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Add miles while deducting from your checking account

Air mile debit cards are ready for take off.

You read that right -- debit cards that offer air miles.

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If you're not familiar with them, a debit card, unlike a credit card in which you create a debt to be paid, yanks the payment from your checking account at the time of purchase.

But they do operate like a credit card when it comes to earning air miles for each purchase you make.

This new kind of rewards card is attempting to follow in the footsteps of all those wildly popular air mile credit cards. There are hundreds of these credit cards available from banks all over the country.

Earn while you spend?
People just love charging their way to free air fare. They'll charge everything from college tuition to office equipment, all for that free flight to their dream destination.

And now some of the nations's largest banks are letting their debit card customers get into the act.

Chase Manhattan, U.S. Bancorp, Citibank and Bank of America are among the banks that let customers earn air miles with debit card purchases.

Chase launched its Chase/Continental Airlines Banking Card in 1999. Customers earn one OnePass mile for every $2 they spend on the card, which comes with a $30 annual fee.

Chase customers earn miles on both PIN-based and signature-based debit card purchases. No miles are earned on ATM withdrawals or for receiving cash back from a grocer or another merchant.

It would take a pretty ambitious Chase shopper to earn a free trip on debit card purchases alone. You'd have to spend $40,000 to earn 20,000 OnePass miles. That's a lot of trips to the grocery store.

Because of this, lots of debit card customers earn miles from other Continental partners as well, including Continental Airlines platinum and classic credit cards from Chase.

"It becomes a complement to OnePass miles they may be earning from other programs," says Ben Colvin, vice president for the retail consumer segment at Chase.

Give 'em what they want
Setting up an air-miles rewards program for Chase debit card customers was something of a no-brainer.

"Any time you ask customers what's important to them, frequent flier miles is always what they say," Colvin says.

Chase has been offering debit cards since 1996. It launched its first debit rewards program, called Leisure Rewards, in 1998. With Leisure Rewards, Chase customers earn one point for every $1 spent with the card. The points can be redeemed for everything from cooking classes to flight lessons. Leisure Rewards charges a $30 annual fee.

Colvin believes that as more people get in the habit of paying with debit cards, more banks will start rolling out rewards programs.

"Over time, as customers become more familiar with debit and its advantages, you'll see more and more issuers following our lead," Colvin says.

Minneapolis-based U.S. Bank did just that in March 2001 when it launched its WorldPerks Check Card in conjunction with Northwest Airlines. Customers earn one air mile for every $2 spent on the card, which comes with a $20 annual fee.

There's a small hitch. U.S. Bank customers only earn air miles on signature-based debit card purchases. PIN-based purchases don't count. So people that prefer to pay by punching in their personal identification numbers are out of luck.

The same goes for Citibank customers that sign on for Citibank AAdvantage Debit Cards. Only signature-based purchases earn American Airline AAdvantage miles. PIN-based purchases won't earn you a single air mile.

Citibank customers who sign on for a basic card pay a $30 annual fee and earn one American Airline Advantage mile for every $2 in signature-based purchases made on the card. Premium card customers pay a $65 annual fee and earn one air mile for every $1 in signature-based purchases.

Bank of America jumped into the air mile debit business in fall 2001 when it introduced US Airways Dividend Miles Visa Check Card. For a $30 annual fee, you can earn one air mile for every $2 of purchases made with the card and one mile for every $1 of US Airways purchases.

MegaRewards making its mark
Another bank tapping into the popular lure of frequent flier miles is Charter One in Cleveland. Its MegaRewards program for debit card customers has free, round-trip air fare on any airline as a top reward. Other rewards include items from portable DVD players to magazine subscriptions to gift certificates.

Launched in December 2000, MegaRewards has been a booming success. Customers earn one point for each dollar spent on signature-based debit card purchases.

The number of debit card transactions made by Charter One customers in the first half of 2001 was up 56 percent from 2000, according to Mark Grossi, executive vice president at Charter One. The number of dollars Charter One customers spent with debit cards was up 54 percent.

"That's a lot of stuff," Grossi says. "That's a huge growth rate."

Debit cards and debit rewards programs appeal to people who are debt-adverse and who like the immediacy of paying by debit. These are pay-as-they-go kind of folks.

"A lot of people feel good about the notion that when they pay for an item with a debit card, it's paid for," Grossi says. "There's not a big bill coming."

Perform a preflight checklist
As with any rewards program, consumer experts urge people to take a good hard look at the details of an air mile debit card before signing on:

  • Is there a fee?
  • Is the award something I really want?
  • How long do the points or miles last?
  • How long will it take me to earn my rewards?
  • Will I bust my budget doing so?

Don't forget there's no float with debit cards. Purchases are pulled almost immediately from your checking account. So it's important not to get carried away with your spending.

"People need to look at their intentions," says Paul Richard, executive director of the Institute of Consumer Financial Education in San Diego.

"Are they spending and buying because they really need these things, or are they spending and buying so they can get these bonuses?

"The main focus should always be your own financial well-being and discipline. These other things should be nice-to-haves."

 

 
-- Posted: April 17, 2003
   

 

 
 

 

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