No-fee cards rewarding, but seldom free
Rewards cards are like Cracker Jack for grown
ups. No matter how much you enjoy the product, you're still going
to dream about that prize.
With rewards cards, just like any other form of credit, smart customers
are looking at the bottom line: cost. And banks have responded by
offering up a host of rewards cards with no annual fees.
"Folks are coming to find that if they
use a card, they want a reward, they want something for nothing,"
says David Chamberlin, spokesman for Bank One, which issues cards
in more than 50 rewards programs, the majority of which have no
But not everyone qualifies. Even though no-fee rewards programs
are plentiful, only about 30 percent of credit card customers carry
rewards cards with no annual fee, according to David Robertson,
publisher of The Nilson Report, a payment systems newsletter.
For these programs, banks are focusing on prime and super-prime
customers -- people with excellent credit histories. And the competition
for these customers is fierce.
But even a no-fee card isn't necessarily free. The cards carry
a slightly higher interest rate, averaging about 1 percent above
their plain-Jane platinum counterparts, says Curtis Arnold, founder
and spokesman for CardRatings.com.
"There was a wider spread two to four years ago," says
Arnold. "Within the last year or two, they've gotten better."
Eyes on the prize
Like everything else, rewards programs have changed with
the times. Sure, you can still pile up points for that dream vacation.
But you might also use them to get a discount at the pump, buy movie
tickets or just take a cash refund.
While yesterday's rewards cards usually focused on more glamorous
long-term payoffs for years of faithful charging, many of today's
cards are also offering more practical benefits on a more timely
basis. Users can cash in for discounts on the necessities of everyday
life or the occasional big-ticket purchase, as well as smaller indulgences
such as dinner or tickets to shows and sporting events.
"It's not as grandiose or sexy, but it's more down to earth,"
says James Daly, editor of Credit Card Management, an industry magazine.
One practical reward that's becoming increasingly popular: savings
programs. Several cards allow customers to steer rewards toward
paying off their mortgages. Others offer the option of depositing
cash into retirement or college savings accounts.
And those customers who feel the need for more material gratification
are seeing a greater variety of choices. "Programs have expanded
beyond offering airline tickets to [providing] hotel and lodging,
electronics and experiential rewards," says Channing Barringer,
public affairs manager for American Express.
Playing to win
For the customer who uses a rewards card correctly -- paying
off the balance on time every month -- the programs basically offer
something for nothing. But for those who err with a late payment
or periodically carry a balance, "free" goodies can get
Typically, the programs award points, "dollars" or cash
value based on how many dollars you charge. In many cases, the rate
at which you accumulate points varies, depending on what you charge
or where you charge it.