Banks and brokerages are enhancing their credit-card reward programs to help customers save more for retirement and reduce their debt. Wells Fargo & Co. is rolling out cash-back credit cards that automatically apply the rebates to pay down loan balances at the bank, while Fidelity Investments unveiled a new Retirement Rewards Card that will apply a 2% rebate earned on purchases to a Fidelity Individual Retirement Account.
The announcements come at a time of concern that borrowers are having trouble paying their bills and saving for retirement.
With Fidelity's new card, which has no annual fees, caps or limits, investors earn two points for each dollar spent on purchases. Once a card holder reaches a minimum of 5,000 points, or $2,500 in purchases, points can be automatically swept as a $50 current-year contribution into the user's Fidelity IRA. If the card holder has already reached the maximum IRA contribution limits for that year, they can roll over their points to the following year. Fidelity is also planning to boost its cash-back rebate to 2% from 1.5% on its Fidelity Investment Rewards Card and the 529 College Rewards Card in early 2009.
"It's a way to spend smart," says Carolyn Clancy, executive vice president at Fidelity. "People are going to be spending anyway for various items, so this is a really good way to save for what should still be a priority from an investment and savings perspective."
At Wells Fargo, the cards are part of a program, dubbed the "Wells Fargo Debt Pay Down Solution," designed to help consumers pay down debt faster. Consumers are encouraged to consolidate their high-interest debt into a fixed-rate personal loan at the bank and use the bank's online budgeting tool -- which tracks spending on Wells Fargo credit and debit cards and payments made through online bill pay -- to find ways to spend less. From there, they can apply the extra savings to pay down their loan balances. In addition, customers can set up their cash-back card rewards to automatically be applied to their loan principal or deposited into a savings or checking account at the bank.
"In some respects, it's a cross-sell opportunity," says Ron Shevlin, a senior analyst with Aite Group, referring to the Wells Fargo program. "They have some customers who have various loans with them and it's an opportunity to put a card in their hands." And while the bank could be giving up some interest payments if people pay down their debt, it's in the bank's best interest to keep them as long-term customers, he notes.
In recent years, banks have launched more tools, such as email or cellphone alerts, to help customers stay on top of their bills. Earlier this year, American Express Co., for example, launched an Autopay program that allows customers to pay their bills automatically. Discover Financial Services also recently launched a Paydown Planner and Purchase Planner that helps card holders calculate the amount of time it may take to pay down a balance or help determine how a large purchase may affect their account. The company's Motiva Card -- aimed at cardholders who carry a balance -- gives cardholders who make on-time payments six times in a row an amount equal to next month's interest as a bonus.