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Apparently I really am a financial naif

06/27/08 | by Adam | Categories: Whining

Recently I changed from using a no-frills low-interest Visa card to one that apparently had a few benefits built into it. It seemed reasonable to me as I never leave a balance month-to-month so I might was well see some other benefits.

I looked over the various CIBC Visa options and decided that the best no-charge card was their Dividend one. Now the advertised 1% cash-back isn't exactly huge but it's still not bad. So I applied. While I was working through confirmation process with the sales guy he asked if I wanted something called the "Payment Protector Premium" which was a feature that would cover missed payments and other insurancy-type things. No charge so long as the card is paid in full each month. I agreed.

So, card arrives, get validated and used. Soon thereafter so does the first bill. The dividend amount seems a bit small, but I figure that's just start-up issues. I pay the bill on time in full.

Forward a month. The next bill arrives. The dividend amount is significantly less than 1% so I'm scratching my head a bit. Further down the bill is a charge for the Payment Protector Premium. The one that's supposed to be free. Hm.

When I phoned up to ask, the CIBC representative said that if you pay off the balance prior to the bill being issued, there's no charge. Note that this is different from when the monthly payment is due so even if you pay off the balance before it's due, you still get charged. Basically, unless you're stunningly lucky on your timing, you get charged. I asked them to remove it which took another twenty minutes and a further customer representative. I'm not in a terribly good mood at this point as they drag their feet on canceling and definitely don't offer to refund the sub-$10 dollar cost of the program. When I looked online a bit later to find out the exact terms -- personal advice which you already know: don't listen to salesmen; they colour and mislead -- I found that the black and white was pretty clear on the charging strategy:

No charge during months when you have no transactions and no statement balance.

Oddly enough that seems fair: no owe, no use, no pay. It's still not what I was told over the phone.

Then I asked about the dividends calculation. "Oh", said the customer service agent, "that's up to 1%". My first reaction was to question the "up to" bit. He lists some numbers off which I didn't catch but understood well enough that I needed to do a bit more reading. Well, here's the small print (subheading two):

Dividend Dollars are calculated as follows: on the first $1,500 in net annual purchases your rebate is 0.25%; on your next $1,500 in net annual purchases your rebate would be .50%; on amounts greater than $3,000 in net annual purchases your rebate would be 1.0%.

Needless to say, I missed this calculation the first time through and thought it was a blanket 1%. Well, my mistake.

Now the way that reads, the calculation is based on spending per annum. Spend $1500, you get $3.75. Spend $3000, you get $10.25. Spend $5000, you get $30.25. At $5000, it's less than the expected amount to the tune of $19.75 but, advertising aside, I can't really blame them for that.

However, based on the summaries in my credit card statements, those targets seem to be monthly. So, spend exactly $1500 per month, and you get $3.75 per month back at the end of the year. Spend exactly $3000 and you get back $11.25 a month. It's not until you spend over $3000 a month that you finally reach the loudly advertised 1%, and then only on the overage.

Let's take an example: I spend exactly $1500 a month over the course of the year. This comes to the not insignificant amount of $18,000. Under my original misconception, that $180 buys a bunch of DVDs. Under the CIBC's stated calculation it's still $160.25 ($3.75 + $7.50 + $150.00.) Under their apparent monthly calculation, it's just $45.00.

It's just over a quarter of what it ought to be. I'm going to watch this over the course of the year and see if I'm wrong and if they make any adjustments. It's quite possible I've made a mistake in which case I'll correct this post. In reality as my annual credit card bill doesn't tend to reach anywhere near $18,000, I'm not going to have a nice clean example to work with. It seems to me that this is a card best used for massive periodic purchases as it's not very good for normal use.


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