Check the math on new credit cards


New York--When I listen to the pitches for the new credit cards that are coming to market, I think of the old Groucho Marx line, "Who do you believe, me or your own two eyes?" The ads for the new cards hammer away at the "value" they offer. But my own two eyes tell me they're charging too much. Here's what's on the table:

* The General Electric MasterCard -- for coupon freaks only. For every $500 you charge to the card, you get a $10 "reward check," good for buying products or services from 24 participating merchants. If you charge $2,000 a year, that's $40, or 77 cents a week. There's also a $25 or $50 rebate when you buy a GE appliance.

Every three months, the merchants themselves are supposed to issue "savings certificates," good for additional $10 discounts or unspecified "other offers." You'll like them if you shop regularly at the participating stores, among them, Kmart, Toys "R" Us, Macy's, and Foot Locker.

If you don't use coupons regularly, however, all you've got is an expensive credit card. GE is charging $25 a year ($40 for the gold card), when the trend in the industry is toward no-fee cards. You pay 18.4 percent on outstanding balances, when competitive cards are under 15 percent. Worse, that 18.4 percent is a variable rate, pegged to the banks' prime interest rate. If the prime rate rises from today's 6 percent to, say, 8 percent, a GE card will be charging 20.4 percent. Most other credit cards in the 18 percent range have fixed interest rates.

GE will charge 14.9 percent to people with good credit histories, but that still doesn't cut it. The Oak Brook Bank in Illinois [(800) 666-1011] is charging only 11.9 percent with no annual fee. On a $2,000 average balance, Oak Brook would save you $165 a year over GE's basic offer. That's worth 16 coupons, wherever you shop.

* The General Motors MasterCard -- for GM freaks only. It's better priced than the GE card: no annual fee and a variable 16.4 percent rate on unpaid balances.

Still, this card is going to cost more than you think. GM has adopted the rarely used two-cycle billing method of charging interest on unpaid balances. In a nutshell, this means that the first month you carry a balance forward, you may pay nearly double the normal interest charge, says credit-card expert Robert McKinley of RAM Research. Every time you work your bill down to zero and then start carrying balances again, the double interest charge returns.

But you're not supposed to notice details like that. General Motors is shouting "rebates!" Every purchase on your card earns a 5 percent credit (up to $500 a year) toward buying or leasing a new GM car or truck (the popular Saturn excepted). You get another 5 percent if you use your GM card to pay your bills at MCI, Marriott or Avis. And another 5 percent if you take debt off one of your present cards and transfer it to your GM card. (Stealing each other's outstanding balances is a big trend in the credit-card biz.) You can accrue your credits for up to seven years.

So what's the math here? If you charge $2,000 this year, you'll get a basic rebate of $100 toward a GM vehicle, whether or not you carry a balance on your card. If you went to the Oak Brook Bank instead, you'd save upward of $90 on a $2,000 average daily balance, and could use that extra money for anything you wanted.

* The Ford Visa or MasterCard -- strictly for Ford dealers and their mothers. There's no annual fee. But you pay a fixed 19.8 percent interest rate (after a six-month honeymoon with a 15.9 percent introductory rate).

You get no rebates on Ford cars; instead, there's a sliding scale of small cash rebates, starting with 0.5 percent of the first $1,000 charged to your card. That's $5. Not in my ballpark. If you charge $5,000 and carry $2,000, the total rebate brings your interest rate down to 17.18 percent, says Ford spokesman Fred Stern. Still not in my ballpark.

I like my savings straight -- which means no-fee, low-rate cards. Credit unions often have them, as do many local banks. Your bank may surprise you by waiving your fee or dropping your rate, if you ask for it. For a list of cheap cards, send $5 to CardTrak, Box 1700, Frederick, Md. 21702.

Washington Post Writers Group

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