Don't Let Your Favorite Store Rip You Off

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Store credit cards can be tempting, especially from a retailer you frequent . But whatever perk or benefit they offer may be far outweighed by its cost.

Rep. Anthony Weiner (D-N.Y.) recently released a study of 35 major retailers' store cards. On average, they charge 24% in interest. Compare that to the national average of 15% for regular credit cards!

Big numbers
Topping the list is Radio Shack (NYSE: RSH ) , with a rate of 29%. It's followed by Best Buy (NYSE: BBY ) and Staples (Nasdaq: SPLS ) at 28% and Home Depot (NYSE: HD ) at 26%. The companies often entice customers with special teaser deals, such as no interest for 12 months if you spend more than $350 (Radio Shack), or no interest for six months with purchases over $299 (Best Buy and Home Depot).

The cards are fine if you always pay off your balance on time. But those who let charges pile up while they're paying interest rates between 20% and 30% are getting ripped off. (An exception: While 34 of the 35 retailers charged 19% or more, longtime Fool favorite Costco (Nasdaq: COST ) charged just 15%, after no interest for six months.)

One reason for the generally steep rates may be that the banks that manage stores' card portfolios have to get paid. Couple that with rising delinquency rates in recent years, and you get a recipe for sky-high interest.

Good for investors
The cloud of steep interest rates has a silver lining, though -- if only for investors. Extracting gobs of money from borrowers can pad a company's bottom line. At Best Buy, promotional financing offers to store card holders accounted for 17% of revenue during its 2010 fiscal year. Home Depot reported that about 25% of revenue came from its private-label credit card in fiscal 2009. And at Nordstrom (NYSE: JWN ) , credit cards generate around 4% of revenue.

The gravy train might not last, though. Congress is obviously aware of the problem, and the new Bureau of Consumer Financial Protection headed by Elizabeth Warren may well address it. But for now, consumers beware, and investors rejoice .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Credit and Debt

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