If you’ve ever turned on a television or opened a magazine, you’ve probably seen advertisements for MasterCard (Priceless) and Visa (Life Takes Visa). But what do these companies actually do and what’s the difference, anyway?
MasterCard and Visa don’t issue credit cards
First, it’s important to understand that MasterCard and Visa do not issue credit cards. Instead, they make money by processing transactions between your point of purchase and your bank. They have nothing to do with your rewards programs, interest rates, late feesor customer service issues. Simply put, they are payment networks that connect merchant payment terminals with your bank’s credit card department. Because millions of merchants accept huge amounts of credit card purchases every day, banks prefer to use one of these third party networks to process credit transactions.
So should I get a Visa or MasterCard? And does it matter?
Though networks have nothing to do with fees or rewards, they arrange most non-reward “perks.” Your bank (Chase, Bank of America, etc.) is in charge of things like cash back programs and airline miles. But the networks (Visa, MasterCard, Discover, etc.) add perks like fraud protection, car rental insurance, travel insurance, purchase protection and more. When choosing a network, you need to determine which offers the most generous and relevant perks. Visa and MasterCard are pretty similar, but Visa is just a little better. Its advantage is twofold. First, Visa has better “Loss of Use” coverage on car rental insurance. Second, MasterCard offers “Return Protection” on very few cards, whereas Visa Signature offers the service broadly. With exclusivity arrangements falling by the wayside, you are now more likely to be given a choice between networks when approved for a credit card. If your choice is between Visa and MasterCard (and it often will be), we recommend Visa, especially if the card falls under the Visa Signature category.
Visa highlights:
Visa Signature cards offer some pretty awesome perks on top of your bank's rewards program. Take the Capital One Venture card for example. Deemed Money magazine's "Best Rewards Card if you aim to rack up airline miles," it has an impressive flat 2% rewards rate on all purchases. You receive a10,000-mile signing bonus, you never have to worry about blackout dates, and there are no limits or expiration dates on miles. The Venture's Visa Signature status piles on even more benefits. You are granted 24-hour complementary concierge service, lost luggage reimbursement, purchase security, travel and emergency assistance services, roadside dispatch and more.
Another Visa favorite is the Chase Freedom. Though not actually a Visa Signature, it’s much more accessible than the Capital One Venture: it has no annual fee, but has a really great signup bonus of $200 cash back (2x the Venture) and gives a whopping 5% back on categories that change every three months. These can include gas, groceries, hotels and dining out. Plus, you earn 1% back on everything else and get access to the Chase Ultimate Rewards Mall, which earns significant bonuses on online shopping at stores ranging from Express to Ralph Lauren to Starbucks.com.
MasterCard highlights:
The Citi Simplicityis pretty much the best low APR/balance transfer offer out there: 18 months interest-free, with a low 3% balance transfer fee. It also has no annual fee, but what sets it apart is that it has neither a late fee nor a penalty APR, so you won’t see your interest rate jacked up to 30% if you miss a payment. It’s ideal for anyone who needs to make a big purchase and pay it off over time, or for anyone who’s already got some credit card debt.
Other Networks
Of course, Visa and MasterCard aren’t the only networks out there. Discover and American Express are the main competitors. Generally, Discover offers the worst perks (no purchase/return protection, no loss of use coverage on rental cars, and no concierge services). American Express has the best perks but is not, unfortunately, as widely offered or accepted as Visa or MasterCard. American Express has better insurance coverage on both return and purchase protection and offers the same protection on all cards—not just premium offerings. For a good American Express rewards credit card, check out the Starwood American Express. It offers big earnings on hotel stays and some great signing bonuses. But if you’re like most people, you’ll stick with the big guys—Visa and MasterCard—simply because they are so universally accepted.
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