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Jan 14th 2006

american express one card

american express one scam

i read their two-page ad today in time magazine. mother and son are pictured playing miniature golf. she poses the dilemma:

i want him to learn the importance of saving. he wants whatever he sees on television. any ideas?

the answer:

there’s one from american express. every time you make a purchase, we’ll make a deposit to a high-yield savings acount with your name on it. so teaching the importance of saving is as easy as giving in once in a while.

laughably, amex’s “high yield” account will earn the child only 3.5%. that is about equal to the U.S. rate of inflation for the last half of 2005 [source]

Every time you make a purchase with the American Express One® Card, American Express will contribute funds directly into an FDIC-Insured High-Yield Savings Account that’s automatically opened in your name. This High-Yield Savings Account will earn interest at a competitive Annual Percentage Yield (APY), currently 3.50% (Variable rate effective as of 10/17/05)1. The Card features the Savings Accelerator plan, which contributes a full 1% of your purchases directly into your FDIC-insured High-Yield Savings Account2 at American Express Bank, FSB.

There is no limit to how much you can earn and the money is yours to save and use however you’d like. Find out how effortlessly your savings can grow. [source]

this is a great lesson for a child. “billy, if you’ll just spend, spend, spend, then you can get 1% of your money back and put it in an account that barely keeps pace with inflation. of course, all the while american express is using 99% of your money to make real investments.”

if you think this card will help teach your kids the importance of saving, then i’ve got a retirement program to sell you.

22 Responses to “american express one card”

  1. American Express not only preys on the ignorant, but the dead. Last week my wife’s grandfather’s house recieved a credit card offer from them for her mother, who died four years ago. Not only that, she had moved away from that house about 40 years ago – when she got married.

  2. Brad

    I agree with you that the card is a stupid way to teach your child to save, but as a free rewards program I’d sugest that maybe this isn’t so bad. It’s like having a free 1% rebate on everything you buy. That may not sound like much, but it is free money afterall. And on top of that, they put it into a savings account that makes 3.5% interest. Have you checked the interest rate on your savings account lately? It’s probably not 3.5%. 3.5% is on the high end, and is actually more along the same rates as a CD, or some other conservative investment. It’s obviously true that you could make more on your 1% in other investments, like stocks, but for the ‘average’ person who doesn’t have enough money to invest to make stocks worthwhile, 3.5% is not bad.

  3. 3.5% is not bad

    very true. however, think about it this way: say billy gets his card when he’s 6. until he leaves the house at, say 18, here is a hypothetical breakdown of his savings:

    age————charges————–”earns”
    6—————-$50——————-$.50
    7—————$100—————–$1.00
    8—————$100—————–$1.00
    9—————$100—————–$1.00
    10————–$200—————-$2.00
    11————–$200—————–$2.00
    12————–$300—————–$3.00
    13————–$400—————–$4.00
    14————–$450—————–$4.50
    15————–$600—————–$6.00
    16————-$1000—————$10.00
    17————-$1200—————$12.00
    18————-$1600—————$16.00
    ——— ———
    $6300 $63.00

    we can debate the numbers in column two if you like, but 1% is not that much when it comes to a child’s spending habits. when our fictional billy leaves his house at age 18, say, he will have amassed approximately $63, plus whatever interest has accrued.

    here are my serious recommendations for (1) helping billy acquire savings and (2) helping teach billy to save:

    (1) to get the most money out of a credit card, billy should look for a card that returns more than 1%. there are lots of them out there. one of my mastercards returns 1.25%. I have another card that returns 1% on most purchases, but 5% on gasoline, grocery store, and drug store purchases. if billy’s parents want him to leave the house with more than $63 to his name, they could help him find a card that returns more than 1%.

    (2) they could also help him save some of his money in the first place, then reinvest his cash-back “earnings” in a real investment fund. teaching him to set aside a certain percentage of his allowance or paycheck will be a much more useful thing to teach than which credit card returns program to use. when he combines his real savings with these pseudo-savings and invests them into a more risky fund, he can quickly learn (probably by the critical period in his early 20s) that sacrificing to put away money consistently (as opposed to “giving in” as the ad suggests) is very important.

    they put it into a savings account that makes 3.5% interest. Have you checked the interest rate on your savings account lately? It’s probably not 3.5%.

    no, it’s not. savings accounts are also a joke. it looks like your money is “growing” but because it is not matching the rate of inflation, a savings account actually costs you money to keep open.

    the amex “one” card account is “high-yield” enough not to cost its holder the way a savings account does–that is true. however, it is hardly any better, and certainly does not come close to matching the rosy picture the ad paints it in.

    by the way, i have really enjoyed reading the articles in the LA times’ money library, in case anyone is interested.

  4. I think where Travis is going with all of this is that it is irresponsible and rapacious behavior for AMEX to use the tactics that they do. We all know that certain Bankrupcy laws have changed to favor creditors (especially credit card companies). Now groups like AMEX have more tools at their disposal to collect from people who file for bankrupcy, for example. As a consequence, they can use predatory techniques to lure the young and the stupid into acquiring credit cards with unrealistic limits. Then, they use other predatory techniques to encourage these same young and stupid to use those cards frequently. I know that even though my wife and I made around $6,000 last year aside from student loans. Nevertheless, our bank has given us credit cards with limits of up to $7,000 combined. Think about that. They give us the “power” to spend more money in one purchase than we make in an entire year. Then, they send us incentives to use our card. One add said:

    “We are lowering the interest rate by X% if you make a purchase of over $500 in the next 30 days. Take advantage of this to take that vacation you’ve been wanting, or buy that new couch you’ve been needing…”

    This is commonplace, and it is scary stuff. So while AMEX may be offering a decent rewards plan that a consumer could strategically use to his or her advantage, the method of presenting it is dangerous. It is equating spending with saving, and worse, it is suggesting that frugal and money conscious people would use this as a viable savings plan (refer to the T.V. ads for AMEX’s 1% plan. It features a character who is narrated as having “always been a saver.” This characters is portrayed as being very frugal, even tightfisted. And then we see this character using the AMEX “plan” to build his savings.).

    Combine this type of psychological advertising with the power that credit card companies have acquired in going aftor their debtors and you see that they have way too many advantages in this game. The are rapacious predators in every sense of the word.

    Travis, let me know if I’ve mischaracterized your argument.

  5. no, you haven’t. and you mentioned some things i neglected. one, you hinted at the skyrocketing consumer debt in america. in 2001, the credit card balance carried by the average household was $11,000, and it has undoubtedly gotten worse. [source]

    college students and teens are preyed upon by these credit card companies, with many students racking up thousands in credit card debt before they realize the consequences. american express would now like to get the parents involved, perhaps so when mom and dad say to the kid, “billy, you’ve got to stop spending so much money!” he can reply, “but you said i was saving!?!?”

    another point, not central to the argument is this: when you borrow on credit from american express, i bet they charge somewhere between 7% and 23% interest, but when they borrow money from you (by putting it in your “high-yield” account and graciously holding onto it for you) they only charge themselves 3.5%. think about that.

    i don’t think expanding lines of credit is necessarily a bad thing (say, offering $7000 when someone earns only $6000). after all, such things can offer people opportunities they wouldn’t have had without it (the immigrant in rochester can open his pizza store or something). but the baiting advertising methods that tell you to be extravagant and buy everything you see (or that by spending you’re actually saving –i think those are very irresponsible.

  6. Brad

    I agree with you guys totally about the evil nature of debt, but credit cards do not automatically equal debt OR interest charges. I think you’re forgetting that. A responsible consumer will, first off, research different features of the credit cards they apply for (on their own volition, remember) and if they choose to apply for a card, will get the one with features that best fit their needs. Then, once they have the card, they are free to spend money up to the limit on the card, and have something like 30 days to pay it back! PLUS on top of having a free short-term loan they can get free rewards for spending their money — of course some will complain that 1% is piddly at best — but it is still free money. If you pay off your full balance by the due date there are NO negative consequences of using the card. You guys forget about the responsible consumer.

    There are also some interesting hypocracies in your argument as well. First of all, assuming the responsible consumer paradigm, credit cards INCREASE that consumer’s freedom, as well as provide an insurance in times of emergencies, as well as compensate them for their spending. You guys seem to argue that the average American is too stupid to choose their own credit cards, and too stupid to spend their money responsibly — basically too stupid to handle their own money. Isn’t that exactly what the government thinks of us with the general Social Security program (like you provided the link to, Travis). Americans are too stupid to plan for their own retirement, so we’ll plan for their retirement for them, with an inefficient zero-percent-return investment we now call Social Security. plus, we’ll bundle in Disability Insurance with it, so that anyone who votes to abolish social security is a conscious-less money-hoarder.

    Is there no connection between these two arguments?

  7. credit cards INCREASE that consumer’s freedom…..You guys seem to argue that the average American is too stupid to choose their own credit cards, and too stupid to spend their money responsibly — basically too stupid to handle their own money.

    not so. recall the hypothetical immigrant in rochester. credit is freedom for people who use it responsibly. on the other hand, teach a child to “charge it, charge it, charge it” thinking he is “saving” money, and you are in for trouble. my argument is (1) credit will not be “freedom” to an 11 year-old child. (2) neither will it “teach him the importance of saving.” (3) nor will a card with a program like amex’s “1% to savings” help him actually amass any significant savings.

    please let me know if a realistic scenario in which a credit card will do any of those three things.

  8. Brad

    Like I said in my first comment,

    I agree with you that the card is a stupid way to teach your child to save, but as a free rewards program I’d sugest that maybe this isn’t so bad.

    I agree with you that using credit cards is a stupid way to teach children, or anyone, to save, and a rewards program on the card should never be your primary savings.

    All I was suggesting, and I know it’s only in dispute of half of your original post, is that credit cards aren’t all bad, and that credit card companies at large (there are exceptions, obviously) aren’t involved in ‘predatory lending’ practices, and aren’t necessarily the only ones to blame for America’s ridiculous spending habits.

  9. I don’t think there’s much argument that the AMX commercial is not severely misleading. There is no flipping way they would toss out those severe distortions unless their interest is more in the interest they’ll get from the ignoramuses who will both buy the sales copy and buy too many things. That sales copy is more than merely stupid – it preys on ignorance. I wouldn’t hesitate to blame such “education” at least in part for the drastic rise in bankruptcies and overspending among Americans – especially Utahns, who lead the nation in bankruptcies, and among whom there is a strange polar split of extreme penny pinchers and extreme gluttons.

  10. john

    It seems that most of the commenters here are making the case that you should not use credit cards period. However, my question is, if you are going to have a credit card and use it responsibly then how does this one card stack up to others. I tend to agree that if I’m going to use a card (and yes pay it off every month) then there is some appeal to get 1% back even if it is only growing at 3.5%. With my business, I go through about $50,000 a year on my green card amex and I never carry a balance so I’m thinking…why shouldn’t I have $500 at the end of the year for doing that….will make for a nice christmas for my kids….any thoughts? Thanks.

  11. john,

    i don’t think the american express one card is so bad for adults who want to have a savings account they don’t have to worry about. my main concern is that it is a bad way to teach a child to save.

    however, its not the best way for an adult to save, either.

    i would recommend this:

    (1) get the card that will pay the highest percentage back in the most instances (i discussed some of these above). the card should probably credit your balance periodically (one of mine does once a year, another does it once we reach a $50 cash-back balance).

    (2) figure out how much you save on your credit card every month, and so how much you’ll get back.

    (3) set up automatic transfers from your bank account to your investment of choice on that schedule and for the usual amount of the credit.

  12. [...] american express one card (”to teach your child to save, first teach him to spend, spend, spend!“) [...]

  13. American Express is just as bad as all the rest of the card companies out there. For those of you that don’t know about universal default is, basically this gives the creditor the ability to raise your interest rate up to the default rate which by the way is between 28-30+ percent. They do this by checking your credit report and if you have gone behind with anything else that gets reported they can raise your rate. Amex does it alot I didnt realize this happened to me until I got stuck with a rate that I couldnt handle.

  14. [...] Oops! The first entry that came up in both “American Express Blog” and “Amex Blog” was this – AmexSux.com. Not a very good thing to have listed first. Also among the entries are some commentary about misleading commercials and a ProBlogger.net entry about American Express paying bloggers to write. [...]

  15. [...] –Brad, Jan 2006 [link] Yikes!….I’m just at a loss for words….Your analogy is narrow-minded and disappointing. [...]

  16. sebastian

    Anyways, besides the savings account, would you recommend this card? (is it a good credit card to have?)

  17. Daniel

    There is one topic that no one has mentioned yet: the annual fee. To be considered a self-sufficient “rewarding” card, you also must pay attention to the $35 annual fee. While a one time a year fee doesn’t seem like too much of a problem, when you factor that into the 1% savings account, you could easily be paying AmericanExpress for the ability for them to take your money; that is, if you do not spend enough.

    Step 1)
    A $35 fee would require you to charge at least $3500 per year. For those that use multiple cards regularly, this could be a point to consider. This breaks down to $291.67 per month. Not too bad, but still a point to consider.

    Step 2)
    Technically, you could really spend less than the amount above to consider the card self-sufficient. When you factor in the current rate for the savings account, the interest you earn on the amount of money that is contained in that account would/could pay for the fee. As the amount earned is dependent upon the amount contained in the account, I will let you figure that yourself. The rate of savings was originally 3.5% in 2005 and is now at 4.0%. This rate does change depending on the current market.

    In closing, for the person who pays off the balance of the account every month, when considering the relative spending amounts on a month-to-month basis, this would be a good offer. That is precisely why as Americans we have the ability to choose from any offer we would please. Those who do not research and consider the real ‘benefit’ of the offer can be duped into the problems listed in previous posts.

    This card is for the following person:
    1) Those who would like a small-scale savings account that can keep relative pace with inflation (verses losing to it)
    2) Those who also do not want to open a CD, invest, etc.
    3) Those who would like to be able to track their savings online
    4) Those who would like to access their savings money via 500,000 ATMs worldwide
    5) Those who have considered relative amounts of annual transactions.

    Final note: I do not work for AMEX, but I seemingly love the word ‘consider.’

  18. Michael Gordan

    Make no mistake, American Express is a predator. Their interest rate when no one is looking is 26.999%. I have been a customer for over 30 years and I am leaving, I can not do business with rapists. Financial institutions are the reason Americans are in such straits. I am lucky, I can pay AMEX off and get out, most of the country can’t. BEWARE, American Express is one of the major predators out there.

  19. RayF

    How the hell do Canadians get The American Express One Card. I see the one for our American friends and a vague process inferred as to what to do if you are Puerto Rican or foreign to the USA proper. But try as I might I couldn’t envoke the process, WHAT GIVES are we commies or what? RayF

  20. Amex is just horrible, check my blog.

    http://amexonlinebank.blogspot.com/

  21. mark h

    Michael,I couldn’t agree more… AMEX is not only a predator but a pack of thieves! I had the misfortune of giving these people 10 years of business only to have them cancel my Platinum card account (which was current) because of inaccurate entries on my credit report. Closing the account is not the issue since I was going to close it anyway due to their egregious $450 membership fee. Only a moron or someone wanting to throw money away would “pay” these people hard earned money to a MEMBER just so they can make money off of you. The real clincher was the fact they erased 506,000 points that I had earned over the 10 year period when they closed my account without notice…
    I plan to hire an attorney and make a case out of this blatant and unchecked corporate greed.

  22. Faye

    AMERICAN EXPRESS CREDIT CARD? TEAR IT UP. DO NOT BELIEVE THEIR COMMERCIALS. I cancelled an order in India within 24 hours, called and notified AmEx. Then I got the charge amount as $10K instead of the $1K. AmEx put the matter into dispute for months-nearly 18 months. I notified AmEx that this was an attempt to defraud, that I did not have the goods that were to be delivered in 4-6 weeks. They were not. And now AmEx has sued me for $10K!