Author: Tim Chen

Verdict - The best secured credit card out there, unless you plan to carry a balance. The only catch is, to join Navy Federal Credit Union, you or a family member must be affiliated with the Department of Defense.
The Navy Federal nRewards Secured credit card is hands down the best secured credit card out there. To qualify for the Navy Federal Credit Union, you must be in the Department of Defense, or a civilian contractor for the Department of Defense. Alternatively, if you can marry or adopt someone who qualifies, you qualify as well. However, if you cannot pay off your bill each month, you should consider the Public Savings Bank Secured Credit Card with a 0% intro APR for 6 months and a much lower ongoing APR.

This secured card is rare in that there are no fees associated with it whatsoever, which is highly unusual. Most secured cards have a "sign-up" fee, an annual fee, and a balance transfer fee. The other unusual feature of this card is that you can earn rewards - this is not the case for most secured cards. Rewards come via the nRewards points program, where you effectively earn 1% rewards: for example, 5,000 points gets you a $50 Visa gift card usable anywhere. You can earn an unlimited number of points, but they expire in 4 years.

The APR as of April 2010 is 15.9%, which is the only minor knock on this card. We don't understand why card issuers charge such high rates on secured cards, because you have to give them collateral upfront, an amount equal to your entire credit line, so they are really taking on no risk.

The remaining features on this card are unremarkable in comparison to other secured credit cards. There is a 25 day grace period, and your available credit line is equal to the amount of money you deposit up front.

Pros (compared with other secured cards): A 1% rewards program, and no fees.

Cons (compared with other secured cards): APR is fairly low, but much higher than the Public Savings Bank Secured Credit Card, which also has no annual fee, and also has a 0% introductory APR for 6 months at the time of writing.

Typical (compared with other secured cards): Get 100% of what you deposit as your line of credit. 25 day grace period.

What is a secured credit card? Almost anyone can qualify for a secured credit card, or alternatively for a pre-paid debit card, regardless of credit history. What's the difference?

A secured card requires a one time upfront deposit, then behaves like a normal credit card. This money is "gone" until you close the account at some future date, and is collateral for your future spending. To be clear, money you spend in the first month must be paid back at the end of the month, despite the faact that you have already deposited collateral. The size of the upfront deposit determines the size of the line of credit - typically a $500 deposit will earn you less than a $500 credit line.

On the other hand, a pre-paid debit card is a stored value card, where money deposited into the account can be spent.

Pros and Cons of a Secured Credit Card versus a Pre-Paid Debit Card The advantage of a secured credit card is that they help you build (or damage) your credit by reporting to the 3 credit bureaus. Some pre-paid debit cards claim to do this, but this is difficult to fathom, given that credit agencies look at the ratio of your balance versus available credit, and pre-paid debit cards do not have a credit line.

The advantage of a pre-paid debit card is that it does not require a permanent deposit to act as collateral, and can be more anonymous. However, fees are generally much higher. Some of the cards promoted most heavily on the internet will cost you hundreds of dollars a year in hidden fees. Some typical examples include $2.50 for ATM transactions, $5-10 per month, $0.50 to check your balance at an ATM machine, and $15 to shut down your card. Be careful!