Credit cards secured by certificates of deposit are not two financial instruments you tend to associate together, but thanks to Citigroup, they go together like peanut butter and jelly. After the economic downturn that hit (what is thought to be) the peak in 2009, more Americans found themselves with bad credit. Once you have bad credit, it’s hard to get new credit. Rather than turn to a subprime credit card situation (poor credit borrowers in need of a way for building their credit back up to a decent level), Citigroup offers a credit card secured with a deposit into an 18-month certificate of deposit.
Citigroup, the Credit Card, and Certificates of Deposit
Although federal regulators did not care for Citigroup’s tactic, the financial institution is offering a secured MasterCard option – one financial experts say may be a good way for people with bad credit to establish good credit. Most secured credit cards require cardholders to deposit an amount of money that is equal to the credit card spending limit. With the Citigroup MasterCard and certificates of deposit combo, at least the money the cardholder deposits is working for them – in most cases, earning them more of a return than they would be receiving on most traditional savings accounts. As an added bonus, when the certificates of deposit connected to the secured MasterCard matures, as long as the payment history has been good, secured cardholders can upgrade to an unsecured credit card option.
The terms of the certificates of deposit associated with the secured credit card not only allow bad credit borrowers an opportunity to rebuild their credit, but they may walk away with more money than they started with. Certificates of a deposit are a type of investment where the principal balance you deposit is safe and secure. When the certificates of deposit reach the maturity date, you’ll also receive all of the interest earned during the term – on top of the principal amount you originally deposited into certificates of deposit.
While the good news is this can help you obtain a credit card, there is a downside to certificates of deposit. It ties up your money for the term of the certificates of deposit. In this case, you won’t be able to access your money sitting in the deposit for the 18-month term on the certificates of deposit. In the long-run, though, it creates a win-win situation because you are able to obtain a credit card and build your credit and earn interest on your money at the same time.
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