Secured Credit Cards

Secured Credit Cards - FAQ about the bank accounts linked to secured credit cards.

FAQ about bank savings accounts linked to secured credit cards including the relationship between savings accounts and the secured credit card, rules about withdrawals and what happens to the savings account after closing the secured credit card.

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Secured Credit Card - Savings Accounts

By Mory Brenner, Esq. of Bankruptcy Alternatives - Debtors Options

How much do I need to deposit into an account in order to establish a secured credit card?

A. It varies depending on the bank issuing the secured credit card. Most require a deposit of at least $200, some ask for a $500 minimum and other fall between a $200 and $500 minimum deposit to start a secured credit card.

Q. Will I earn interest on the money in my account?

A. While the answer might be "Yes", you likely will not be earning too much interest, so exactly how much you potentially might earn from one bank to the next should not be much of a factor in making your secured credit card decision. At some banks these accounts take the form of what they call collateral accounts or deposit accounts and earn no interest at all. Other banks set the secured credit card account up as a standard savings account and they will indeed earn a teeny tiny amount of interest. For the remainder of this FAQ I may generally call these deposits savings accounts, but I will use it as more of a general term for deposits to secure the credit card which may, in fact, be savings accounts, deposit accounts or collateral accounts depending on the financial institution.

Q. How much will my credit line be?

A. Years ago some banks issued secured credit cards for three times or even five times the amount of your secured savings account, but these days almost everyone makes your credit line exactly equal to the corresponding savings account.

Q. Is there a maximum I can deposit, or a maximum credit line I am allowed?

A. Each bank sets its own top end. For many banks the cap rests at $5000 while others allow you up to $10,000.

Q. May I deposit additional money to my savings account after I have established the secured credit card and raise my credit limit even further?

A. Yes, most secured credit cards will allow you to do exactly that. Your additional deposits raise your line of credit on a dollar for dollar basis.

Q. Can I withdraw the money from my savings account?

A. This gets a bit trickier. With many secured credit cards the answer is "No", if you want the money from the savings account back you need to let all of your charges on the secured credit card clear, close the card and than close the savings account and get your money back. Often you maintain the ability to withdraw some money and reduce your credit line, but do not count on that option from all secured cards. In no case would you be allowed to withdraw so much money that your savings account dropped below the minimum set by the bank to establish such an account.

Q. What if I really need some of that money but I do not want to close my secured credit card account?

A. With many cards if you have availability on your secured credit card, you will be allowed to take a cash advance on your secured credit card giving you the ability to access some money if you need it.

Q. If I can access my money with a cash advance from my secured credit card why do I need to be concerned about getting to my money if I need it?

A. Many secured credit card products do not allow the card holder to take a cash advance at all, and those that do will charge interest for the cash advance. In some cases the interest on cash advances can be even higher than the interest on purchases, so keep your eyes open.

Q. Knowing all of that, what should I do about putting money in the saving account associated with the secured credit card?

A. Deposit what you need to conduct your life and do not deposit money you will need in the near future. Look at how much you think you will use on your secured card and make sure your savings account has that much and some cushion. Remember that even if you pay everything on time if you max out one month and pay on time you will be over the limit in the next monthly cycle before that previous months payment gets recorded. With this in mind a deposit of two months of your average usage might be a place to start. Some extra for emergencies might be fine too, but do not lock all of your free cash up in a savings account that will not have access to in a pinch.

Q. What happens to my savings account when I no longer need a secured credit card?

A. When you close the secured credit card account and all transactions have settled, you will get back the savings plus interest less any money outstanding from the credit card.


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