Convenience Checks: The Good, the Bad, and the Downright Ugly

Have you ever received blank checks from a credit card company? We get them all the time. A letter comes in the mail from one of our credit card issuers, and inside are a bunch of perforated checks–and a lot of legal jargon, too. Described as convenience checks, the idea of writing a check without drawing down your checking account can be really enticing. It can also cost you an arm and a leg.

So we thought it was time to take a closer look at exactly what convenience checks are, and what the pros and cons are of using them.

What are Convenience Checks

Credit card companies send cardholders checks in the mail that are tied to their credit card account. Unlike a checking account where checks are drawn on the bank account, convenience checks from a credit card company result in an increase in your credit card balance. If you receive a batch of convenience checks and are considering using them, it’s critical to understand that not all credit card checks are created equal.

Convenience checks generally take one of two forms. They either are treated like a balance transfer or like a cash advance. Is there a difference? Yes, a big different. Let’s take a look at each.

Balance Transfer Checks

The first type of convenience check is treated like a balance transfer. If you’ve spent any time looking at balance transfer offers, you know that most come with 0% for some number of months (the longest currently is 24 months with the Discover More – Long Duration Balance Transfer Card) along with a transfer fee of generally 3 to 5%. With convenience checks sent out to current credit card holders, however, the terms of the transfer offer are almost never as rich as those deals extended to new cardholders.

With most of the balance transfer checks I’ve received, the deals offer a low interest rate (generally below 5%), still charge a transfer fee, and rarely extended beyond six to 12 months. This means that you’ll almost always get a better deal if you sign-up for a new card. Still, you may find descent offers from your current credit card company. The key is to read very carefully the terms of the convenience checks to understand the length of the offer, the interest rate, and any balance transfer or other fees.

So with convenience checks that act as balance transfers, some offers are good and some bad, depending on the terms. Now let’s look at the downright ugly.

Cash Advance Checks

Convenience checks that are treated like a cash advance have three major disadvantages. First, Interest charges begin the moment you use a convenience check. You don’t get the grace period you may be accustomed to when you use your credit card and pay it off in full at the end of the month. Second, interest rates for cash advances are generally higher than your card’s regular purchase APR. In fact, cash advance rates of 20% or more are not uncommon. And finally, there are often fees for using the checks, generally ranging from 2-5% of the check amount.

As a result, if you make a $1,000 purchase using a convenience check and there is a transaction fee of 3%, you’ve just spent $30. Then, your interest charge can kick-in the same day as the purchase. Rates of 20% or more are not uncommon, which means your $1,000 purchase is costing you hundreds in annual interest plus the $30 just for making it. Now you see why convenience checks can be downright ugly.

Read the Terms & Conditions Carefully

Because not all convenience checks come with the same terms, it’s important to understand exactly what you are getting into. In some cases the checks may not disclose all of the terms on the checks, instead referring you to a dense credit card agreement that you no doubt threw away when the credit card came in the mail. If necessary, call your credit card company to confirm the details and get them in writing.

The Upside Of Convenient Checks

Is there an upside? Well, as noted above, some checks offer reasonable balance transfer options. And even with convenience checks that are treated as a cash advance, they may represent the lowest cost option to a short-term money emergency. They certainly beat a payday loan. But beyond these two alternatives, convenience checks just don’t add up.

Still not convinced? Check out what others are saying about convenience checks:

Published or Updated: February 16, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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