TD Banknorth credit card offers lower APR for larger payments

Consumers have been earning airline miles, cash back or points on their credit card purchases for some time. But issuers have begun putting a twist on credit card incentives. Instead of giving cardholders something in exchange for credit card usage, certain banks now reward cardholders for the way they make their credit card payments. TD Banknorth's new Simply Flexible credit card provides rewards for offering up more than just the minimum monthly payment.

Simply Flexible charges an interest rate of 7.99 percent on purchases, well below the 11 percent average currently charged by low-interest cards. But to qualify for it, cardholders will need to make a monthly payment equal to 10 percent or more of their revolving balance.

According to a press release from TD Banknorth, the credit card provides several gains to cardholders, who are rewarded for paying more than the minimum balance with lower interest rates, the chance to pay off their balance faster and a benefit to their credit rating. These are all worthwhile advantages.

Of course, TD Banknorth isn't doing this out of the goodness of its corprorate heart. In an article on the Simply Flexible card in MediaPost's Marketing Daily, David Robertson, publisher of the credit card industry newsletter The Nilson Report, explained that Discover offers a similar product. Robertson highlighted two advantages provided to TD Banknorth by the Simply Flexible credit card. "First, it hurts a competitor by taking away one of its customers. And second, by adding a customer who already has run up a $2,000 or $3,000 balance, they've got an instantly profitable account -- they don't have to wait for the consumer to build up a new balance," he said.

While banks are bound to trumpet the benefits of such a product to cardholders, consumers would be better served by always paying off their monthly balance in full. Of course if they do pay in full every month, the card issuer doesn't make money on a revolved balance, lower APR or no lower APR.

For consumers who must revolve a balance month to month, a low interest credit card will nearly always trump a rewards credit card, since the high APRs on rewards cards tend to offset any airline miles, cash back or other earnings. In other words, do the math to see if you will be able to make those "10 percent or more" monthly payments on a regular basis and compare the TD Banknorth card's APRs (both when paying above 10 percent and under 10 percent) with those offered by other low interest plastic.