Confusion Over Credit Cards, Fees Costs Americans Money

Many people either don’t understand credit card fees and rewards or don’t consider them when choosing a card, according to a national survey conducted by Harris Poll on behalf of NerdWallet. This means they may be paying more than necessary to use their cards and earning less than they could in rewards when they make purchases.

Here’s what we found in the online survey of 2,042 Americans 18 and older, conducted April 19-21, 2016:

Most Americans don’t consider all fees when applying for credit cards. While most cardholders surveyed (87%) take any annual fee into consideration when applying for a credit card, 41% said they don’t consider cash advance fees and foreign transaction fees. Nearly one-third reported being confused by credit card fees.

To see how these fees can add up, NerdWallet researched airline cards, general travel cards, hotel cards and cash-back cards from the five largest issuers, store cards for the 35 largest retailers, and gas cards for the five largest gasoline providers in the U.S.

Among those card types, we found average annual percentage rates of 25.8% for cash advances, compared with average APRs of 19.97% for purchases. On top of the APR, consumers pay an average one-time cash advance fee of 4.5% of the total borrowed. Of the co-branded airline cards we analyzed, foreign transaction fees range from 0% to 3% of purchases.

About one-third of Americans don’t fully understand how to earn credit card rewards. And while 73% of Americans who have credit cards said they value rewards, 19% don’t fully understand the dollar value of the rewards they earn.

Rewards units can be points, miles or dollars, depending on the card type, and the value of points or miles can vary, even within a given card type. To help demystify card rewards, we calculated the average reward values of several card types. We based the average dollar values of points and miles on the dollar values of redemption products and the number of points required to get those products. Our analysis showed that those rewards can range from less than a penny to nearly 3 cents per mile or point.

Ten percent of Americans carry a gas card, but they would get more value from a general purpose 3% cash back card. Our analysis of cards issued by the five largest gasoline providers in the U.S. found that the average gas card offers rewards that equate to 4 cents per gallon. General purpose cash back cards reward you with a percentage of the price you pay for gas, as opposed to a fixed rebate on each gallon of gas, so cash back rewards increase as the price of gas increases.

Our analysis showed that gas prices would need to fall to $1.20 per gallon or lower for the typical gas card rewards to top a general purpose card that offers 3% cash back on gas purchases.

Read more about the survey, findings and methodology in the full version of Confusion Over Credit Cards, Fees Costs Americans Money.

Courtney Miller is a data analyst at NerdWallet, a personal finance website. Email: courtney.miller@nerdwallet.com. Laura McMullen is a staff writer at NerdWallet. Email: lmcmullen@nerdwallet.com. Twitter: @lauraemcmullen.