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Every little bit helps. Except when it doesn't.
A number of financial institutions offer reward cards that promise to help you boost your net worth by contributing to your savings accounts, your retirement plans, your college funds or even your mortgage.
Each of these cards, however, has traps for the unwary that could undo most or all of the benefits they promise. You should read the fine print of each offer, note how rewards are accrued and refrain from carrying balances; otherwise, any benefit you get from the savings-reward program will be more than wiped out by interest costs.
Furthermore, there's no card that is best for everyone. The right rewards program depends on how much you spend and other details of your financial life, like where you keep your retirement money. The Fidelity Investments reward cards, for example, are favorites of Curtis Arnold, who runs the CardRatings.com Web site. But their generous rebates won't be much help to you if you're not a Fidelity customer.
Even at their best, none can take the place of a disciplined savings and investing strategy. You still need to save on your own for retirement, college and emergencies; these cards can, at best, add a few bucks a year to those efforts.
Here's what you need to know about the most widely available programs:
Bank of America's Keep the Change
Annual fee: NoneAPR: None (program is linked to debit card)
Grace period: Not applicable
How it works: Your purchases are rounded up to the nearest dollar and the excess amount -- from 1 cent to 99 cents -- is debited from your checking account and deposited into your savings account. So if you use your debit card to pay for a $3.21 latte, Bank of America debits $4 from your account and sends the extra 79 cents to your savings. BofA provides a 100% match for the first three months on these transfers and a 5% match thereafter.
Limit: $250 a year
The catch: There are a few. You may incur a slightly greater chance of overdrawing your account, especially if it often runs on fumes. Your savings could be reduced if your bank or merchant charges fees for debit transactions. Also note that the match isn't very generous after the first three months; you'd have to rack up at least 5,000 transactions a year, or about 14 a day, to hit the $250 maximum, so most of what you'll save will be your own money.
A good match for: Bank of America customers on debit purchases they would make anyway.
American Express One Card's Savings Accelerator
Annual fee: $35 (waived the first year)APR: Currently 12.99% to 14.99%, depending on credit history
Default rate for late or overlimit accounts: Currently 28.99%
Grace period: 30 days
How it works: American Express deposits 1% of your purchases into an FDIC-insured high-yield savings account (current return 3.5%) run by its affiliated bank.
Limit: None
The catch: That annual fee. Sure, it's waived in the first year and further offset by a $25 sign-up bonus deposited into your account. But after that, the savings from your first $3,500 in annual spending are eaten up by the fee. Most light to moderate spenders (annual charges of $30,000 or less) would be better off with a card like Citibank Dividend Platinum Select, which offers a regular 1% cash-back rebate on all purchases (rewards are capped at $300 a year).
A good match for: Big spenders who aren't interested in the Fidelity offerings (see below).
Fidelity Investment Rewards MasterCard
Annual fee: NoneAPR: 12.15%
Default rate: 19.99%
Grace period: 25 days
How it works: Fidelity deposits 1.5% of your purchases into a Fidelity brokerage or retirement account.
Limit: $1,500 a year
The catch: You typically need $2,500 to open a Fidelity account; account maintenance fees may apply if your balance slips below that level.
A good match for: Fidelity customers. The 1.5% rewards rate is better than most cards and applies right from the start (unlike many regular cash-back programs that have a tiered system, offering just .5% on the first $1,000 of spending, 1% on the next $2,000, and so on). The high limit (you'd have to spend $100,000 annually to hit it) makes it a particularly attractive choice for high-spending folks who might run into the lower caps set on other rewards cards.
Fidelity Investments 529 College Rewards Card
Annual fee: NoneAPR: 15.24%
Default rate: 19.99%
Grace period: 25 days
How it works: Fidelity deposits 2% of your purchases into your Fidelity-run 529 account.
Limit: $1,500 a year
The catch: Fidelity currently operates 529 plans in Arizona, New Hampshire, Delaware and Massachusetts. They're OK plans, but the rewards card isn't enough reason to move your money from another plan -- particularly if you live in a state that offers tax breaks for contributions. (For more on 529 plans, see the College Board site's explanation.)
A good match for: Current Fidelity 529 plan customers. Like Fidelity's Investment Rewards program, the 529 College Rewards benefits light to moderate spenders because its rewards aren't tiered, and big spenders because you'd have to spend $75,000 to hit the cap on rewards.
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