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Savings Guide 2006

Savvy savers

  There's more to saving than stuffing your extra cash in a mattress.
'Spend-to-save' credit card: Can it work for you?
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Arnold likes the idea of giving consumers a savings option on the menu of their reward choices, especially since the industry has recently seen "significant scaling back of rewards programs," he says.

He says he's heard good things from readers on the concept. "The feeling and feedback we're getting is pretty positive," he says.

Initially, Arnold says, it could be a struggle for card companies to market the product. "Using a credit card to save is an oxymoron," he says. "It's been a tough sell initially."

"But it does work -- if you use the card responsibly and every month pay it off in full, as you should -- it's a great way to save," Arnold says.

Some finance gurus don't agree. "It's ludicrous," says Dave Ramsey, author of "The Total Money Makeover." "I'm going into debt so I can save money?"

Since consumers tend to spend more when they use plastic, he worries that that extra savings could come with a heftier price tag. "You're trying to spend your way into saving," he says.

Here to stay?
So is the idea here to stay?

"The fact that there are a number of companies that offer variations shows that people seem to be interested in it," says Strang. "Whether that demand continues, we'll have to wait and see."

So far, about 17,000 consumers are carrying Emigrant's AmericanDream credit card, and the numbers are growing at the rate of about 1,000 per week, says Martin. "People prefer to get actual money deposited into an account rather than airline points or miles," she says.

It may be too early to tell if credit cards with savings options will become a trend. But for card issuers, the products are a method to build up loyalty and goodwill with customers. "From a business standpoint, it's about customer retention and loyalty," says Strang.

In general, cash-based rewards programs are more expensive to run than rewards programs based on points or miles, because redemption rates are higher and consumers redeem cash-based programs more quickly than those involving points, prizes or tickets, says Dennis Driscoll, vice president of the loyalty group for Fidelity National Information Services, a full-service financial institution partner that services the financial services industry.

He says 99 percent of consumers redeem cash-based rewards, compared to 35 percent to 80 percent for some other type of bonuses. And consumers redeem cash within about six months, versus an average of two to four years for other types of bonus programs, he says.

With the Emigrant card, the company took the transaction fees it would have been getting on purchases and put them toward the savings program, Martin says. She doesn't believe a lot of other companies will do the same. "What it means is: Do the other banks want to give up that profit margin?" she says.

How to size up that card offer
There are a lot of choices for credit cards with savings options, so, "The consumer needs to look at the options, read the fine print and look at the offer carefully," says Strang.

Some points to investigate:

Don't forget to put the card through the usual litmus test you use for acquiring new plastic: What's the APR? What are the fees? Says Strang, "Those things are still important."

Dana Dratch is a freelance writer based in Atlanta.

Create a news alert for "savings" -- Posted: Oct. 1, 2006
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