit check), but may be increased up to 28.99% (the highest permitted by law) if you default on your account in any way. An interesting tangent here is the adaptation of variable interest rates for credit cards – over the traditional fixed rate – that has become more popular recently.
  • Transferring balances – two years ago I consolidated a couple credit cards to one, and used a balance transfer to do so. However, I was ignorant of the process, and was quite shocked to see a balanced transfer fee assessed to my account (funny how that didn’t come up during the phone call to the credit card company). These convenience checks carry a balance transfer fee of 3%. Additionally, according to the terms and conditions of the offer: “We apply payments to lower APR balances before higher ones. Finance charges will be assessed from the date balance transfers post to your account.” That piece of information could be quite costly.
  • Deposit money into a pre-existing bank account – they don’t call it this, but that is considered a cash advance, which as most of you know, is a very dangerous and expensive thing to do. What the credit card company offers as freedom – the letter mentions paying off bills or saving extra cash for emergencies – is actually a fantastic money maker for them. The cash advance transaction fee is 3% of the total amount advanced, and the APR for cash advances is a whopping 19.99%.

There are additional problems with convenience checks. With many of them, the interest on the purchases accrues as soon as the checks are used. Other have fees for using them, regardless of how. Also, convenience checks aren’t subject to the same purchase protections that a standard credit card is. So in the event that you purchase a faulty protect with your convenience check, you’re on your own. There’s no ability to call the issuer and get the charges reversed like you can with a credit card; you have to deal with the merchant yourself.

As if all that wasn’t enough, until recently many convenience checks had no security devices implemented. Most could be used without signature verification or an activation process. While some institutions have implemented a series of security devices for their checks, that isn’t universally the case, and as such you could be faced with a major problem if your checks are stolen.
After examining convenience checks in depth, it’s hard to see an upside to using them. So I will continue doing what I always do when they come in the mail: shred and throw away.
Michael
Twitter: @michael_dink

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