Overwhelming ? Confusing ? . . . You Bet !
This year there has been a slight drop in the level of solicitations. One reason: sharply rising interest rates have diminished the glitter of past offerings. Other reasons: postal rate increases and low response rates.
But wait - another slug of mail is now in pipeline.
Last month VISA and NationsBank unveiled a "blockbuster" (so they say). It's the new Blockbuster VISA card. If you belong to a local Blockbuster video store, like 43 million other Americans, you'll receive an invitation to sign up for the new card within the next few weeks. The launch group says they expect to sign-up three million cardholders in the first year. Indeed this is the largest card launch since the introduction of the General Motors MasterCard in September 1992 and the largest co-branded VISA card ever launched.
The Blockbuster VISA rewards cardholders with a 5% rebate on purchases at Blockbuster Video and Music stores, Discovery Zone FunCenters and Paramount Parks and a 1% rebate on all other purchases. The rebates are issued monthly with the card statements in the form of "Blockbuster Bucks" redeemable on future Blockbuster purchases. What is unique is the issuance of rebates on a monthly rather than an annual (or longer) basis.
What is not unique is the pricing:
* No annual fee (no big deal; most cardholders, except airline junkies, do not pay an annual fee today; besides it's suicidal for a brand new card)
* 9.5% interest rate for first six months (this is the standard teaser come-on nowadays)
* 18.9% (prime +9.9%) interest rate after first six months (a real killer if you carryover a decent balance)
Is there value in this product for the average working stiff ?
According to the folks at Blockbuster the average VCR household spends about $200 per year on video rentals and purchases. This means the average VCR household will earn about $10 annually in rebates or the equivalent of three free video rentals. The average cardholder should also earn an additional annual rebate of $26 for all other purchases. If you're a video addict and you pay off the Blockbuster card each and every month, avoiding all interest charges, this card is for you. However, if you carry a balance regularly the high interest charges will more than wipe out your rebates.
Carrying the average balance of $1,722 at an interest rate of 18.90% will cost you approximately $330 in interest charges annually. Knock off the $36 you earn in rebates and you have a net cost of $294 per year.
Compare this card to another recently launched card: the "Prime For Life" VISA/Mastercard fromWachovia Bank in Atlanta.
Wachovia's new card offers no rebates, no teaser rates and no other gimmicks, just a darn good rate: you'll never pay more than the prime rate (currently 9%). The annual fee is stiff, $88 for the standard card, $98 for gold card, but it is an savvy trade off if you carry a balance over $1,500.
The average "Prime For Life" cardholder will pay approximately $155 in interest charges. Adding in the annual fee brings the total annual costs up to $242. Therefore you'll save about $88 annually in interest charges compared to the Blockbuster card.
Yes, Blockbuster will give you back about $40 in "Blockbuster Bucks" but "Prime For Life" will save you nearly $90 in cash. There is a big difference between funny money (script) and cold hard cash. And rememberWachovia's interest rate will always be nearly 10% lower than Blockbuster's.
Realistically the interest savings of theWachovia card could pay for a year's worth of Blockbuster video rentals.
1995's "Blockbuster" Offers
ISSUER/PROGRAM - INTEREST COSTS - EST. REBATE
NationsBank "Blockbuster VISA" / $330 / $36
Wachovia "Prime For Life V/M" / $242 / None
SAVINGS: WACHOVIA:$88 CASH
NATIONSBANK:$36 SCRIPT
The Blockbuster card like so many other major cards plays the teaser rate game. Unless you want to juggle cards every six or twelve months you're much better off in the long run to pay attention to the long term rate not the come-on rate. As a matter of fact if you don't pay attention you could easily find your interest charges doubling as you can see from the following chart:
