Posts tagged ‘credit cards’
Membership Privileges: Cheese Tubs & Space Travel
With Senate proposals pushing to cap debit card fees earned by the credit card companies (Visa Inc. [V] and MasterCard Inc. [MA]), you better hurry up and take advantage of underappreciated membership privileges while you still can. The card companies are not too happy, but maybe they deserve some legitimate sympathy. I mean, supporting banks that gouge customers at rates reaching upwards of 20% can be challenging for any card network oligopoly to handle. So before Congress strips away the card companies’ God-given right to siphon away fees from millions of Americans, you have the obligation to utilize the membership privileges of your credit card – even if those benefits include using Visa’s concierge services for purchasing a giant tub of nacho cheese or booking a space travel trip. Unfortunately, many cardholders are unaware they carry the power of a personal servant in their wallet or purse. Tim Ferriss, creator of Experiments in Life Design, on the other hand chose to repeatedly use his personal servant to handle some of the most mission critical responsibilities you could imagine…for example:
1) Punch Bowl Tub of Cheese: Ferriss didn’t make his request for a tub of cheese completely uncompromising, but rather he was flexible in his demands. When the Visa concierge, David, asked Ferris what size cheese container he wanted, Ferriss reasonably responded, “Can, jar, tub, I don’t care. I just want liquid cheese, and a lot of it.”
2) Crossword Magicians: Why get flustered with a USA Today crossword clue (“Blue Grotto Locale”) when you can simply ring Maurice, your trusty Visa crossword concierge to solve the puzzle? Ferris used this approach and found the method much classier than using a computer or phone to find the answer. The answer to 62 across: ISLE OF CAPRI.
3) Feeling Blue? No problem, daily affirmations are just a few keypad strokes away from your fingertips. Getting told he was “good enough” by Jamie the concierge was a little ambitious, but Ferriss was satisfied by receiving a third party affirmation service along with a gratuitous note from Jamie letting him know what a good person he was.
4) Going Galactic: Now that he was getting warmed up, Ferriss had loftier goals (no pun intended). Specifically he requested the concierge to “book a trip to space.” Ferriss was not let down – the Visa Signature concierge came through with a $200,000 price quote from Virgin Galactic.
5) Looking at Limitations: Overall, the concierge service delivered on its mission of fielding random requests and answering questions. Nonetheless, Visa Signature needed a little more time to complete a self assessment of the services Visa could NOT perform (e.g., plan a wedding, call a friend, or write an article). Eventually Ferriss received an adequate response and went on to complete his prank-a-thon.
Believe it or not, some financial institutions provide services to you without charging you an arm and a leg. Maybe the card companies already have enough arms and legs to keep themselves content, but given political pressure on Visa and MasterCard, you better book that space flight and place that cheese tub order ASAP.
Read Full Tim Ferriss Article on Concierge Services (post was originally published on Credit Card Chaser)
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct positions in V, MA, Virgin, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
Drought in Higher Rates May Be Over
The drought in higher interest rates may be nearing an end? Ever since the global financial crisis accelerated into full force in the fall of 2008, there were a constant flow of coordinated interest rate cuts triggered around the world with the aim of stimulating global GDP (Gross Domestic Product) and improving credit flow through the clogged financial pipes. Central banks across the world cut key benchmark interest rate levels and the impact of these reductions has a direct influence on what consumers pay for their financial products and services. More recently, we have begun to see the reversal of previous cuts with rate hikes witnessed in several international markets. Last week we saw Norway become the first western European country to raise rates, following an earlier October rate lift by Australia and another by Israel in August. For some countries, the sentiment has switched from global collapse fears to a stabilization posture coupled with future inflation concerns. In the U.S., the data has been more mixed (read article here) and the Federal Reserve has been clear on its intention to keep short-term rates at abnormally low levels for an extended period of time. That stance would likely change with evidence of inflationary pressures or improved job market conditions.
What Does This Mean for Consumers?
Prior to the financial crisis, credit availability flourished at affordably low rates. Now, with signs of a potential global recovery matched with regulatory overhauls, consumers may be impacted in several financial areas:
1) Credit Card Rates: Beyond regulatory changes in Washington (read more), the interest rate charged on unpaid credit card balances may be on the rise. When the Federal Reserve inevitably raises the targeted Federal Funds Rate (the interest rate for loans made between banks) from the current target rate range of 0.00% and 0.25%, this action will likely have direct upward pressure on consumer credit card rates. The associated increase in key benchmark rates such as the Prime Rate (the rate charged to a bank’s most creditworthy customers) and LIBOR (London Interbank Offer Rate) would result in higher monthly interest payments for consumers.
2) Other Consumer Loans: Many of the same forces impacting credit card rates will also impact other consumer loans, like home mortgages and auto loans. Pull out your loan documents – if you have floating or variable rate loans then you may be exposed to future hikes in interest rates.
3) Business Loans / Lines of Credit: Business owners -not just consumers – can also be impacted by rising rates. When the cost of funding goes up (.i.e., interest rates), the banks look to pass on those higher costs to the customer so the account profitability can be maintained.
4) Dollar & Import Prices: To the extent subsequent United States rate hikes lag other countries around the world, our dollar runs the risk of depreciating more in value (currency investors, all else equal, prefer currencies earning higher interest rates). A weaker dollar translates into foreign goods and services costing more. If international central banks continue to raise rates faster than the U.S., then imported good inflation could become a larger reality.
5) Hit to Bond Prices: Higher interest rates can also result in a negative hit to your bond portfolio. Higher duration bonds, those typically with longer maturities and lower relative coupon payments, are the most vulnerable to a rise in interest rates. Consider shortening the duration of your portfolio and even contemplate floating rate bonds.
Interest rates are the cost for borrowed money and even with the recent increase in consumers’ savings rate, consumers generally are still saddled with a lot of debt. Do yourself a favor and review any of your credit card agreements, loan documents, and bond portfolio so you will be prepared for any future interest rate increases. Shopping around for better rates and/or consolidating high interest rate debt into cheaper alternatives are good strategies as we face the inevitable end in the drought of higher global interest rates.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
DISCLOSURE: No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.
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