The Magic Word in Credit Cards
From the February 1991 Issue of CardTrak
Less than one year ago a major non-bank corporation reached its tentacles into the credit card industry and snatched, to date, nearly eight million new cardholders. The bait was the promise of "no-annual-fee for life".

In case you have been living under a rock for the past year, the corporate octopus we're referring to is AT&T and the card is the Universal VISA or Universal MASTERCARD.

Consumers, bombarded with advertisements for the Universal card, obviously can not resist a "free" credit card offer. Every consumer survey conducted in the past ten years has uncovered consumer irritation with annual fees but ambivalence towards the high interest rates of bank credit cards. AT&T exploited this finding and, as a result, exploded in ten short months.

AT&T's success has not gone unnoticed. Sears, Roebuck and Company recently disclosed a strategy to also issue no-annual-fee VISA cards by summer. Major issuers are now conducting special market tests of no-annual-fee offers. Do not be surprised to find in your mailbox, no-annual-fee offers from the likes of Citibank, Chase Manhattan, First Chicago or Banc One.

American Express is also showing more flexibility on annual fees. Little more than two years ago American Express upped the annual fee on green cards from $45 to $55 and on gold cards from $65 to $75. Cardholders bulked and many went further by closing their accounts. Reportedly American Express backed off on the fee increase if a long-time, established, cardholder threatened to cancel. Now American Express routinely soothes disgruntled cardholders by offering to waive the annual fee for second cardholders.

Nearly four hundred VISA and MASTERCARD issuers nationwide now offer some sort of annual fee waiver or annual fee reduction. Last year, approximately three hundred issuers offered such deals.

Reducing or Waiving Annual Fees

1. Charging more than $2,400 annually to your standard VISA or MASTERCARD account.

2. Charging more than $6,000 annually to your VISA Gold or Gold MASTERCARD account.

3. Maintaining at least $3,000 in a checking or savings account with the card issuing bank.

4. Depositing more than $15,000 with card issuing bank in any type of account.

5. Purchasing a $10,000 Certificate of Deposit to receive a free gold card.

6. Earning a rebate for each $150 charged to the card account.

7. Joining the "Gold Club", "VIP Service" or "Premier Customers" program with card issuing bank. Most issuers offering cardholders ways to reduce or waive the annual fee require some sort of relationship. Therefore it is best to always shop locally for bank credit cards before looking to out-of-area or national issuers. Since many banks are now re-thinking annual fees, it may be to your benefit to ask if there is any way, the annual can be reduced or waived on your current card account.

Card issuers are now required to give you thirty days advance notice of the annual fee renewal on your present account. Consider this a cue to contact the issuer about the possibility of reducing or waiving the annual fee. If no relief is offered then consider contacting some of the bargain card issuers listed inside.

Do I Really Need a No-Annual-Fee Card ?

Slightly more than six out of ten cardholders carry a monthly balance on a bank credit card. Average balances now exceed $1,500. East coast and west coast cardholders tend to carry $2,000 average balances while other cardholders carry average balances below $1,000. Therefore typical cardholders pay between $200 to $400 annually in interest charges.

Clearly, for most American cardholders, a $15 or $20 annual fee adds very little to the overall costs of maintaining a VISA or MASTERCARD account. On the other hand, lowering the annual percentage rate 4% or 5% can result in significant savings of $50, $75 or $100 annually.

Cardholders in the habit of paying off the balance each month on accounts offering a 25 day grace period benefit the most from reduced annual fees. Such consumers holding cards without the annual fee can effectively reduce annual card costs to zero.

VISA Gold and Gold MASTERCARD cardholders face the highest annual fees, $36.20 on average (compared with a $16.81 average on standard cards). Issuers have demonstrated more flexibility on gold card annual fees than standard card annual fees, perhaps due to the current wide pricing gap between standard and gold cards. However the real driving force behind gold card fee flexibility is that gold cardholders generate solid profits for issuers.

The average gold cardholder charges $4,500 a year and maintains an average balance of nearly $3,000. The figures are nearly twice the standard card averages. A card issuer collecting more than $500 a year in interest per account can afford to fudge the annual fee a bit.

Major banks issuing VISA and MASTERCARD may laugh at the notion of an annual fee war instigated by AT&T and may laugh at you if you suggest an annual fee waiver or reduction from them. However smaller issuers are not laughing but rather aggressively seek to retain their best cardholders, reducing annual fees if necessary. AT&T is laughing, all the way to the bank.

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