Is it Wise to Use Your Credit Cards as Savings Accounts?
Owning a credit card comes with a number of advantages and disadvantages. For instance, using a credit card means that you have access to extra cash in cases of emergency. Depending on the type of credit card you have, you could also earn rewards. The one main disadvantage that comes with owning a credit card is that you need to be disciplined not to spend the money recklessly. There have been numerous stories of people who have fallen into a debt trap by using their credit card incorrectly and living beyond their means.
Credit cards are essentially open-ended loan facilities, so you need to be careful about how you use them. Interest rates are notoriously high, especially if you pay only the minimum or if you miss payments altogether.
Many credit card providers offer clients interest for maintaining a positive balance on their credit cards, which is why some people wonder if it is wise to use credit cards as savings accounts.
Can you use credit cards as savings accounts?
There is merit in keeping extra cash in your credit card as it is more flexible than a savings account, while generating interest income. It’s important to keep in mind however, that interest earned is minimal. You are likely to earn more interest on your extra money by investing it in a high-interest savings account.
One way to make sure that your credit card is repaid on time is by making regular payments and extra payments where possible.
Paying more than the minimum amount reduces your outstanding balances quicker, helping to keep the cost of credit down.
On the positive side, you will have access to extra cash whenever you need it, but on the negative side, you will lose out on possible interest you could have earned in a high-interest savings account.