Use a Credit Card to Boost Retirement Savings
January 16, 2009 by Mr. GoTo
Filed under Boomer Deals, Investing for Retirement, Mortgages, Debt, and Credit
Mr. GoTo is not a fan of credit cards in general for two reasons. First, way too many consumers abuse their cards and get themselves over their head in debt. Second, card issuers have not treated consumers well, either in not adequately explaining the costs and risks associated with the card or in not cooperating with card holders who get themselves in trouble.
That being said, we do have one Visa credit card. We use it to earn travel vouchers on Southwest Airlines. We use the card for a lot of our everyday purchases and also for larger items, such as college tuition for son number 3. Like a lot of responsible baby boomers, we pay the balance in full every month so I couldn’t even tell you what the interest rate is on the card. The one thing I don’t like about the card is that it has an annual fee. So I have been looking for alternatives. I may have found one.
Fidelity Retirement Rewards American Express Card.
To earn the cash reward, the reward dollars must be deposited into a Fidelity account. This can be a Traditional IRA, Roth IRA, Rollover IRA, or SEP IRA. Non-retirement brokerage accounts and 529 Plan accounts at Fidelity are also eligible.
When you use the card, you earn two WorldPoints® for every $1 you spend on ”net retail purchases” (purchases less credits, returns, and adjustments). When you accumulate 5000 points, Fidelity will redeem those points (automatically every month or on demand) and transfer $50 into your account. Thus, if you make $20,000 in annual purchases on the card, you earn 40,000 points, with $400 being transferred into your designated retirement or brokerage account. Not bad. A guaranteed return of 2% on spending! (Just don’t spend more to earn the cash bonus.) If you don’t earn enough WorldPoints to redeem for cash, you can use them for travel or other benefit.
The other nice features of the Fidelity Retirement Rewards American Express Card are: (a) no annual fee; and (b) no limit on how many points and bonus dollars you can earn and redeem in a year. I really like the “no limit” feature. Of course, if you use an IRA account to receive the cash rewards, you have to be sure you don’t go over the annual contribution limit.
You also receive the other cardholder benefits customarily associated with American Express cards, such as 0% fraud liability and identity theft recovery service, retail purchase protection for merchandise, car rental loss & damage insurance, and travel accident insurance.
My only problem is that I don’t have a Fidelity account. I do have a Vanguard account so I am going to contact them to find out if they have anything similar planned. If not, I may transfer one of my accounts to Fidelity so that I can use this card to boost my retirement savings. I need it.
The bottom line appeal of this card for a lot of baby boomers is that we are all looking for new and different ways to recover from the financial disasters of 2008. This rewards card can be one of those ways.
Schwab Bank Invest First Visa Credit Card
This Schwab rewards card is not as flexible as the Fidelity product because you must tie it to a brokerage account. As far as I can determine, you cannot connect it to your IRA account.
Nest Eggz Platinum Visa Credit Card
A third option I recently discovered is the Platinum Visa® Credit Card offered by Nest Eggz. Nest Eggz has a rewards programs that allows you to earn rebates from participating merchants ranging from 1% to 26%. Some of the merchants are quite good (including cruise lines and online retailers). You can designate any retirement account that you want for having your rewards dollars direct deposited. I’m definitely going to investigate this option further.
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