USAA Secured American Express Review: 3 Major Drawbacks

American Express logoBad credit and American Express cards are two things that usually do not go hand in hand. That’s why I had to blink twice when I saw that the USAA secured card application was available in an AmEx version.

But before you get excited, there are some important things you need to understand…

1: This card is not managed by AmEx

American Express has two parts to its business:

  • Card Issuer: This consists of issuing and managing cards. If you have a card issued by AmEx, then you will be dealing with AmEx customer service, logging in on their website, etc.
  • Payment network: The second (and lesser known) part of their business is acting as a payment network. This is what Visa and MasterCard do – instead of issuing cards, they just process transactions over their networks.

When most people think of AmEx, they’re typically thinking of a card that falls under both categories. For example the Green, Gold, Platinum, Blue, etc. are all issued by AmEx and processed over their payment network.

The USAA secured credit card doesn’t work this way. It only uses AmEx as a payment network. Aside from that, the card for the most part has nothing to do with AmEx. When you call up customer service, mail in your bill, or login to your account, you’re doing all those things thru USAA.

2.  You’ll be locked into a CD

With most secured cards, you can close your account and have your money refunded at anytime without penalty. The USAA secured American Express card operates a bit differently – your deposit will be a CD with a 2-year term.

Even though this may sound nasty, it’s actually not that bad. The interest rates paid on deposit accounts are so low right now, the penalty for early withdrawal is really just splitting hairs:

penalty for early CD withdrawal

Yes, a penalty of a 180 days worth of your interest may appear harsh, but when the yield is barely 1% anyway, you’re probably only talking a matter of pennies for the penalty.

For example, if you opened it with the minimum security deposit of $250 and closed the account after 1 year, you would be docked a half-year of interest. Given the 1.1% yield, you will have only earned about $2.75 of interest for the entire year. So that means your penalty would be half that… $1.38.

Conclusion? Since bank account yields are so low right now, the penalty for early withdrawal is really quite trivial in terms of the amount of money you actually lose.

3. You can’t raise your credit limit (update: now you can!)

Unfortunately only your upfront deposit will count towards your credit limit:

credit limit rule

This is a stark contrast to the way that most other secured cards work – they typically let you add more money at any time to increase your credit limit. However with the secured USAA American Express you can’t do that… so don’t open it until you have all the money saved up that you want for your credit limit.

Update for 2013: Great news! Previously you couldn’t raise your credit limit, but now you can!

Despite the drawbacks…

…it’s still an excellent choice for 2013. Its annual fee is a reasonable $35 and there are no application fees or any other hidden charges. It also has a surprisingly low interest rate. But then again if you’re trying to build or rebuild credit, I think it would be quite foolish for you to carry a high balance anyway!

Written or last updated in 2013

 
Comments
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Is American Express widely accepted as a credit card or is it just visa and mastercard?

American Express is not as widely accepted due to higher merchant fees. Small businesses that operate on narrower margins are a lot let likely to accept it, but you won’t have any problems with airlines, hotels, and the like. Most rental car companies should also accept it.

Truly, unless you just crave a card with the AmEx logo, I don’t think there’s any real advantage to this card over USAA’s secured MasterCard, which has wider acceptance and will cost your vendors a bit less to accept. But if the logo is important to you and you’re eligible, then hey, go for it. USAA is a good outfit.

My question is. After a curtain time with a good payment history with this card. Will your account be reviewed to see if you are eligible to have your card converted to a standard account and your security deposit returned? I believe I read it also report to the 3 major credit bureaus.

It appears that you have to be a member of the military (or spouse/child of) to qualify for this particular program even if you’re a USAA member.

So, I’m looking at USAA and Capitol One’s secured cards. Which one would you choose and why???

So I’m looking into this card, and according to the USAA website the card does include all of the normal benefits of an American Express card. It lists everything in the cardholder agreement. Also it is stated that you can increase your credit limit by adding additional funds to the CD.

If I open this card, will my credit report read “Secured”? And will my credit report read AMEX or USAA? And finally how long does it take to reflect on your credit report?

Thanks

It wont read as secured. on the credit report it takes about a month to take effect and it will read as USAA Savings Bank.

Funny.. I just dropped another 2k into my CD and it reflected on my credit card immediately.

Victor is on top of it. I started out with a $300 deposit in April. I currently have a $650 credit line/deposit which is reflected on all three CBR’s. You can add increments of $50 to your CD. This is the same for the Secured MC as well!

Michael is right! I was just looking into this card because I have several CD accounts with USAA and I figured it would help build my less-than-perfect credit; and on the end side, if you’ve done everything right… you’ll 1) have a CD account to either close or renew and 2) an offer for an unsecured USAA card. I didn’t open it yet because I want to wait to increase my credit limit and thus have to wait for more funds before I open it. Otherwise, I would’ve opened it right away and added to my limit later on. This isn’t allowed. So, please be sure to read all the rules before you apply/open — your first deposit is your credit limit.

You can raise your limit. USAA recently added this feature about six months ago. Originally, you were locked in to your initial deposit; you could add more to your CD deposit but it would not raise your limit. This has changed, however, and now you can increase your limit up to $5000. This new information is still not reflected on their website, but if you have an account, it gives you the option of increasing your limit by adding to your deposit. I have done this with mine.

Actually the last point is false you can raise your limit to 5000. After that you can not raise the limit

See the screenshot in the post – you can’t raise your limit after you open the account. You can start with a $5,000 limit if you start with a $5,000 deposit. If not, you can’t, because additional deposits don’t raise your credit limit. Please see the screenshot in the article.