With holiday shopping season approaching, consumers need to gird themselves against the question they often face at the check-out counter: “Do you want to sign up for the store card?”
A new study released today from Creditcards.com, a division of Bankrate, finds that store cards are charging record-high interest rates, significantly higher than the national average, and not offering much by way of sign-up bonuses or ongoing discounts in return.
Topping the interest-rate list for 2016 is the retailer Big Lots, which charges 29.99 percent, followed by Zales at 29.24 percent and Staples at 28.24 percent.
The overall average for store cards is 23.84 percent, versus 15.22 percent for all credit cards.
For consumers looking to finance holiday shopping and not pay off the bills immediately, that means the answer to the hard-sell about the store card should be a resounding ‘no,’ says creditcard.com senior industry analyst Matt Schulz.
“If you’re going to carry a balance, then retail cards aren’t for you – period,” he says.
If you are planning to pay off the bills immediately, you might be fine to open up a store card to get whatever bonus is offered, but you still would do better with a cash-back reward card with no annual fees. It pays to do the math ahead of time, advises Schulz.
The creditcards.com survey analyzed the sign-up offers on retail cards and found them not very generous. Most are calculated as a percentage, most commonly 10 percent off the initial purchase. So if you are at Best Buy and spending $1,000, you’d get $100 back. That would be wiped out by any financing charge if you didn’t pay off the bill right away.
It also falls short of the sign-up bonuses of many general-purpose credit cards, which also come with ongoing cash-back rewards. If you are planning on doing the average amount of retail spending, which the National Retail Federation pegs at just over $800 per family, Schulz recommends a card like the Chase Freedom card, which comes with a $150 sign-up bonus after spending $500 and then ongoing cash-back rewards with no annual fee.
The reason store card interest rates are so high is that they are much easier to get for consumers with bad credit and the stores price in the risk they are taking. “But I would say they don’t need to be 30 percent,” Schulz argues.