SPEND TO SAVE? AMEX, BOFA INTRODUCE NEW CARDS FOR SHOPPERS THAT PUT REAL CASH INTO SAVINGS ACCOUNTS.

Byline: Evan Pondel Staff Writer

Frequent flier miles are no longer the incentive du jour for credit card companies and banks. Try real money.

American Express and Bank of America are introducing incentive programs for credit and debit card customers that essentially deposit bonus ``money'' into savings accounts.

While financial analysts say such programs have benefits, they also encourage customers to spend more - something everyone should be a bit more cautious about now that the holiday season is upon us.

American Express dubbed its new product One, a credit card named after 1 percent. That's the amount of your purchase that the company will deposit into your own special savings account - and there are no limits. So if you spend $2,000, AMEX will deposit $20 into your account - no miles, no gimmicks, just money.

The Bank of America product, marketed as the ``Keep the Change,'' has been described as a ``forced savings'' plan with an added sweetener.

When debit card customers buy something, the bank automatically rounds up the total purchase to the next dollar, withdraws the difference from the customer's checking account and deposits it in his or her savings account. For the first three months, the bank matches 100 percent of the deposits and 5 percent of deposits after that, up to $250 per year.

The concept of these products is similar to Discover Card because consumers receive a cash reward when they use plastic. But credit counselors say the ability to transfer money into a savings account is among the more positive approaches to holiday spending, especially amid lackluster levels of personal saving.

``They (Amex and Bank of America) are actually picking their own pockets,'' said Richard Pittman, director of fund development at ByDesign Financial Solutions, a nonprofit consumer education and counseling service in Los Angeles. ``And the debit card product can be looked at as a form of forced savings.''

Such a notion could help U.S. consumers with their abysmal saving habits. Personal saving as a percentage of disposable personal income was a negative 0.4 percent in September, compared with a negative 1.8 percent in August, according to the U.S. Department of Commerce.

But before consumers can start saving with these new cards, it's helpful to understand how they work. ``They aren't designed for everyone,'' Pittman said.

The One card will contribute 1 percent of ``eligible'' purchases into an FDIC-insured ``high-yield'' savings account that's accessible via the Internet. The annual percentage yield on the account is 3.5 percent and there is no annual fee the first year. But the yield is adjustable and cardholders should expect fees of $35 in subsequent years.

There is also an ``interest protection'' feature on the card that enables cardholders to avoid finance charges. But that only applies to new balances when debt is carried over from a previous month.

``Amex has a lot of different travel rewards, but when we looked at this card, we wanted to reach the consumers that didn't have an Amex card yet,'' said Desiree Fish, spokeswoman for American Express in New York, who described the card as a hybrid between a credit card and a charge card.

Credit card companies have long been trying to augment their customer base as more banks take to the debit card business. ``Amex, like the others, has been trying desperately to gain market share,'' said Kartik Mehta, analyst with FTN Midwest in Cleveland. The same goes for Bank of America.

``And they would be getting a relatively low-cost deposit with this new debit card,'' Mehta said.

When the debit card is used, the bank automatically transfers the change of a purchase rounded to the next dollar to a savings account. For example, if a slice of pizza costs $1.40, the bank will automatically transfer 60 cents from the cardholder's checking account to a savings account and add an additional 60 cents during the first three months of card use. After that, the bank will contribute 5 percent a year, with a maximum match of $250 annually. The account's annual yield is 0.5 percent.

``This card is not meant to build a nest egg,'' said Michael Chee, spokesman for Bank of America. ``It's meant to help people save as they spend.''

Christian Pierce, 43, of Woodland Hills can appreciate the benefit of carrying such a card. But if the frequent flier miles on his Citibank debit card didn't add up, he wouldn't have been listening to blues in Chicago several weeks ago.

``I like the idea of saving when I spend. I like my frequent flier miles more,'' said the industrial supplies salesman.

Despite the allure of credit card incentives, David Schult, a consumer sciences lecturer at California State University, Long Beach, recommends creating a spending budget. Consumers should have a good idea of what they intend to spend this holiday season before resorting to plastic.

``Or else you'll end up with a bunch of conspicuous consumption,'' said Schult, noting that frequent flier miles and iPods aren't always the best incentive to swipe plastic. As for the benefits of the Amex and Bank of America cards, ``sounds like there are a lot of positive aspects to these programs.

``But consumers need to use caution and realize they (Amex and Bank of America) are promoting these products in an attempt to get you to spend,'' Schult said.

That's not stopping Carolyne Heckman, 56, from throwing down plastic this year. The retired software marketing maven was about to embark on a shopping excursion at Westfield Topanga last month, knowing the frequent flier miles were just around the corner.

``I have no problem using my credit card for holiday shopping,'' said Heckman, who's been accruing frequent flier miles on her card for more than two decades. ``But I don't think I'd be interested in a savings account incentive. I have one of those accounts already.''

Internet savings accounts that aren't attached to a credit or debit card are seeing annual percentage yields as high as 3.9 percent. Based on that, Mark Nishimito, a certified financial planner from Redlands, said finding an appropriate savings account is more important than the best credit card or debit card.

``Plastic should be the last thing consumers think about. And if they are thinking about plastic, the debit card is typically safer than credit,'' he said.

Evan Pondel, [phone]

evan.pondel(at)dailynews.com

CAPTION(S):

photo

Photo:

(color) no caption (wallet)

Photos.com