Some hassles avoided with no-fee plastic

Interest rates could be raised

Gannett News Service

No-fee credit cards are enjoying a renaissance.

Over the past few weeks, American Express and Citibank have issued no-annual-fee, no-late-fee credit cards with interest rates that vary depending on the customer's credit history. Commerce Bank introduced a card earlier this year with no fees and the same floating rate for all its bank customers.

"Customers really dislike late fees," said Antony Jenkins, an executive vice president at Citibank. "Everyone's really busy, leading complicated lives. They want to be treated fairly."

The moves come as fees, along with consumer complaints to bank regulatory agencies, are increasing. For 2005, penalty fees — such as late and over-the-limit charges — are expected to rise 11 percent, to a record $16.5 billion, and bring total fee income to $54.9 billion, bank advisory firm R.K. Hammer said.

No-fee credit cards have been around for more than two decades in different forms. Issuers used to market cards this way if they didn't charge an annual fee or assess one if customers paid off monthly balances in full.

Penalty rates are high

Today's generation of no-fee cards go further. They often charge no fee for being late, and sometimes none for going over the credit limit or getting a cash advance.

Consumers considering these deals should beware: While paying late won't incur a one-time fee, doing it multiple times could put a penalty rate of up to 30 percent on your card.

"There has to be some consequence for not paying your bills," said Larry Sharnak, an executive vice president at American Express, which moves no-fee card holders to a floating rate, currently 28.74 percent, the second time they're late in 12 months.

Citibank also applies a penalty rate on its cards, in addition to charging a foreign-exchange conversion fee and a fee each time customers go over the credit limit.

Customers who pay off their balances each month generally don't need to worry about penalty interest rates. But card holders who regularly carry a balance might want to think twice before applying for a no-fee card that could raise them to a stiff rate, said Greg McBride, analyst at Bankrate.com.

"The point is that the 28 percent interest rate can exact more of a price than a one-time fee," he said.

You should also know these deals may not last forever. In the past, issuers re-evaluating their portfolios have notified customers their no-fee cards would begin charging annual fees.

And not everyone will qualify for these products. Commerce Bank's card has no fees and no penalty rate. The catch: You can get it only if you bank with the company. "This is a way of deepening customer relationships," said Michael Copley, a senior vice president at the bank.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.