2024 Secured Credit Card Report: What You Need to Know About High APRs, Annual Fees and Security Deposits

Secured credit cards — among the best credit-building tools for those new to credit or rebuilding theirs — don’t come cheap, according to a new LendingTree analysis.

These credit cards are different from typical ones. They generally require security deposits — with minimums most commonly $200 — and often feature annual fees and average APRs of 28.00% or higher. The borrower’s deposit typically establishes the card’s credit limit — deposit $200, get a $200 limit — bringing little risk to the issuer.

If you don’t pay the balance, the issuer keeps your deposit. Yet APRs on these cards can be sky-high. As with any financial tool, it’s important to understand what you’re getting into before applying.

Here’s our review of 47 secured credit cards from 37 issuers.

Key findings

• Secured credit cards can cost you an arm and a leg. Many secured cards have average APRs higher than the national average APR for all new credit card offers, and nearly 1 in 3 charges an annual fee — including one as high as $50. This comes despite the lower risk financial institutions face with these cards because of security deposits.
• The average APR for bank-issued secured cards is more than 9 points higher than the average APR for credit union-issued ones. Bank-issued secured cards have an average APR of 25.64%, versus 16.08% for credit union-issued secured cards. Of note, 19 of the 36 bank-issued secured cards reviewed have average APRs of 28.00% or higher, with six averaging 29.99%.
• Minimum deposit requirements aren’t always easy to find, but the most common is $200. One issuer says it has no minimum deposit, while those that do range from $49 to $500. However, minimums couldn’t be found for four cards, and several others required digging. (In many cases, your security deposit is fully refundable if you close your account and pay your balance in full or if you’re upgraded to an unsecured card.)
• Fewer than half of secured cards offer rewards. 19 of the 47 cards reviewed offer rewards. Cash back is the most common, offered by 15 of those 19.
• Many issuers automatically review for “graduation” or credit limit increases. 14 of the 47 cards indicate that the cardholder’s account will eventually be automatically reviewed for a higher credit limit or upgrade (graduation) to an unsecured card. Specific policies vary widely by issuer.

Secured credit cards can cost you an arm and a leg

A secured card almost always requires a security deposit to open the card. (More on deposits in a bit.) However, that’s not the only cost associated with one.

Nearly a third of the secured cards we reviewed — 15 of 47 — have an annual fee. The most common is $29 (found on five), but fees range from $19 to $50.

Source: LendingTree analysis of 47 secured credit cards from 37 issuers. Note: Data is accurate as of July 17, 2024.

If you carry a balance, you’ll pay interest on it, as with most credit cards. The average APR on a new secured credit card is 23.40%. That’s slightly lower than the 24.80% average for all credit cards — the highest since LendingTree began tracking in 2019. However, many secured cards come with average APRs of 28.00% or higher, with some topping out at 29.99%.

Source: LendingTree analysis of 47 secured credit cards from 37 issuers. Note: Data is accurate as of July 17, 2024.

High interest rates are nothing new in the credit card space. Financial institutions use these rates as a key tool for managing lending risk to borrowers. The riskier the borrower, the higher the interest rate.

But one thing crystal clear in our analysis is that the issuer and type of financial institution significantly affect the offered APR, which we’ll discuss next.

Secured card APRs far higher from banks than credit unions

We reviewed the websites of 57 of the nation’s biggest credit card issuers — including banks and credit unions — to find their secured credit card offers.

About two-thirds of these financial institutions (37 of 57) offer a secured card. However, the APRs associated with bank-issued secured credit cards are far higher than those with credit union-issued cards.

Source: LendingTree analysis of 47 secured credit cards from 37 issuers. Note: Data is accurate as of July 17, 2024.

That’s a significant difference, especially if you have a relatively high secured card limit. If you owe $1,000 on a card with a 25.64% APR and pay $50 per month, it’ll take 27 months and cost $319 in interest. Lower that APR to 16.08% and leave everything else equal, it’ll take 24 months and cost $172 — a difference of three months and $147. That’s real money.

One key reason for the lower rates: Federal credit unions aren’t allowed to charge an APR higher than 18.00%. State-regulated credit unions aren’t subject to that cap, which is why one credit union secured card we reviewed had a maximum APR that topped 25.00%.

Banks’ rates aren’t capped, as evidenced previously. This is proof that one of the oldest and simplest pieces of advice in the personal finance space — shop around — is one of the best.

Minimum deposit requirements aren’t always easy to find — and vary widely

Nearly all secured credit cards require a minimum deposit to open them. You can’t just open a card with a $4 deposit.

However, there are limits on the other end, too. As much as you might like to, Mr. Big Spender, you probably can’t put down a $20,000 deposit for your kid’s new secured credit card.

Source: LendingTree analysis of 47 secured credit cards from 37 issuers. Note: Data is accurate as of July 17, 2024.

As with the interest rates, spending minimums and maximums can vary widely by issuer, so shopping around is crucial. However, these minimums and maximums aren’t always easy to find on issuer websites.

In the majority of cases, the minimum payment allowable is clearly posted — and that’s the most important number to know. But if you want to go beyond that, you may have to dig or call the financial institution. In our analysis, four cards didn’t list a minimum payment requirement and nine didn’t list a maximum.

One important note: As you’d guess from the name, the security deposit for these cards is typically fully refundable. Generally speaking, if you close the card or graduate to an unsecured card with the same issuer, you’ll get your deposit back. However, exact policies vary by issuer, with some saying, for example, that funds from your deposit may be used to pay off remaining balances on a card that’s been closed. Do your homework before applying. If you can’t find a clear answer to a question, contact the issuer for clarification.

Fewer than half of secured cards come with rewards

Most people seeking secured credit cards aren’t coming to them to chase rewards. These cards are generally stepping stones for folks with little to no credit history or those looking to rebuild damaged credit. Rewards aren’t usually the first thing on their minds.

Still, 19 of the 47 cards reviewed offer some form of rewards. Cardholders may need to adjust their expectations. You’re typically not going to find sign-up bonuses, and you certainly won’t find some of the more glamorous perks you get on other cards, such as lounge access or free hotel nights and airfares.

Fifteen of the 19 rewards cards offer cash back, with most having a single earnings rate. For example, a cardholder might receive 1% or 1.5% cash back with qualifying purchases. Even if you max out your rewards every month, the most you can earn in a month is $3 on a card with a $200 credit limit and a 1.5% cash back return.

Source: LendingTree analysis of 47 secured credit cards from 37 issuers. Note: Data is accurate as of July 17, 2024.

Many issuers do automatic reviews

Secured credit cards aren’t perfect. You have to pay to get one, and then you often have to pay high interest rates and maybe an annual fee to keep it, all while having a tiny credit limit and often no rewards. Awesome, right?

The good news is these aren’t meant to be “forever” cards. They serve an important purpose, helping you get on your feet before eventually moving on to a regular unsecured card.

Secured card issuers are well aware of this. Many even promote in card marketing that they’ll automatically review your account after a certain period for either an increased credit limit or graduation to an unsecured card.

In all cases, however, there’s no guarantee a review will lead to any status change. It’s dependent on your track record with the card since opening it.

Here are some tips to make sure you get the most out of your secured card:

• Shop around: There’s a difference in what’s being offered among various issuers. If you don’t comparison shop, you’re doing yourself a disservice. Ultimately, you’re costing yourself money, and no one needs that.
• Don’t over-deposit: Just because an issuer allows you to deposit $1,000 for your new secured card doesn’t mean you should deposit that much. This card is a tool to help you build credit — not an investment. Keep that extra money you could have deposited and put it toward other bills, or even into savings. It’ll serve you much better there. Plus, if you find that you do need to deposit more later, you’ll still likely be able to.
• Set up automatic payments: The point of a secured credit card is to help you build credit. The most important thing in building credit is paying on time every single time. To make sure you do that, set up autopay to make sure you’re paying at least the minimum on your card each month. Nothing you can do with the card will matter more than that, so let technology make things easier for you.
• Don’t sweat the rewards: Yeah, it stinks that you’re not really getting any rewards for your effort with these cards, but keep your eyes on the prize. Handle your business with this card consistently over time and you’ll be rewarded, literally. Financial institutions generally want to graduate people to unsecured cards — they make more money off of you when you use those cards — but it can take some time. Be patient.

Methodology

LendingTree reviewed 57 credit card issuer websites to search for secured credit card offers.

In all, we reviewed 47 secured credit cards from 37 issuers, including banks and credit unions.

We reviewed basic terms and conditions, including APRs and annual fees, and evaluated the issuers’ secured credit card offerings, including deposit requirements. All offers were reviewed online on financial institutions’ public websites.

Credit card offer data is accurate as of July 17, 2024.