Affinity credit cards not benefitting charities as much as you'd think

Affinity cards, credit cards that carry the logo of a charity you support, may make you feel good, but are you really helping out the charity? You are, but you could end up giving much more by choosing other options.

"Affinity cards tug on our heartstrings. We all have causes we like to support. But in most cases, an affinity card is not the wisest financial way to support the organization," Bill Hardekopf, CEO of LowCards.com, told me by e-mail interview.
Hardekopf added, "These cards usually have a higher APR than other credit cards, so if you carry a balance, you'll be paying more by using this card. In addition, the average cash rebate on a credit card is 1% of your purchases; a significant number of affinity cards only donate 0.5% on your purchases, so the charity isn't receiving what they would if you were to donate the cash rewards from an average credit card."

Hardekopf also points out a significant disadvantage of affinity cards: "If you use an affinity card, the amount that goes to the charity from your purchases is not tax deductible on your returns, so you're better off from a tax standpoint by making a direct contribution to that charity and claiming it as a deduction."

For example, one popular cause that uses affinity credit cards is the Susan G. Komen for the Cure branded credit card. For each account opened and used, Komen receives a minimum of $3, and then a minimum of 20 cents for every $100 in purchases charged on the card.

Komen also receives $1 for each annual renewal of the card. So in order to make a $20 donation using the credit card, you would need to open an account ($3) and spend $8,500 (85 x 20 cents = $17). The second year you have the card you would need to spend $9,500 using that card because Komen receives just $1 when you renew; you'd have to spend enough to generate another $19.

Since the banks charge between 2% and 3% for processing those charges, they make a lot more than they're giving to the charity. For example, charging just 2% to process $8,500 nets the bank $170. So it's a win situation for the bank and a minimal plus for the charity.

Yet the charity can make a lot of money. From 2009 - 2011, Bank of America, for instance, is guaranteeing a minimum of $1.95 million and a maximum of $2.7 million to Komen for the Cure in connection with this program, which also includes opening other types of accounts.

These numbers are similar to those found in a recent study done by Consumer Reports.org. Over the years, charities have taken in millions through affinity cards. Consumer Reports estimates that hundreds of millions have been raised for charitable organizations and nonprofits devoted to saving wetlands, rescuing abandoned animals, preserving wildlife around the globe, helping the homeless, and finding a cure for cancer. The amount that will go to your charity is usually between 25 cents and 50 cents on the dollar.

Today the cut for charities is less because many cards are being designed with reward points. So unless you also ask that your reward points go to the charity, the deals are probably closer to those that the Susan G. Komen for the Cure branded credit card gets from Bank of America.

Card Partner.com is making it easy for charities and other small companies to set up affinity cards working with UMB Bank. That's the company that set up the card for The Nation magazine. Charities or companies that set up a card with them get $50 plus 0.3% on retail purchases or 30 cents on every $100 spent.

The deal the Humane Society of the United States has with VISA isn't as good. While Visa also pays $50 for a new account after the qualifying purchases are made, it only pays 25 cents per $100 of purchases.

The best deal I could find on the internet if you want to use a credit card to make your donations was with Capital One. It's not an affinity card, but if you use one of their credit cards at their Giving Site, you can choose from 1.2 million charities and make sure 100% of your donation goes to the charity. Capital One doesn't charge transaction fees to the charities. You also can choose from a number of different credit card terms and find one that best serves your needs. And the good news? You'll have proof of a donation and can write if off as a tax deduction.

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit."

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