Critics have come out against the MileagePlus Go Visa Prepaid Card early and often. But I think many of their criticisms are unfair and don’t accurately reflect the wider market for this product. This card is a great value for some and a terrible value for others, but since the rest of the world seems to be covering how bad this card is – I’d like to defend the product.
It’s Great On Merit
The card offers customers up to 2,500 United MileagePlus miles each month, 30,000 maximum per year. It doesn’t require a credit check and is open to absolutely everyone. There simply are not enough offers for clients with these minimal requirements and there are a lot of customers that fall into this category, customers that are not going to fit into the rest of the credit card/mileage earning space. While there has been American Airlines debit card accounts, Delta Sky[pesos] debit card accounts, and checking account sign up bonuses from just about all the carriers including Alaska and US Airways, they have all but abandoned this space.
This card helps the 7% of American households that are un banked (do not hold a bank account of any kind) and the 19.9% of American households that are underbanked (not fully utilizing banks to administer their financial needs). Those figures (19.9% of Americans in 2015) would have represented a minimum of 6.37 million Americans but probably more as those figures represent households (there is usually more than one person per household) and not individuals.
Here is what the FDIC had to say about prepaid cards following the financial results of 2015:
“Use of prepaid cards was most prevalent among un banked households. An estimated 27.1 percent of un banked households used a prepaid card in 2015, com pared to 15.4 percent of underbanked households and 6.9 percent of fully banked households.”
Households in these categories need products that serve their situations better than banks can. They need flexibility, predictable fee structures and accounts that do not require a minimum balance. It’s not just un banked and underbanked households that use prepaid cards though, the FDIC points out 6.9% of fully banked households also use prepaid cards.
The Claims Against the Card
Some of the criticism has been directed at the annual fee of $85/year. I will address that shortly, but other concerns revolve around the nature of earning the points, transactions must be made by signature and not PIN. I would agree that casual users of the card may have difficulty ensuring all of their transactions are made by signature and not PIN and therefore the earning potential could be misleading for those who do not read the finer points of the terms.
I am also disappointed that there is a limit on monthly earning of 2,500 points per month, but it does pay 5% interest on the first $1,000 held in deposit in the account. Some consumers could offset up to $50 of their $85 annual fee by holding just $1000 in their account.
Gary Leff does address that this may work for some customers but I sense a bit of sarcasm in his statement when he implies just how many people might be a good fit:
“I’m not prepared to say that “absolutely no one” should get the card and that it’s “a bad deal.” I think that’s wrong. But it’s useful only for a limited set of people.
This card is great for all six people in the country who are simultaneously un banked (the card pays interest that helps offset its fees), who cannot get a credit card (which is going to have stronger earning potential), but who still spends enough money to make the rewards on this card worth the cost.” (Emphasis mine)
Seth Miller goes further about exactly who should get the card:
“No one. Absolutely no one. The card is a bad deal. You should not get it.”
But what about me? For reasons below, I may add it to my wallet, deposit the $1,000 and carry out the signature purchase requirements for far cheaper than the Chase credit card option.
Every Account Has Caveats
More in the debit card space than for credit cards, every product has its quirks. Some customers were known to have utilized their credit cards to purchase money orders or coins from the US Mint using debit and credit cards and turn those funds back to their checking accounts. Others were purportedly running gift card loads and AMEX Bluebird top-ups through the SunTrust Delta debit to generate miles.
With each of these processes there were rules to follow. If you were to load funds via the SunTrust card for example, the charge had to appear a certain way on the payment system, Wal-mart loads at the register would facilitate this. If done incorrectly, SunTrust accounts were frozen or shuttered.
Banks often offer incentives for new customers in the form of either cash bonuses into their accounts or points in the bank’s proprietary reward system. Sometimes these are redeemed for gift cards, and in the old days bonuses might have amounted to a toaster. Usually, new accounts that offer bonuses require some form of action to engage and entrench the new customer. Those actions may include a certain number of transactions made on a monthly basis for an extended period or direct deposits of given amounts over several months. Failure to meet those thresholds will result in forfeiture of the bonus but will not refund monthly or annual maintenance fees for the account.
It’s Great For Those With Bad Credit
I get it – everyone has an 800 score so why waste our time on cards we don’t need or want? Don’t believe me? Just ask Seth who suggests, let them eat cake:
“The $85 annual fee [of the Mileage Plus Go Visa Prepaid Card] is only $10 less than the MileagePlus Explorer Credit Card. And for saving that $10 you get a significantly reduced earning potential and none of the other ancillary benefits that come with the credit card. No free checked bag. No priority boarding. No increased award availability, but that’s probably okay because the card also comes with strict caps on earning potential.”
That’s not everyone’s situation. While I find myself in the high credit score category now, a few years ago it was different. I had a ton of knowledge about miles and points from reading blogs like Gary’s, Seth’s and this one, but my poor choices when I was younger left me a credit score in the mid 500s.
It took a lot of work to rebuild and repair the damage I had done when I was barely 19. I knew that there was a penalty for my bad behavior (or youthful ignorance) and was paying it in every other aspect of my financial life. There are simply higher costs to people with bad credit, but despite my credit issues I wanted to participate in the miles and points hobby. I would gladly accept a higher cost or lower earnings rather than total exclusion. The products that offered me that opportunity are no longer an option. This is.
Seth’s assessment ignores the community of people with bad credit that may be attempting to rebuild it and states:
“Okay, so not everyone can get the premium card. That’s usually because of credit score issues. Consumers in that boat should be working on improving their credit score and doing so with products that carry a significantly lower set of fees than this does.” (Emphasis mine)
Rebuilding credit happens independently of debit and checking activities. Assume for a moment that you are such a person who made the same mistakes I did in my youth, realizes the mistakes and starts on a path of rectifying those errors. The best remedy for healing those credit wounds is improved credit behavior over time. While that process is taking place, it makes sense that consumers will want to start earning rewards for their transactions and this card makes that possible.
It’s Great For Those With No Credit
I counsel many friends and family members about credit who have been left in the dark by an educational system that simply doesn’t address credit, at least it didn’t for me. Some of these contact don’t yet have credit because they have been scared to apply or heard horror stories from their parents who may have made their own mistakes. This group, typically younger and in college or recently graduated, don’t have the payment history (positive or negative) to justify moving off of a starter score of about 650. But just because they don’t have bad credit doesn’t mean they can be approved for a card.
For those that simply can’t get approved due to lack of history or a low starting score, this product is an excellent option to start building a mileage balance. In truth, this might be the best behavioral way to introduce a newcomer to credit cards and how to use them. If they think of money loaded on the card as already out of their checking account, it will be easier to avoid getting into financial trouble later when credit lines are available.
It will also start to reinforce the notion that sometimes benefits cost money (in this case, $85/year) but that every transaction should yield you something back. Before you laugh and scoff at that notion, who here can raise their hand and say they don’t know someone who uses their debit card for everything despite having no real reason to avoid reward-earning credit card products?
I didn’t think so…
It’s Great For Those Limited By 5/24
Chase offers the United MileagePlus card and offers up to 50,000, no, wait, 60,000 miles on their current new applications! WOW – unless you are ineligible because you have more than five new credit accounts in the last 24 months. For those who may think that five new credit accounts in 24 months is a lot, keep in mind that if your spouse added you to their accounts, each one will go against your allotment of five in two years. It’s not hard for married couples to exceed 5/24 especially when store cards (Sears, Best Buy, Kohls, etc.) are factored in.
There are an awful lot of people who have been affected (afflicted) by Chase’s 5/24 rule. While I understand the reason for Chase’s rule and don’t necessarily disagree with their justification for implementing it, the rule still hurts. It prohibited me personally from starting new accounts with the bank for products I really wanted and if I were still outside of 5/24 eligibility, perhaps this would be the only way to accumulate United MileagePlus miles for purchases outside of shopping portals and the Dining program. Something even more important to me now that United status matched me to 1K.
Banks Don’t Make Money With Debit Accounts
Thanks to the Durbin Amendment there are now limitations on what banks can earn for debit card transactions as opposed to much higher fees for credit cards. Similarly, PIN transactions yield lower revenue for banks than do signatures because of their reduced liability. With debit cards, banks are not making money on high interest charged to consumers who choose to carry a balance like they would with credit card customers.
There are lots of costs for the banks (NetSpend in this instance) to offer these products. It costs money to make and market the physical cards. It costs money to service customers and their transactions. While this particular card is prepaid (the bank can make money by lending out balances and earn interest on that money) earnings from those balances are far lower than consumer credit lines.
Therefore, debit accounts that have earning benefits like this one require an annual fee of some kind to offset costs. Annual fees scare off casual users that are expensive for the bank to host but yield little revenue.
By comparison, these fees are quite low. Gary Leff has long discussed the benefits of BankDirect’s Mileage Checking account (American Airlines). BankDirect’s Mileage Checking Account offers consumers the chance to earn as much as 5,000 miles/month on their balances of $50,000 but comes with a hefty price tag of $12/month or $144/year. When factoring the loss of interest for this low yielding account (BankDirect offers .10% + miles) vs. higher earning checking and savings options 1-3.5%, the account really costs between $194-1,894/year for 60,000 miles. The MileagePlus Go Visa Prepaid Card cost of $85 for 30,000 miles/year is on par or cheaper than BankDirect’s option. But as Gary has noted, not everyone has $50,000 in savings to tie up for $144/year to earn the 60,000 miles.
SunTrust’s Delta Debit was not necessarily cheaper. It also charged $12/month ($144/year) but didn’t have an upper earning limit while it was available initially. They no longer offer this account but it goes to show that in the new reality of lower yields for debit account transactions, $85 is not entirely unreasonable for the category.
Doing Research, Pulling Trigger
Like any other mileage earning opportunity, it will be important to conduct some research. While I am eligible for a full United card from Chase, I am not sure that I want to burn a new credit account that will count against my 5/24 eligibility. If United offered me the chance to purchase 30,000 miles from them for $85, I would do it. In fact, I would do it for everyone in my family – the math just works. I think that’s really the point. For me, the juice is worth the squeeze, perhaps for critics of the card, it isn’t.
In the coming weeks I will seek out opportunities to run large single transactions at vendors that do not have chip functionality and require signature transactions. Then I intend to get the card for everyone in my family and maximize the benefit every single month.
Am I totally off base with this? Do you find that the offer is predatory and deceptive in nature or beneficial for a certain group of people?