Are Premium Credit Cards Really Worth The Expense?

The premium credit card can be a great thing to have, but there may be some hidden costs that you do not know about. In other words, the credit card could be costing you more than a regular credit card for benefits that may not be paying off.

You may have a premium credit card in your wallet. If so, what is the difference between that card and one that doesn't have the word "premium" stamped across the front of it?

Premium credit cards are "premium" because they have special programs associated with them, such as frequent flier miles, cash back, concierge services, and many others. In order to fund these programs, the card issuers charge annual fees, merchant processing fees, and sometimes the interest rates can be high. An example of the difference is this: the merchant processing fees can be nearly 3 percent after-tax, but using a regular MasterCard may incur a merchant processing fee of less than 2 percent.

The higher processing fees for premium cards cause small businesses to have to boost their prices. They do this so they can maintain profitability while still accommodating these cards. Unless consumers become more aware of which premium cards are going to cost more, the premium processing fees are likely to remain an expense that is practically hidden from them. It is nearly impossible for a person to tell from the name, look, and feel of a credit card which one is regular and which is premium if it doesn't specify such.

The Evolution Of Premium Cards

MasterCard and Visa introduced premium credit cards as a way to compete for the consumers with the highest credit ratings. They wanted the consumers that usually carry American Express cards. For merchants, the premium credit card because a new fee category that banks had to determine. Once banks and other credit card issuers saw what those who were offering premium cards received from consumers, they started issuing the cards in bulk.

Most consumers have no idea that there are higher processing charges for premium cards. In the past, regular credit cards could suddenly change into premium versions of themselves after cardholders reached a certain annual spending threshold. This was a practice that merchants found alarming because of the impact it had on their processing charges. The cards weren't re-issued to reflect this change. The brand names and the cards were the same. The only difference was the higher fee that the merchant was hit with when processing the same credit card that didn't have premium status before. MasterCard agreed to stop this practice, which was good news to merchants. In fact, many merchants didn't accept MasterCard because of the higher processing fees. Now some of those same merchants accept the card because of more reasonable fees.

Premium Perks

Some individuals think that the highest level of rewards is provided by premium credit cards. Unfortunately, that is a common misconception since that is not always the case.

It is best to shop around so you can find a regular card that has perks that you can enjoy. If you like to travel, perhaps you can find a regular card that offers miles or discounts on travel. Services such as roadside assistance, car rental damage waivers, and travel accident insurance are also good perks to have. If you don't travel, then you may want a card that gives cash back or allows you to earn points so you can use them toward gift cards and other rewards that you can truly take advantage of.

Nonetheless, there are premium credit cards that offer elite travel benefits. A regular card may offer trip cancellation or interruption coverage, but the amount of coverage may not be as high as that offered by the premium card. This is something you need to look at when comparing cards. Sometimes it is not enough to see if a particular card has these benefits. In addition to looking for these benefits, you have to see how much coverage is afforded to you.

For example, a regular card may offer you purchase assurance. You have to look at the annual maximum. Perhaps you can only claim $100 at a time and your annual maximum is $500. Then again, the premium card may allow you to claim up to $400 per occurrence with a $1200 annual maximum. Another example is that one card may offer you $10,000 in travel accident insurance, while another will offer up to $1 million. You do have to evaluate each card and determine what is important to you. However, you have to be realistic. If you are not a frequent traveler and you opt for the $1 million in travel accident coverage over the $10,000 and the fees and rates are higher on the $1 million card, you may have been better off choosing the card with $10,000 in coverage.

Final Thought

Most premium cards impose interest charges up to 19.99 percent and some can go even higher. While there are some that do offer low rates that are competitive with even regular cards, there are some regular cards that go even lower. Most cardholders are going to be more likely to choose the credit card that has the greatest benefits without breaking the bank in the way of cardholder fees. What people want is to meet their personal wants and needs, whether it is a premium card or a regular card. Although being a "premium cardholder" may seem like a wonderful thing, you have to look at the specifics to determine if that is so.

Conclusion

It can be exciting to be deemed a premium cardholder, but sometimes the premium benefits can be expensive and they may not be benefits that you need. The best way to determine what is right for you is to comparison shop so you can find the benefits and rates you want.