Credit & Money Management
Spend and Save With These Rebate Cards
Forget airline miles, this new breed of rebate cards promises to boost your IRA or college fund.
By Dan Rutherford
Joan Goldwasser, Senior Reporter, Kiplinger's Personal Finance
June 23, 2003
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Investing in a tax-sheltered account is the best way to save for big-ticket expenses such as college and retirement. But if three years of down markets have flattened your IRA or 529 college savings plan, perhaps a little spending could help pump it up.
Forget airline miles and "points" toward a new car, a new breed of rebate credit cards can deposit cash directly into your IRA or college savings plan.
A rebate for retirement
The newest kid on the block is the NestEggz MasterCard, which debuted in April. Offered by MBNA, the card features a six-month introductory rate of 2.9% on transferred balances, no annual fee and a fixed interest rate as low as 9.9%. It has a standard 25-day grace period. But if you pay late or exceed your credit limit, you'll get stung with a $35 fee. (Call 866-438-6262 to sign up, priority code K45I.) What makes this card unique, however, is that 1% of your purchases get credited directly to your IRA, SEP, Simple, or Keogh.
By signing up for the credit card, you automatically are enrolled in the NestEggz program and can earn additional rebates -- in the 4% to 6% range -- by shopping at any of the 500 or so participating merchants. Even more generous rebates, of up to 20% are available when you shop at online purveyors such as Groceryline.com and Wherehouse Music. NestEggz also has agreements with catalogue merchants that let you accumulate additional rewards.
There is no limit to the amount of rebates you can earn and the rebates are deposited monthly to your plan in $25 increments.
"We don't pretend it's a silver bullet for retirement savings," says Bill Koleszar, chief marketing officer for parent company Vesdia Corporation, the company simply focuses its efforts on negotiating rebates with merchants -- rebates savers wouldn't otherwise get. "Similar to payroll deduction, we make the process of being a more disciplined investor pretty painless," he says.
So far, membership has been brisk, Koleszar says, with monthly sign-up rates exceeding the company's flagship BabyMint program, which launched in 2001. Together, the two programs boast nearly one million members, he says.
Tuition dollars
BabyMint works just like NestEggz, but rebates are paid to your 529 plan or Coverdell Education Savings Account. And as an added incentive, BabyMint also offers tuition matching from more than 150 private colleges across the United States.
The BabyMint Platinum Plus MasterCard, again offered by MBNA, features a 1.7% six-month introductory rate for balance transfers, no annual fee, a 25-day grace period and a fixed 11.99% APR.
But when it comes to college rebate programs, BabyMint is not alone. It's main competitors are Upromise and Fidelity Investments.
The Citi Upromise Platinum Select MastCard offers a 0% one-year introductory rate on balance transfers. After that the rate is variable, currently at 11.24% APR. And Upromise rebates are capped at $300 per year (although at 1%, you're talking about ringing up $30,000 charges).
The Fidelity Investments Fidelity Investments 529 College Reward card, issued by MBNA, earns a 2% rebate that is deposited in your Fidelity-managed 529 account. The 529 College Rewards card has a 9.9% fixed interest rate, after a six-month introductory rate of 2.9%. If you pay late, the introductory rate disappears. There is no limit on the amount of the rebate you can earn using this no-fee card. It has a 25-day grace period and late fees vary from $15 to $35 depending on your balance.
At first blush, the 2% rebate may sound attractive, but the limit to Fidelity-only 529s is a turn off. There are a lot less expensive 529 plans out there. See our list of our favorite 529s plans.