A Better Credit Card

It seems there are two extremes when it comes to credit cards. On the one hand, I have friends who refuse to apply for and use a credit card, claiming that they could potentially get themselves into some heavy deb quite quickly. On the other, there are those with a credit that has, err, some heavy debt.

There is middle ground of course. I use my credit card whenever I can because it makes financial sense. There are a few key reasons for this:

• protection against online fraud
• travel insurance
• reduced car rental excess
  
• protection if items are lost or stolen within 30 days of purchase
• extended warranty
• no interest or payments on purchases for up to 55 days
  

Depending on the specifics of your credit card, you'll have similar benefits. The last benefit is key. That means that if I spend within my means, I will make money using my credit card, since I can earn interest on the cash I would have otherwise used to make a purchase. I would estimate I earn about $100 a year on this fact alone, more than covering my card's annual fee. And I also benefit from the other features listed above.

So for those in this first category of people (who don't have a credit card), here's an idea for the banks. A hybrid credit/debit. It would work like this.

• Up to 55 days interest free
• Linked to a main savings account
• Only allows purchases up to the value of the savings account
  
• Each purchase moves cash from the savings account into an account where it is frozen but it earns interest
• Payment is deducted automatically from this account when the credit card payment is due
• Left over interest from this account is moved into the savings account every year

That would definitely work for me. Would it work for you?