Can credit cards help you retire?

I'm a big fan of rewards credit cards. The way I look at it, if I'm going to charge something anyway, why not get something out of the transaction? (Besides a bill at the end of the month, that is.)

So I was intrigued when Fidelity announced last month that it was introducing a Retirement Rewards Card. Basically, for every $1 you charge to the card (from American Express), you earn 2% toward a Fidelity IRA account. Since most Americans aren't saving enough for retirement, this gives them one more way to sock cash away for the future. With no annual fee and no cap on rewards, it seems like a no-brainer, right?

From Real Simple: Credit Cards 101

Well, not exactly.

Rewards cards are good options for certain kinds of spenders, and this one's no exception. For instance, if you carry a balance, this isn't the card for you, since it carries an interest rate of 16.99% -- fairly high compared to the 10.84% average, according to Bankrate.com. Miss a payment, and that rate will likely skyrocket.

It's also not a good idea to put this card in your wallet if it's going to encourage you to spend more. It might feel like you're making money every time you whip out the plastic, but shopping more to save more isn't a logical approach to retirement.

That said, if you charge most of your purchases anyway and pay off your balance at the end of the month, Fidelity's 2% reward rate is a rare find in the reward-card pack. Just don't let it replace other retirement savings -- after all, it'd take $50,000 in charges to save $1,000 -- and ask your accountant whether this kind of IRA contribution is still deductible.

Visit fidelity.com/retirementrewards for more information.

Do you own a rewards card? What are you getting back? (And is it worth it?)

Written by Kate Ashford for Real Simple. Simply Stated.

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