CREDIT CARDS


Fidelity's Retirement Rewards Card: Deal or No Deal?

First there were credit cards that offered frequent-flier miles. Then there were cards that offered cash-back rewards and gas rebates. Now you can funnel your credit-card rewards into retirement savings. Sounds like a great idea -- until you examine the details.

Beginning Wednesday, December 10, you can apply for Fidelity Investments' new Retirement Rewards Card at 800-343-3548 or at www.fidelity.com/retirementrewards. The American Express-issued card awards two points for every dollar spent on qualified purchases. After you've earned enough points, the card deposits cash into your Fidelity IRA. "The new Fidelity Retirement Rewards card allows card members to spend in a much smarter way, using rewards to fund their retirement account," says Carolyn Clancy, executive vice-president of Fidelity Investments.

With 78% of American workers confessing to saving less than they should for retirement, it seems like a timely idea -- as long as you pay your bill in full every month. Otherwise, you could get dinged for some substantial finance charges and would be better off using a traditional credit card with a lower interest rate and saving for retirement on your own.

How it works

Although there are no annual fees, the new Fidelity Retirement Rewards American Express card charges 16.99% interest on balances and 24.99% on cash advances. That compares with the national average of 11.08% for all variable-rate cards and 13.56% for cash-back cards, according to Bankrate.com.

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If you miss a payment or go over your credit limit, the rate on your Fidelity Retirement Rewards card could soar to 28.99%. Balance transfers will cost you 3% of the amount transferred, with no cap, and the introductory rate of 1.99% disappears after six months, defaulting to 16.99%.

Once a card member reaches a minimum of 5,000 points (or $2,500 in purchases), points can be automatically swept into your Fidelity IRA (either a traditional IRA or Roth IRA) as a $50 current-year contribution. If you max out on your IRA contribution for the year, you can continue to accrue points and restart automatic deposits to your IRA next year.

For both 2008 and 2009, you can contribute up to $5,000 each year to a traditional or Roth IRA, plus an additional $1,000 in catch-up contributions if you are 50 or older. Depending on your income, your contributions to a traditional IRA may be tax-deductible. Or, if you are eligible to contribute to a Roth IRA, there is no tax break on contributions, but withdrawals are tax-free in retirement.

Small-business advantage

The retirement-rewards feature is probably most valuable if you are self-employed or a small-business owner because you can charge your business expenses on the card and direct the rewards to your Fidelity SEP IRA, which has higher contribution limits than an individual IRA. You can contribute 25% of your compensation if you are incorporated (or 20% of your net self-employment income if you are not) to your SEP IRA, up to $46,000 in 2008 and up to $49,000 in 2009.

Part of a trend

Fidelity's Retirement Rewards card may be the latest offering in savings-linked cards, but it's not unique. Recently, Charles Schwab & Co. introduced an Invest First Visa Signature credit card that gives you 2% cash back on purchases, automatically deposited into a Schwab One brokerage account each month. Wells Fargo offers a Home Rebate Card that earns a 1% rebate on purchases that is applied to the principal balance of your Wells Fargo mortgage.

All are worth a look. Just make sure you understand the details. Saving for retirement using a credit card could be costly.


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