Giving money to charity can be a great idea and might be top of mind as the holidays near, but donating with a charity credit card? No so much, experts say.
It?s not that so-called affinity credit cards are evil. Charging purchases on a card with an endangered tiger or a pink breast cancer ribbon on the front might make you feel good, but just realize that you could do far better for yourself and your favorite charity.
?If people read the fine print, they would probably not be that impressed with it,? said Daniel Borochoff, president of the watchdog group CharityWatch, based in Chicago. ?People should be careful not to feel too good, because you?re helping in a very minuscule way.?
For example, Bank of America offers a charity card with part of your purchase dollars going to a popular breast cancer charity, the Susan G. Komen organization. That sounds great until you realize that the contribution is only 0.08 percent. So, if you pile up $10,000 in purchases over a year on that card, the charity gets a whopping $8, plus $3 when you open the account and $3 for renewing every year.
If you instead used a rewards card unaffiliated with a charity but paying 2 percent cash back, your annual reward on $10,000 would be $200. Now your credit card spending alone means you could write a check for 25 times more to the same charity. Bonus: You can report your charitable donation as a tax deduction because you?re giving the money, not the bank.
?I don?t like them,? credit expert John Ulzheimer said of charity cards. ?There should be a wall between credit cards and your philanthropic activities.
?Choosing a credit card should be more about the terms of the card and not about the design on the card.?
Target took flak recently when it said it would end its donations to individual K-12 schools, funded by 1 percent from consumers? spending on its REDcard credit and debit cards. It will instead focus on philanthropic wellness programs, including those at schools.
But outraged card users might have an inflated view of how much they were helping. Even though Target is a national megaretailer and donated $432 million to schools since 1997, each school on average received just $370 per year, the company said.
BETTER THAN NOTHING
Payment cards with charitable affiliations have a few upsides. For consumers, they are easy, automatic and beat donating nothing at all.
?They?re great for people who want to give donations without thinking about it,? said Sean McQuay, credit card expert at NerdWallet.
It?s clear that giving by individuals is important. Donations to charities in 2014 totaled $358.38 billion, up 7.1 percent over the previous year and driven most by donations from individuals, as opposed to corporations, foundations and bequests, according to an annual report by Chicago-based Giving USA Foundation. That?s the highest total for donations in the history of the 60-year-old report.
?If you just know yourself and won?t donate to that charity otherwise and that charity means a lot to you, I could see how it could make sense,? said Curtis Arnold of card comparison site CardRatings.com.
The pictures on the front of the cards also could have a certain public relations component ? perhaps the cashier asks about it or a friend sees you hand it to a waiter and those people eventually become involved with the charity.
?You might have an opportunity to share about a charity that?s near and dear to your heart. So it?s almost a way to spread the word about your charity,? said Bill Hardekopf, founder of credit card comparison site Lowcards.com. ?There are some PR benefits.?
The Susan G. Komen organization is comfortable with its arrangement with Bank of America and its affinity card, a spokeswoman said.
?The cards are free to the consumer, and give them an opportunity to show their support for the breast cancer movement and generate a donation to Komen at no cost to them,? Komen spokeswoman Andrea Rader said.
Those donations of 0.08 percent add up, generating more than $6 million since 2009 for investment in research and community outreach, she said.
?We think it?s a win-win on many fronts ? in terms of the dollars raised for our mission programs by (Bank of America?s) customers, involvement of bank executives and employees, and support for our races and walks, Rader said.
?DO THE MATH?
Still, as a smart consumer and individual philanthropist, you could do better, experts said.
The first thing to know is the cardinal rule of rewards cards: They?re good for only one type of consumer, the one who pays off the balance in full every month. Otherwise, finance charges will easily surpass the value of any rewards you earn and donations you give. If you carry a balance, forget a rewards card and get a card with the lowest interest rate you can find, experts say.
Interest rates on charity cards tend to be worse than average, some exceeding 20 percent for those with poor credit.
And know what you?re really getting when you sign up.
Bank of America?s Nature Conservancy card is even less lucrative for purchases than the Susan G. Komen one, giving 0.05 percent, or $5 per $10,000 in spending ? although it promises to contribute $100 for opening an account if the card is used once and remains open for 90 days. The World Wildlife Fund card by the same bank gives 0.25 percent of purchases and $5 for opening and renewing an account.
?There are a lot of things to look into with these cards, most importantly how that card benefits the charity, because that?s what it?s all about, ultimately, if you?re getting one of these cards,? said Matt Schulz, CreditCards.com?s senior industry analyst. ?You don?t want to get blinded by the logo on the card. You want to make sure you do the math.?
So, as with all credit cards, it?s about the fine print, which includes details about the interest rate, annual fee and charity rewards. ?With any card, especially a rewards card, you need to dive into the terms and conditions,? Hardekopf said.
Overspending is also a danger, as consumers rationalize unnecessary or unaffordable purchases because some part of the charge is going to charity.
?Overspending on a charity is really no different than overspending on a vacation,? Ulzheimer said. ?It?s still overspending.?
Another downside is more subtle.
Writing a check to a charity ? or actively donating on its website ? can provide a psychological boost, as opposed to the invisible giving that happens through automatic credit card donations.
?There is a degree of separation that takes away from the charitable aspect of it,? Ulzheimer said. ?I would rather have the direct interaction, rather than letting my bank have the direct interaction.?
The number of charity cards offered seems to be dwindling, industry watchers said.
Riverwoods-based Discover earlier this year discontinued its affinity program with 14 organizations, including the Humane Society of the United States. It gave the vague reason ?to better align resources with the company?s strategic initiatives? and said the programs represented a ?very small? portion of its revenue.
?The credit card-issuing community is always looking for a hook for what is largely an abysmal response rate to those mailed credit card offers. And this is one of the methods they like to try, which is to team up with reputable and well-meaning charities and offer these affinity cards,? Ulzheimer said.
?I think the market has spoken.?
OTHER WAYS TO GIVE
Credit cards and charity can mix in ways that make sense, however.
If you don?t have a cash-back card, you can donate accumulated reward points or frequent-flier miles to charities. Some credit cards make it easy.
Experts point to programs like Capital One?s, in which it partners with charity experts Network For Good and GuideStar to provide a ?No hassles giving? Web portal for donating to 1.2 million charities. It promises 100 percent of the donation goes to the selected charity. Capital One covers transaction fees associated with credit card donations, it says. It even provides an emailed receipt to be used for tax purposes, so donors can claim a charitable deduction on income taxes.
Similarly, American Express has Members Give, and DiscoverCard has Discover Giving. Citi ThankYou Rewards can be redeemed through Pointworthy.com .