AT&T;’s No-Fee Credit Card Isn’t for Everyone

Since its unveiling last March, American Telephone & Telegraph’s new Universal credit card has taken the world of plastic by storm. Lured by AT&T;’s offer to waive the annual fee for life under certain conditions and to give a 10% discount on long-distance calls, more than 1 million people have reached out and opened accounts on this Visa card. That’s far more sign-ups than expected and a record in the bank credit card industry.

Worried bank card competitors, such as Citicorp and BankAmerica, have responded by requesting regulatory investigations of AT&T;’s practices or by announcing card enhancements of their own.

But is the AT&T; card a good deal?

It depends. Although the free annual fee is attractive for people who pay off their balances each month, the card’s other features are not particularly attractive or unique. In any event, the process for evaluating the card--looking beyond the hype at its real costs and features--is something you should use to assess all card offerings.

Consumer experts say three elements are primary when evaluating a card: annual fee, interest rate and grace period. Other frills--such as buyer protection plans, travel accident insurance, collision damage waivers for car rentals and so on--are secondary.

Clearly, the AT&T; card’s main selling point is its annual fee waiver. It’s available for life to all cardholders who join in 1990 and use the card at least once a year.

If you’re among the 35% or so of cardholders nationwide who typically pay off your account balances in full every month, that’s a great feature. That in effect means you can use the card for free: no annual fee and no interest charges.

“Nobody’s ever offered that,” Spencer Nilson, publisher of the Nilson Report, a Santa Monica newsletter that follows the credit card industry, says of AT&T;’s lifetime fee waiver. “We’re recommending it as one of the 10 best cards in the nation, especially for anybody who pays within 30 days. . . . It’s a better deal than (Sears Roebuck’s) Discover card or American Express.”

But if you keep a balance and carry it forward every month--thus incurring interest charges--the AT&T; card is not that much better than many competitors.

The card charges a variable interest rate set at 8.9 percentage points above the prevailing bank prime lending rate. With the prime currently at 10%, the card is set at 18.9% for now. While that’s slightly below the 19.2% average charged by the nation’s 10 largest card issuers, it’s slightly higher than the national average of 18.4% among all card issuers.

Also, if you have a good credit history, you might be able to get a Visa or MasterCard charging less than 18% from several institutions nationwide that also don’t charge annual fees, says Robert B. McKinley, publisher and editor of RAM Research’s Bankcard Update, a Frederick, Md., newsletter that tracks card rates. Some of these institutions are pickier about who they will grant credit but are worth a try, he says.

As examples of better deals, McKinley cites two institutions. One, USAA Federal Savings, (800) 922-9092, based in San Antonio, but issuing its cards out of Tulsa, Okla., offers a 14.76% rate on a no-annual-fee card. Abbott Bank, (800) 999-6977, in Alliance, Neb., charges 16.2% with no annual fee.

“Either one of those is available to anyone nationwide; they’re really good deals,” McKinley says.

What’s more, he says, the AT&T; card has no cap to limit how high its rate will go. So if the prime rate shoots sky high, so will the rate on the AT&T; card, he says.

The AT&T; card “is a good deal for those who pay their card balances off in full . . . but for the 65% who carry a balance month to month, clearly a better deal can be had elsewhere,” says Elgie Holstein, executive director of Bankcard Holders of America, a consumer group in Herndon, Va.

Another drawback of the AT&T; card is its cash advance fee, McKinley says. It charges 2% or $5, whichever is greater, on all cash advances obtained at financial institutions. Advances at automated teller machines will cost either 2% or $1, whichever is greater. But T’s card sets no limit on the fees, unlike most other cards, McKinley says.

What about other benefits?

The 10% discount on all long-distance calling-card calls is an attraction, but few consumers use their calling cards often enough to take full advantage of that, McKinley says. And this feature isn’t unique. Last week, Citicorp announced that users of its Visa card could get discounts of up to 22% on long-distance calls through AT&T; rival MCI Communications. Within the next two years, most or all credit cards are expected to offer discounts on long-distance calls, McKinley says.

AT&T;’s card also offers buyer protection insurance, which will replace items purchased with the card that are lost, damaged, broken or stolen within 90 days of purchase. But buyer protection is being offered on most premium “gold” cards, some standard Visa and MasterCards and, now, a growing number of checking accounts.

Ditto for such other AT&T; card benefits as extended warranties, collision damage waiver insurance and travel accident coverage. Other cards may offer better terms, McKinley says.

The lesson of all this: When shopping for a card, look at its costs carefully and don’t be swayed by frills or marketing hype.

“You don’t want to be distracted by all the benefits and forget about the bottom line, which is the cost of a card,” McKinley says.