Is the E*Trade credit card a good deal?
E*Trade has launched a credit card that provides rewards in the form of free trades. Here are the details, and then our take on whether it's a good deal:
The E*Trade is offering its new Visa credit card to Power E*Trade customers, who trade more than 30 times per month. You earn 4 points per dollar spent, and one free trade per 2,000 points. The free trades can be used from January to June in the following year. Power E*Trade customers pay $9.99 per trade, so that means that you earn trades equivalent to 2% of your spending. Like many others, the E*Trade credit card offers a limited-time offer of 0% balance transfers, no annual fee, and the usual benefits that come with Visa cards. You also get 10 free trades just for signing up.
Is it a good deal? Well, it's not bad. As usual, you should focus only on the rewards and ignore the interest rates charged and balance transfer offers, because borrowing from credit cards is always a lousy deal if you can possibly avoid it. (If you haven't done so already, read the free Radical Guide to Credit Cards which explains this.)
So how good are the rewards on this card? A reward level of 2% on every purchase is better than most cash-back cards. They typically offer 1%, though you can easily find cash-back cards that offer up to 5% cash-back on purchases from gas stations, supermarkets and drug stores. Also, the sign-up bonus, worth $100, is fairly generous. However, the clause stipulating that the trades can only be used between January and June of the following year is highly restrictive and reduces the value of the rewards.
Another key consideration that many people will forget to consider is the impact of taxes. The cost of trades is tax-deductible from your investment profits, so the real price you pay for a trade is actually less than the amount the brokerage charges you (unless you perpetually make losses...). So the value of the free-trades from this card could be considerably less than $9.99 per trade.
However, you can turn this to your advantage by using the free trades from the card for trades in an investment retirement account (IRA). By applying your free trades to your E*Trade IRA, you are effectively paying money into your IRA. Since profits in an IRA are not taxed until withdrawal, this is a great way of adding to the compounding effect of investing in an IRA.
Bottom Line
- This card is a mediocre-to-OK deal for people with regular Power E*Trade accounts. You're probably better off using a regular cash-back rewards card than this card.
- It's a good deal for people with E*Trade IRA brokerage accounts who quality for the card and can apply the free trades to their IRA.
- E*Trade offers one of the best deals for active traders (both in terms of price and functionality), so this card is another reason to consider switching to E*Trade if you have an IRA account with a more expensive brokerage like Schwab TD Waterhouse or even Ameritrade.
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