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Apple Pay: The Future of How to Buy Everything?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Last week, Apple released iOS 8.1 and along with it, its new mobile payments platform, Apple Pay. Apple Pay isn’t the first of its kind; companies like Google have provided the option to pay using your phone for years. Apple Pay however, is the first mobile payments service available to those that have the iPhone 6, or 6 Plus.

Right now, Apple Pay supports Visa, MasterCard, and American Express, in addition to a handful of national banks. If you have a smaller bank or credit union, chances are you’re out of luck for now. However, Apple says that 500 more banks will be on board by next year and notably Barclays, Navy Federal Credit Union, USAA, US Bank and PNC will be on-boarded later this year.

Getting set up on Apple Pay is easy

Once you’ve installed iOS 8.1 on your iPhone 6 or 6 Plus, you simply add your credit cards to the service. Adding your card is as simple as taking a picture of it. The iPhone 6 camera will grab your card number and expiration date automatically. Once you’ve snapped a picture of your card, you just confirm the information, add the security code from the back of your card and you’re good to go!

Some banks like Bank of America may require a quick call to customer service to confirm. But all in all, that’s really all there is to it.

Start paying using your phone

Once you’ve gotten Apple Pay set up, and added your cards onto the service, all that’s left to do is test it out.

According to Apple, there are 220,000 stores and retailers that support Apple Pay. The mobile payment platform also works with mobile shopping apps.

Purchasing an item at Apple Pay’s launch partner stores, like Duane Reade drugstores and Macy’s, is as simple as holding the iPhone 6 in front of the credit card terminal and using your thumb to authenticate the purchase.

If you’re a city dweller, you’ll even be able to use Apple Pay to pay for cab rides. Apple Pay is fast and seamless, you don’t have to open an app, enter a PIN, or even wake your iPhone up from sleep mode. You just wave it in front of the pay terminal and authenticate the purchase with the Touch ID button.

Credit card security concerns

With countless retailers being hacked for our personal data, consumers naturally have reservations about this innovative new way of making purchases. However, with Apple Pay, the credit card data and fingerprint authentication are stored on a secure chip on the iPhone itself, making it much harder for a hacker to access any personal information.

Your name, credit card number, and security code are never shown to the retailer where you are shopping. In fact, Apple Pay could be making a difference in credit card security altogether. Only time will tell, but if so, this could be the most revolutionary part of the whole platform.

Technical difficulties

With all new technological advances, there are glitches.

According to CNN Tech reporter Samuel Burke, some users have reported being charged twice for single transactions made with the mobile payment service. Burke himself claimed that he was double billed for every Apple Pay purchase made with his Bank of America card. Multiple Twitter users reported the same problem, and coincidently seem to be banking with BofA.

Bank of America claims Apple Pay is responsible for the technical issue. However, in a recent statement, Bank of America apologized for the glitches and agreed to reimburse all duplicate charges made with Apple Pay. Apple on the other hand have no way of authenticating these reported duplicate charges because for security reasons, the company does not store any of its user’s personal data. Apple assured iPhone 6 users that a quick fix to this problem is underway.

The bottom line

Apple’s mobile payments service has some success, and some failures. Though Apple Pay is simple to use, there are still many places where mobile payments systems aren’t accepted, so don’t plan on leaving home without your wallet anytime soon. Until then, do get used to paying with your phone because the convenience of a mobile wallet will soon eclipse the use of cash and credit cards in the near future.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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How to Avoid Strings Attached to Free Money

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The information related to Citi® Double Cash Card – 18 month BT offer has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

We all want free money. But we all know that there is no such thing as a free lunch.

However, with cash back credit cards, and a little discipline, it is possible to get the closest thing to free money. It’s not hard to earn at least 2% on your everyday spend. So, if you spend $2,000 a month, you could earn $480 a year in cash back. But you have to beware. The banks are not in the business of giving out free money, and you need to beware the tricks and traps banks use to take money out of your pocket, and put it in their own.

How does it work?

Every time you make a purchase in a store with your credit card, the store pays your bank about 2% of the purchase price. For example, if you spend $100 in Target with your Citibank Visa, then Target pays Citibank $2. Why does Target pay? With a credit card, Target does not have to handle cash. So, they don’t have to transport all of that cash, which is expensive. And (more importantly), people spend more when they use a credit card. So, Target cuts their cash management expense while increasing sales. So, they are happy to spend the 2%.

With cash-back credit cards, the bank shares some (or all) of that fee with you, in the form of a rebate. Your goal is to get as much of that fee back as possible.

Is a cash back card right for me?

Do you have the discipline to manage a credit card? Will you only charge on the credit card what you can afford to pay off in full every month? Will you pay your credit card on time every month?

If self-control is one of your weak points, then avoid a cash back credit card at all costs. Although earning cash back can feel good, paying interest is awful. And the interest rates are very high.

Not sure if you have the strength to resist the temptations of a big credit limit? Take our personality quiz and find out your money personality – and if you should be carrying a credit card?

How do I choose one?

Your goal is to maximize the amount of cash back that you can earn (as a percent of your spend). There are 3 types of cash back credit cards:

  1. Flat rate cards: with these, you earn a flat rate on all of your spend. For example, you could earn 1.5% Cash Back on every purchase, every day  with Capital One® Quicksilver® Cash Rewards Credit Card, or Earn 2% cash back on purchases: 1% when you buy plus 1% as you pay. with Citi® Double Cash Card – 18 month BT offer.
  2. Category Cards: with these cards, you can earn high cash back rates on certain categories. For example, with PenFed Platinum Cash Rewards you can earn 5% on your spend at gas stations.
  3. Bonus Cards: with these cards, you earn 1% on your everyday spend. But then you earn 5% on certain rotating bonus categories.

You have to decide: do you want just 1 card, or will are you willing to hold more than 1 card. You can use the MagnifyMoney cash back tool to figure out how much you can earn. You just input how much you spend, by category, and we will tell you how much cash back you will earn.

Lets take the following example. You spend $2,000 per month. And it looks like this:

  • $1,000 per month on groceries
  • $500 per month on gas
  • $500 per month on everything else

If you want only one card, then input your spend into our tool.

The best offer is the PenFed Platinum Rewards Visa Signature Card, which will earn you $610 per year in cash back.

If you are willing to use multiple credit cards, then input each category separately.

So, look for the best deal on your $1,000 of grocery store spend:

You will earn $352 if you put all of your grocery store spend on the Amex Blue Cash Preferred.

Then check to see where you would earn the most on your $500 per month of gas spend:

And you will find PenFed Platinum Cash Rewards is best, which pays 5% on gas spend.

And finally, for all other spend, input $500 into the “other” column:

And you will see that you can earn $120 cash back on all of your other spend with Citi® Double Cash Card – 18 month BT offer:

So, in this scenario, you would use three cards to earn a total of $772 of cash back. That is 3.2% cash back! And, by using three cards, you would earn an extra $162 of cash back each year.

You have to decide if you are willing to have a multi-card strategy.

What tricks do I need to avoid

You need to avoid interest charges and penalty fees. The best way to do that: only spend what you can comfortably afford to pay off in full every month. And, make sure you pay your bill on time every month.

Bottom Line

If you have the discipline, cash back credit cards are the closest things to free money. And, if you are willing to use a few cards, you can easily earn more than 3%.

But, discipline is required. Borrowing money is very expensive on these cards. And, if you can’t afford to pay the balance in full, then you will end up paying much more interest than you will ever receive in cash back.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Be Cautious of Cash Back Rewards Above 2%

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We’ve all seen those bold proclamations of 5% cash back rewards from credit card companies. It’s enticing to think you could raking up the big bucks by simply swiping your credit card everywhere you go. It would only take $1,000 of spend in a month to get $50 back. Doesn’t sound like a bad deal. Except it is, because you need to be wary of any cash back rewards above 2%. As a rule, banks don’t like to lose money and legitimately offering 5% back would make them bleed out cash to gleeful consumers.

Why do banks offer cash rewards?

Every time you make a purchase at a store, the store has to pay the financial institutions a portion of what you paid, usually around 2%. So when you spend $1,000 at Best Buy, around $20 of that goes to the Visa/MasterCard/American Express and your bank. It’s called an ‘interchange fee‘ and your bank gets the biggest cut of that.

Since banks are competitive, and fighting for the pool of the most credit-worthy customers, they offer some of that interchange fee back in the form of rewards on cards for people with good credit. If you’re a diligent credit card user, and pay in full each month, then you should take advantage of the banks clamoring to offer you rewards in exchange for using their product.

What are the gotchas?

Banks are willing to give that money back because they are betting on two things.

  1. you spending your money on their card, so they can earn more of those interchange fees from stores and merchants.
  2. some people slipping up, so they can collect interest charges.

Even the most conscientious credit card users — looking at you Mr. 800 Credit Score — sometimes end up carrying a balance and making a minimum payment for a few months. Usually it’s the consequence of something out of the ordinary, like a family emergency or life event like a wedding. That means the bank gets to collect interest on what you’ve spent, and that’s the biggest money maker for them, with interest rates often 15% or more.

The easiest way around that is to set your rewards card to auto-pay in full each month. As long as there’s enough in your checking account to cover your charges each month you’ll never get hit with interest. Make sure you have enough in your account, otherwise you could get slapped with an overdraft fee.

Of course, we all have the best of intentions and no one actually plans to go into credit card debt. If you hit a month where you can’t pay your card bill in full, immediately start shopping for a balance transfer offer (usually around 0%) or personal loan to minimize the interest impact.

You should earn more than 1%

If you are responsible with your credit you deserve to be rewarded, so don’t just settle for the 1% that most cash rewards cards offer. You’re leaving money on the table. A lot in fact.

The average family spends about $1,800 a month on things that can be placed on a rewards credit card instead of writing checks, using debit cards, or paying cash.

A 1% rewards card will earn $180 in annual cash back, a nice sum considering some users won’t even be raking in that extra amount. But why settle for nice? There some no-annual-fee options that will earn you 1.5% – 2% on all of your spending.

That’s an extra $100-$200 a year you’re leaving on the table.

The Capital One® Quicksilver® Cash Rewards Credit Card offers 1.5% Cash Back on every purchase, every day and Fidelity Investment Rewards gives 2% cash back, and neither have no annual fees.

But beware of earning more than 2%

Because the banks only make around 2% on those interchange merchant fees it’s not viable, nor lucrative, for them to offer you much more than 1.5-2% rewards across all of your spending.

Oddly enough, you’ll often see cards offering big category bonuses like 5x on gas.

Those offers always have fine print associated with them that attempt (and usually succeed) to reduce what you really earn.

The fine print comes in two flavors:

  1. A cap on what you can earn
  2. A mechanism that hopes you forget something

For example, a card may offer 3x on grocery spending, but only up to $6,000 a year. That works out to $500 in spending a month, which is a lot, but many of us spend more than that. So you’re really not getting 3x on all of your grocery spending, just some, and only 1x on the rest.

Banks also utilize the rotating categories. Some cards offer a bonus on dining in certain quarters, or they may ask you to register for the category bonus each quarter. Both of these are bets by the bank that you’ll be forgetful.

The bank is hoping you whip out its card for all of your spending, thinking you’ll get the big bonuses on all of it. But in reality you’re not, and you are often better off with a straight 1.5 or 2% cash rewards card.

The easiest way to see what you’ll really earn from a card is to put your monthly spending habits into our Cash Back tool. It will show you the cash back rate you’ll earn, factoring in all of those complicated caps and category bonuses.

It doesn’t pay to be loyal

Of course you can earn more rewards by carrying more than one card around, choosing the one with the best category bonus for your spending.

But the biggest extra rewards come from sign on bonuses when you open up a new card, often $100 – $200 for spending a small amount on the card upfront, on top of the rewards you’d earn otherwise. For example, a card that earns $200 cash back when you spend $1,000 on it within 3 months is really offering you over 20% cash back on that $1,000 in spending.

However, you should only take advantage of these offers only if you’re organized and either set your new cards on auto-pay or are incredibly diligent about paying your bills on time.

You’ll maximize your rewards by applying for a new card with an intro offer at least once per year, taking advantage of the latest intro offers. Then deciding if that new card is a better fit for your ongoing spending, or continuing with your favorite card.

Your credit score gets hit about 3-5 points from new card applications, but that only stays on your report for 12 months, and many times your score will ultimately improve because you’re handling new, bigger credit lines responsibly. Just be careful not to open and close too many cards all at once.

One evaluation a year could equal an extra $200

Our Cash Back tool always has the latest deals available. Get in the habit of reassessing your rewards at least once per year, and you could add an extra $200 or more to your cash each year.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.