Credit Card Residual Interest: Tips for Avoiding Fees

According to the Federal Reserve, the average credit card APR is about 16% — an amount that can significantly impact your budget if you can’t pay off your credit card balance in full each month. In fact, allowing even $1 of your statement balance to roll over into your new billing cycle can activate residual interest.

Credit card residual interest is interest that builds up between when your billing cycle ends and when the issuer actually receives your payment. Read on to learn more about what is residual interest, when it may apply, and how you can avoid it.

What Is Credit Card Residual Interest?

Residual interest, also called “trailing interest,” is one of the ways credit card companies make money. It’s a finance charge that’s applied to any balance that is carried over to the new billing cycle. The charges begin from the date your statement was sent and until the bank receives your credit card payment.

Recommended: What is a Charge Card

How Credit Card Residual Interest Works

If you thought you paid your last credit card bill in full, you might be surprised to see a residual interest charge on your next statement. However, this might come up if you’ve kept a rolling balance on your credit card, meaning you’ve carried an unpaid portion of your credit card balance from month to month.

Some credit card issuers charge interest based on a daily periodic rate. To calculate your daily periodic rate, the issuer divides your APR by 360 or 365 days. Then, it adds the result to your daily balance.

Here’s where credit card rules around interest get tricky. Your card issuer is required by law to provide you with your billing statement at least 21 days before your credit card payment due date. If you always make on-time full payments, your card issuer typically won’t charge interest during this “grace period.”

However, if you’ve been rolling over a balance to your new statement, trailing interest on the old charges are applied. You’ll also lose your grace period for new purchases made during the billing cycle so interest charges accrue immediately. Each day that the balance goes unpaid, the residual interest compounds.

Since this residual interest is added during the days after your billing statement was sent, they can feel like unexpected credit card charges on your next billing period despite making the “full” payment the prior month.

Do All Credit Cards Charge Residual Interest?

Generally, the practice of charging residual interest is common across credit card companies. However, how and when it charges trailing interest varies between issuers.

If you’re unsure how your card issuer handles this type of interest charge, review your credit card agreement or contact your issuer directly to learn more about its terms.

Why Is It Important to Keep Track of Residual Interest?

Residual interest can impact your finances in many ways. For starters, you’ll owe more money on interest fees and miss out on a grace period. Additionally, a residual interest charge can easily slip past your radar if you thought you’ve zeroed-out your credit card balance.

If you didn’t add new card purchases during a billing period, you might not even look at your new statement and can easily miss a residual interest charge. This seemingly small issue can snowball into a late payment — or worse, a missed payment — that adversely affects your credit score.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Tips for Avoiding Credit Card Residual Interest

To avoid this costly mistake, make sure you’re practicing smart habits when using a credit card.

Making the Full Payoff Amount

Given how credit cards work, the best way to know your card’s true outstanding balance is to directly ask your credit card issuer for your “full payoff amount.” Since residual interest is charged daily, your full payoff amount will change each day your account goes unpaid.

On the day you’re ready to make your credit card payment, contact the phone number on the back of your credit card. Ask the associate on the other line for your full payoff amount to date. This is the payment amount you can make toward your bill to fully pay your account.

Paying Your Bills on Time

If you haven’t carried a balance between statements and your credit card offers a grace period, making a payment for the full statement balance by the due date is enough to prevent residual interest. This can also help you maintain your grace period.

If you’ve already rolled over a balance, pay off your total account balance before the billing cycle closes. This can help you avoid trailing interest charges that start between the date your statement is sent and when the bank receives your payment.

Recommended: When Are Credit Card Payments Due

Considering a Balance Transfer to a 0% APR Card

A 0% APR balance transfer card can be a useful tool, if you have a balance that’s too large to pay off early or in one fell swoop. Balance transfer cards effectively allow you to pay a credit card statement with another credit card by transferring the prior balance onto the new card at no interest.

Keep in mind that the promotional interest rate is only valid for a short period of time. For example, the transferred amount might incur no interest for six month or a year, depending on the balance transfer terms. After that, the standard interest rate will apply.

When considering this strategy, make sure you weigh the pros and cons of a balance transfer card, such as the cost of a balance transfer fee. This fee might be a fixed dollar amount or a percentage of the amount you’re transferring. Always do the math to ensure that the amount you’ll save on residual interest from your original card outweighs the balance transfer fees.

Recommended: How to Avoid Interest On a Credit Card

How Long Does Credit Card Residual Interest Last?

Typically, if you’re hit with residual interest, it might take about two consecutive statement periods to clear out residual interest charges. However, you can get rid of residual interest faster by contacting your card issuer to request your full payoff amount.

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The Takeaway

Carrying a balance into a new statement results in losing your interest-free grace period on all purchases shown on that statement. You’ll owe residual interest on purchases carried over from the previous cycle, and you’ll also be charged interest immediately on new purchases made within the new billing cycle.

Avoid getting trapped by residual interest credit card charges by always paying your entire statement balance in full. By doing so, you can avoid paying more interest on your credit card purchases.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What is credit card residual interest?

Residual interest is the interest that’s charged on purchases you’ve rolled over from one statement into the next. It starts accruing the day after your new billing cycle begins to the date when the bank receives your payment.

Do all credit cards charge residual interest?

Yes, most credit cards charge residual interest when you carry over a balance between billing statements. However, when and how your card issuer applies residual interest can vary; check your card’s terms of agreement to learn more.

How can I pay off residual interest?

If you see a residual interest charge on your credit card statement, the best way to pay it off is by making a payment for the full payoff amount, rather than just the statement balance. This helps you capture daily trailing interest charges as of the day you plan on making a payment.


Photo credit: iStock/fizkes

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Supplementary Credit Cards: What They Are and How They Work

Adding supplementary credit cards — credit cards tied to a primary credit card account — can be a good way to help someone establish credit. For example, adding a supplementary credit card for a child can help them build credit, since they will get the benefit of the primary cardholder’s good credit history. Someone working to rebuild their credit could also benefit.

Still, it’s important to keep in mind that the primary cardholder is responsible for any charges made by any authorized users on the account. Read on to learn more about who can benefit from a supplementary credit card and the pros and cons of adding an authorized user to your account.

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What Is a Supplementary Credit Card?

A supplementary credit card, also known as an authorized user credit card, is a secondary credit card tied to the account of an existing user. This existing user could be a trusted friend, family member, or caregiver. The primary cardholder is responsible for all charges made by any authorized users or supplementary credit card holders.

Recommended: Tips for Using a Credit Card Responsibly

How Do Supplementary Credit Cards Work?

When you add a supplementary credit card to your credit card account, your credit card company will send a new physical card. The credit card issuer will typically mail the card to the address of the primary cardholder in order to prevent fraud.

In some cases, the supplementary credit card number will be the same as the card number of the primary credit card. In other cases, it may have a different number. Either way, all charges made on the account — including those made by supplementary cardholders — are the responsibility of the primary cardholder.

Supplementary Credit Card Annual Fees

For most credit cards, there is not a charge to add a supplementary credit card or authorized user. However, some premium cards, such as The Platinum Card from American Express, do charge an annual fee for additional cards.

Supplementary Credit Card Sign-Up Bonuses

Typically there is not a sign-up bonus or welcome offer for adding a supplementary card user. If you want to enjoy credit card bonuses, you must apply as the primary account holder.

Supplementary Credit Card Earnings and Redemption Rates

The earnings rates for supplementary credit cards are the same as the rates for the primary credit cardholder. Because the primary cardholder is financially responsible for all charges, they will receive the benefits of all rewards, regardless of which account makes the charges.

Who Needs a Supplementary Credit Card?

A supplementary credit card can be useful for someone who does not meet the credit card requirements to qualify for a credit card on their own.

For instance, you can get a supplementary card for a child to help them establish good credit. Adding them to your account also offers an opportunity for you to teach them the ins and outs of using a credit card responsibly.

You might also add a trusted friend or family member to your account to help them improve their credit score although this will depend on the primary cardholder keeping the account in good standing. Another reason you might add an authorized user to your account is to allow them to take advantage of travel or other benefits when you are not with them.

It’s also possible to add someone as an authorized user without actually giving them a card. This can allow them to enjoy the benefits to their credit score without the risk that they’ll overspend or otherwise use the card irresponsibly.

Pros and Cons of Supplementary Credit Cards

While there are benefits to supplementary credit cards, there are also downsides that are worth noting:

Pros of Supplementary Credit Cards Cons of Supplementary Credit Cards
Can help those with poor credit or no credit history to build or improve their credit score Primary cardholder remains financially responsible for all charges
Generally no annual fee to add a supplementary credit card Could damage the credit of the primary and/or secondary cardholder if used irresponsibly
Can earn additional rewards from the spending of multiple people Some cards may charge a fee to add an authorized user

Do Supplementary Credit Cards Affect Your Credit Score?

Yes, using a supplementary credit card can affect the credit score of both the primary and the secondary user. Depending on how a credit card is used, the effects could be either positive or negative.

If all cardholders on the account use their credit card responsibly, a supplementary credit card can have a positive impact on credit score due to how credit cards work. However, if the supplementary cardholder makes charges that the primary cardholder can’t repay, both of their credit scores could go down. Similarly, if the primary cardholder fails to make on-time payments, that could hurt the supplementary cardholder’s credit rather than helping it.

This is why it’s important that both cardholders are on the same page when it comes to credit card rules and best practices.

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How Much Do Supplementary Credit Cards Cost?

In most cases, there is no charge for adding supplementary credit cards or authorized user cards. However, some credit card issuers do charge an additional fee for adding supplementary cards. Make sure to check with your issuer before ordering one.

Applying for a Supplementary Credit Card

Because any supplementary credit cards are tied to the account of the primary cardholder, you can’t apply for a supplementary credit card directly. Instead, the primary cardholder will need to request an additional card directly from the issuer.

To do so, the primary cardholder can either call the customer service number listed on the back of their credit card or request an additional card through their online account.

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Alternatives to Supplementary Credit Card

Opening a supplementary credit card can be a good way to help a family member improve or establish credit, but it does come with some risk. One alternative to giving someone a supplementary credit card is to open a supplementary credit card account but keep the actual card.

With this arrangement, the authorized user gets the advantages of a supplementary account — namely, building their credit through the primary cardholder’s responsibly use — without the risk that they will use their card irresponsibly.

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The SoFi Credit Card

Supplementary credit cards, or authorized user cards, are additional cards tied to the credit card account of a primary cardholder. When used responsibly, they can help the authorized user build or establish credit. However, the primary account holder is responsible for all charges made by supplementary cardholders, so there is also some risk if the supplementary credit card is used irresponsibly.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Are bills paid with the card number of the primary or supplementary card?

The card numbers of the primary and supplementary cards are both tied to the primary cardholder’s account. As such, the primary cardholder is responsible for all charges made, including by authorized users.

Is a supplementary credit card the same as a joint card?

A joint credit card account allows two people to use the same credit card account, with both account owners holding responsibility for all charges made to the account. In contrast, a supplementary credit cardholder is not responsible for charges they make. Instead, only the primary cardholder is financially responsible for all charges made by any user.

Who is responsible for a supplementary credit card?

Only the primary account holder is responsible for charges made by any and all authorized users. Any secondary or supplementary cardholders are not considered financially liable for any charges they make.

Does a supplementary card affect credit score?

Yes, having a supplementary card can affect your credit score. It can help build or establish good credit when used responsibly. But because the primary cardholder is ultimately responsible for all charges, their credit could suffer if an authorized user uses the card irresponsibly. An authorized user could also see their score suffer if the primary account holder fails to manage their account responsibly.


Photo credit: iStock/MixMedia

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Guide to Saving Money on Hotels for Your Next Vacation

Along with flights, lodging costs are one of the biggest expenses for many vacationers. As such, savvy travelers are likely on the lookout for how to save money on hotels when planning their vacation.

While hotel prices often rise and fall over time based on supply and demand, there are ways to save money on hotels on vacation. This ranges from being flexible about when and where you travel to getting a hotel credit card and taking advantage of cashback rewards. Read on for a full rundown of the best ways to save on hotels for your next vacation.

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Tips to Save on Hotels While Traveling

Wondering how to save on hotels when traveling? Here are some tips to try.

Getting a Hotel Credit Card

Using credit card rewards to travel for less is one way to save money on hotels while traveling. Most major hotel chains have a co-branded credit card that allows you to earn points for staying with them as well as on your everyday spending.

Additionally, many of these hotel credit cards offer sign-up bonuses. With these bonuses, you may be able to earn enough credit card points for a few free nights just by meeting a minimum spending amount.

There are different credit card rewards programs, so just make sure to choose the one for the hotel where you’re wanting to stay.

Earning Hotel Cashback

One of the downsides of getting a hotel credit card is that in most cases, you’re limited to using your points to stay with that particular hotel chain. If you have a Marriott credit card that earns Marriott Bonvoy hotel points, for instance, you can’t use them to stay at a Hilton or Hyatt.

One way to get around that is to use a credit card that offers cash back rewards. These cards allow you to redeem cash rewards from your everyday purchases that you can then use to pay for any hotel you want.

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Keeping an Eye Out for Deals

Flexibility is key to saving money on hotels, and the earlier you start planning your vacation, the more luck you’ll have in finding travel deals. Many successful vacationers start planning their trips up to a year before they actually plan to travel. That gives you plenty of time to explore your options, wait for deals to pop up, and keep an eye out for sales.

Checking All the Conditions While Booking the Hotel

When you’re booking a hotel room, you’re generally presented with several different room rates. You might have a different rate if you’re a member of the hotel loyalty program, if you prepay for your stay, or if you belong to a specific organization.

These different rates also usually come with different cancellation policies. Make sure to read the fine print before you book, so you can know what to expect during your stay. The fine print could also detail additional fees that the rate doesn’t clearly include.

Looking Out for Free Breakfast

One way to plan a budget family vacation is to look for hotels that include complimentary breakfast with the room rate. If you’re traveling with a family, getting the breakfast that’s included in your hotel reservation might save you anywhere from $20-$50 per day. This can free up some of your hotel funds for other vacation activities, and can make a difference when comparing rates from different hotels.

Joining a Hotel Points Program

Even if you don’t sign up for a hotel chain’s co-branded credit card, you’ll want to make sure to join their loyalty program. There’s typically no cost to join the hotel’s loyalty program, and you’ll generally get perks like lower nightly rates or complimentary Wi-Fi. This can be a great way to save money for a trip.

Taking Advantage of Falling Rates

One strategy for saving money on hotels is to only book a refundable rate that you can cancel at any time. Then, periodically check back to see if the rate has fallen. If the rate is lower than when you first booked the hotel, cancel your original reservation and book at the new lower rate.

There are also services that you can take advantage of if you don’t want to stay on top of price tracking yourself. For example, websites and apps like Hopper and Rebookey can monitor hotel prices and notify you if the price drops after you’ve booked.

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Making Payments in Advance

Alternatively, you can prepare financially for travel by making your hotel payments in advance. Many hotels offer a lower rate when you prepay as compared to a refundable hotel rate where your credit card isn’t charged until your stay. You could save anywhere from $10 to $20 per night by prepaying in advance.

Plus, if you pay with a credit card that offers credit card travel insurance, you’ll have peace of mind that your prepaid funds aren’t lost if your travel plans change unexpectedly.

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Sticking to Your Budget

Like most financial purchases, one of the best ways to save money is to establish a written budget and then stick to it. If you plan for a trip a year in advance, you can make a budget for your trip and then create a travel fund where you put 1/12 of the cost into your travel fund each month.

Recommended: Tips for Using a Credit Card Responsibly

Being Spontaneous

While hotel prices go up and down — sometimes multiple times per day — based on supply and demand, you can sometimes get great deals by booking at the very last minute. If you have a ton of flexibility, you can sometimes find cheap cruises or outstanding last-minute weekend hotel deals. This strategy is best used if you don’t have concrete plans and don’t have a strong preference for where you go.

Using Discounts You Already Have

If you’re a frugal traveler, you’ll want to also take advantage of any discounts that you already have. This could include saving on gas using grocery fuel points, buying discounted gift cards, or using credit card points to offset some of your travel costs.

This is another reason why planning in advance and being flexible can help — the more time you have to plan, the more time for you to take advantage of some of these deals.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Apply for a New Rewards Credit Card With SoFi

Lodging costs can be one of the most expensive parts of any vacation, so it’s a good idea to know how to save money on hotel rooms. Hotel prices fluctuate often based on supply and demand, so plan as far in advance as your schedule allows. The more flexible you can be in terms of when you travel, where you go, and what hotel you want to stay at, the more likely it is that you’ll be able to save money on hotels.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What days are the cheapest to stay in hotels?

Determining which days are the cheapest to stay in hotels depends quite a bit on where the hotel is and who their clientele typically is. If you’re looking to stay in a tourist-heavy vacation spot, it’s likely that weekends are most expensive. On the other hand, a hotel that caters to business travelers might be more expensive during the week and cheaper on weekends.

What time of the year do hotel prices drop?

There isn’t a set time of day or year when hotel prices drop. Instead, hotel prices vary according to supply and demand. One strategy to save money on hotels is to book a refundable rate initially. Then, you can monitor prices and if the price goes down, you can just rebook.

Are hotels cheaper last minute?

Hotel prices vary all the time, both up and down. It’s possible for hotel prices to go down if you wait until late in the day on the night you want to stay. This can be an option if you have flexibility in your plans.


Photo credit: iStock/aquaArts studio

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Investing With Credit Card Rewards: Tips for Maximizing Cash Back Earnings

Responsible credit card usage can add hundreds if not thousands of extra dollars to your bottom line each year. Many credit cards offer rewards that you can earn with each and every purchase. You can choose a credit card that helps you earn airline miles, travel rewards, or cash back.

Before applying for or using a credit card, you’ll want to make sure that you have the financial ability and discipline to pay off your credit card statement in full, each and every month. If you don’t, the interest and/or fees will likely exceed any rewards you might earn. But if you do, you might consider investing with credit card rewards to further grow your funds.

Recommended: Tips for Using a Credit Card Responsibly

What Are Credit Card Rewards?

Just like knowing what a credit card is, it’s important to understand what credit card rewards are. Many credit card companies offer credit card rewards as an incentive for you to apply for and regularly use their credit card.

These rewards can be airline miles, other types of travel rewards, bank-specific points, or straight cash back. The credit card you choose determines the kind of credit card rewards that you’ll earn.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Types of Credit Card Rewards

If you have a rewards credit card, there are several different kinds of credit card rewards that you can earn.

Cash Back Rewards

If you have a cash back credit card, you’ll earn cash back with every purchase. Some cash back credit cards earn different rates of cash at different types of merchants, while others earn a flat cashback rate no matter where you use the card.

Travel Rewards

Another popular type of credit card rewards are a variety of different kinds of travel rewards. You might get an airline credit card that earns airline miles for a specific airline or hotel points good for stays at a particular chain of hotels. Other travel rewards credit cards offer rewards points that you can use at a flat rate on any type of travel purchase.

Bank Points

Some banks offer credit cards where you earn points that are proprietary to that bank or credit card company. Many times, these points can be used like cash on purchases, or for travel-related purchases.

Guide to Investing Your Credit Card Cash Back Rewards

If you have a credit card that earns cash back rewards, you can often redeem them in many different ways.

Direct Deposit

One way to get your credit card cash back rewards is through direct deposit to a checking or savings account that you own. You might set up your cash back rewards to automatically transfer to your account once they reach a certain threshold, like $25. You might also be able to set up your account to regularly transfer your cash back rewards every month or every quarter.

Paper Checks

If you prefer something that you can tangibly hold, you can also request that your credit card cash back rewards are mailed to you via a paper check. Some credit card companies may charge a fee for mailing paper checks, so make sure you won’t be charged a fee before choosing this option.

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Statement Credits

Another way you might access your cash back rewards is through a statement credit. With a statement credit, your cash back rewards are applied directly to your credit card balance. This will lower the amount that you need to pay in order to completely pay off your balance off in full.

How Do Credit Card Rewards You Can Use for Investing Work?

Before using one, it’s important to understand how credit cards work, and how credit card rewards that you can use toward investing work. An investment credit card is similar to a cash back credit card in that you earn rewards that work like cash. But instead of redeeming your rewards for a statement credit or via direct deposit, you invest your cash back rewards in an investment account.

Tips for Maximizing Your Credit Card Cash Back Reward Earnings

Enjoying credit card bonuses is one way that you can maximize your credit card cash back earnings.
Many credit cards offer an initial welcome offer where you get a bonus amount if you meet certain spending or other criteria in the first few months of having the card. That can really supercharge your credit card cash back reward earnings.

If your cash back credit card earns a higher rate in certain categories or at certain merchants, make sure to use it where it gets the highest value.

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Pros and Cons of Investing Your Credit Card Cash Back Rewards

Here is a look at some of the pros and cons of investing your credit card cash back rewards:

Pros of Investing Your Credit Card Cash Back Rewards Cons of Investing Your Credit Card Cash Back Rewards
Cashback and other rewards are not taxable. If you’re not paying off your balance in full each month, interest and fees can offset any rewards earned.
Investing your rewards can help supplement other investing efforts. It’s hard for small amounts to make a meaningful impact on overall investing goals.
Investing your credit card rewards doesn’t require dipping into your budget. If your brokerage doesn’t support fractional shares, your investment options might be limited.

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Other Investment Options

One of the best things about the cash that you earn from cash back rewards is that it’s actually cash. Cash can be used for just about anything in your budget, and so can cash back rewards.

For example, you can use your cash back rewards in an online trading platform to invest in stocks or index funds. You can also use them to invest in real estate or other types of investments, or even use them to invest in yourself through education or job training classes.

Recommended: Can You Buy Crypto With a Credit Card

The Takeaway

If used wisely, credit cards and credit card rewards can serve as a valuable addition to any financial plan. Cash back credit cards allow you to earn money back on every purchase, as well as possibly a larger initial bonus. It’s a good idea to have a plan for how you want to use your cash back rewards, and always make sure to pay off your credit card statement in full, each and every month.

One way to use credit card rewards to fund your investments is to get a cash-back credit card like the SoFi Credit Card.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Should you invest your cash back rewards?

One of the best things about cash back rewards is that they function pretty much the same as cash in any other format. So whether you directly invest your cash back rewards or use them as a statement credit and invest money from your checking account, it works out pretty much the same. The important thing to do with your credit card rewards is to not spend them mindlessly. Be intentional and make a conscious decision on the best way to spend them for your specific financial situation.

Can I buy stocks with my credit card?

Most brokerages will not allow you to directly buy stocks with a credit card. Instead, one way to invest your credit card rewards is by using a cash back credit card like the SoFi credit card. You can earn cash back with each purchase and then directly invest those funds with your SoFi Invest account.

What is the smartest way to use a credit card that has rewards?

The first thing that you’ll want to do when using a credit card is make sure that you have the financial discipline and ability to pay off your credit card in full each month. This ensures that you won’t be charged any interest or fees. Then, decide how your credit card rewards will make the biggest impact in your financial life.


Photo credit: iStock/MStudioImages

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Guide to Credit Card Annual Fees

To pay or not to pay — that’s the big question when it comes to choosing between a credit card that comes with an annual fee and one that doesn’t.

A credit card annual fee is the price that some cardholders pay to use a certain credit card. While there are plenty of credit cards on the market that don’t come with an annual fee, the credit cards that charge an annual fee tend to have better cardholder perks that can outweigh the cost of the annual fee if the card is used optimally.

Keep reading for more insight into annual fee credit cards.

What Is a Credit Card Annual Fee?

What does an annual fee mean on a credit card? Annual fees are costs charged by credit card issuers to help finance cardholder perks, such as travel credits and free checked luggage on flights.

The amount of an annual fee factors into how much a credit card costs overall, and it varies from card to card. Credit card annual fees can start as low as $39 and go as high as $995 for luxury credit cards.

Usually how credit cards work is that cards with sky-high annual fees also offer a lot of extra perks to make the credit card worth the money. For instance, the cardholder may gain exclusive access to an airport lounge or be able to tap into competitive introductory reward bonuses.

However, there are cases where an annual fee is charged for credit cards designed for consumers with low credit scores. These credit cards don’t offer great rewards, and instead give consumers with poor credit a chance to repair their credit by using credit cards responsibly. Eventually, the goal is for the cardholder to improve their credit so they can qualify for credit cards with lower interest rates and better perks.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

How Do Credit Card Annual Fees Work?

When you pay the annual fee on a credit card varies depending on your card issuer. Credit card issuers either charge annual fees on either a yearly basis, or they may divide the fee up into smaller monthly installments.

If your fee is charged once a year, then it usually will appear on your first statement after you open your account. You’ll then get charged every 12 months thereafter. In the instance an annual fee is divided into smaller monthly payments, these will get included on the monthly statement the cardholder receives.

You pay your credit card annual fee just like you’d pay any other credit card charges listed on your monthly statement.

Recommended: What is a Charge Card

Which Credit Cards Typically Have an Annual Fee?

There are three main types of annual fee credit cards. Let’s take a closer look at each type.

Reward Cards

Credit cards that can offer a high-value rewards structure or that have a strong introductory bonus often come with an annual fee. If the card is used strategically, it’s possible to earn enough rewards to cancel out the cost of the annual fee and other cardholder fees. You may earn rewards like cash back, travel points, or discounts on specialty purchases.

Recommended: Can You Buy Crypto With a Credit Card

Premium Credit Cards

A premium credit card that offers luxe perks like private airport lounge access or a travel concierge is likely to charge an annual fee to use the card. If you’re considering one of these cards, make sure to crunch the numbers to make sure you’ll use enough of the perks to offset the cost of the annual fee.

Secured Credit Cards

A secured credit card is designed to help consumers with bad credit scores improve their credit. These cards require a deposit to “secure” the card, and that amount also usually serves as the card’s credit limit. On top of the deposit, secured credit cards often carry an annual fee.

For some, the cost may be worth it for the opportunity to improve their credit score, which can make it easier to qualify for lending opportunities in the future. Still, make sure it’s within your budget.

Recommended: What is the Average Credit Card Limit

How Are Credit Card Annual Fees Charged?

So, when do you pay an annual fee on a credit card? As briefly mentioned above, some credit card issuers charge the annual fee once a year, while others split up the annual fee into smaller monthly installments.

The annual fee shows up on the credit card statement alongside normal credit card charges, and the cardholder pays the annual fee as part of that month’s credit card bill. Remember that even if you have an authorized user on a credit card, it’s still the primary cardholder’s responsibility to make payments, which includes any fees.

Recommended: When Are Credit Card Payments Due

Avoiding Credit Card Annual Fees

If you’re trying to avoid credit card fees, it’s entirely possible to avoid paying annual fees. There are plenty of credit cards on the market that don’t charge an annual fee at all.

If someone is interested in a credit card with an annual fee, such as a premium rewards card, they can try to get the first year’s annual fee waived. Some credit card issuers offer to do this from the get-go. However, if someone is an existing cardmember with the issuer and their introductory offer doesn’t include waiving the first year’s fee, they can request a one-time waiver.

Before signing up for a credit card with an annual fee, it’s important to evaluate your spending habits. You want to ensure that you can comfortably afford to cover the annual fee for the credit card. Also investigate whether you’ll earn enough benefits from the card to justify the cost of the annual fee.

Recommended: How to Avoid Interest On a Credit Card

SoFi’s Credit Card

The SoFi credit card is a rewards credit card. Cardholders can earn 2% unlimited cash back rewards when redeemed to save, invest, or pay down eligible SoFi debt. They earn 1% cash back when redeemed for a statement credit.1 Plus, cardholders can access discounts with popular retailers.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.1



Take advantage of this offer by applying for a SoFi credit card today.

FAQ

How do you pay the annual fee on your credit card?

If someone has an annual fee credit card, the annual fee will appear on their credit card statement. The fee may appear every 12 months or in smaller increments on a monthly basis. The cardholder then pays this fee as a part of their monthly bill in addition to any other purchases they made with the credit card during that billing cycle.

How can I avoid paying annual fees on my credit card?

Alongside choosing a credit card that doesn’t charge an annual fee (there are plenty of options on the market), a consumer may be able to get the first year of an annual fee waived as a new cardholder incentive. It only makes sense to open a credit card with an annual fee if the account holder’s spending habits line up with the rewards structure of the credit card. That way, they can earn enough cash back, miles, or other perks to outweigh the cost of the annual fee.

Do all credit cards have annual fees?

There are tons of great credit cards on the market that don’t come with annual fees. There’s never a reason to pay an annual fee if someone decides that’s not a good use of their money.


Photo credit: iStock/Rudzhan Nagiev
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

1See Rewards Details at SoFi.com/card/rewards.

1Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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