A branchless thrift, known for its high-rate certificates of deposit, has put a new spin on marketing secured credit cards.
Premium Federal Savings Bank has been pitching a CD Gold Plus MasterCard since November. Unlike other cards secured by a deposit, this one is geared toward wealthy customers.
"There's not many new cuts that you can have on a product like credit cards," said Premium Federal's president, Michael D. Devlin. "Our secured cards, unlike most secured cards, are geared for A-credits, people who have been customers of ours for some time."
Based in Gibbsboro, N.J., Premium Federal has about $300 million of assets. On average, each household owns 2.5 CDs and averages $40,967 on deposit.
A customer must have at least a $5,000 certificate at Premium Federal to secure the card. Having a card does not affect the terms of the CD. However, if the CD is redeemed, the card is canceled.
If the cardholder defaults on what has been borrowed, the bank can use the CD to pay off the balance.
The card comes with an interest rate that floats with the prime rate, currently 8.25%. The $35 annual fee can be waived after the first year if the cardholder uses the card four times a year.
For every dollar cardholders transfer or charge to the card, they earn one bonus point. When the card is issued, the thrift gives 2,000 bonus points free.
Cardholders can begin redeeming bonuses once they reach the 1,000-point level, up to a maximum of 200,000 points. At the 3,500 threshold, cardholders can avoid the $35 annual fee. Redemptions depend on the deposit and term length.
The Premium Plus Awards program offers travel benefits from American Airlines, Marriott Hotels, Hertz car rental, and Celebrity Cruises. Cardholders can redeem the points either for travel or for higher CD rates on new or maturing products at Premium Federal.
For example: If a cardholder charges an average of $500 a month and owns a $10,000 CD through Premium Federal, bonus points accrued could increase the interest rate on a 12-month CD by 60 basis points.
So, if a Premium CD rate was 5.04%, which was the thrift's rate for new CDs on Feb. 9, and the cardholder traded in his bonus points, the CD rate would increase to 5.64%.
Donald Berman, president of Cardholder Management Services, Plainview, N.Y., said he found the high-end secured card concept interesting. "I believe it can work well in a virtual bank environment where you're dealing with a different type of customer mind-set."
Mr. Berman said the ability to cash in on travel rewards or boost the interest rate on a CD distinguishes the product from others. "I like the idea you can make the decision."
The concept has been tried before by State Street Bank in Boston, Mr. Berman said, but it was not successful.
"This seems to be a very nice product for us," Mr. Devlin said. "We've only marketed to our customer base to work out any bugs. We've been very pleased with the outcome."
CD Gold Plus MasterCard holders receive a slight premium over the regular rate for a money market account. "The idea is to link as many services as we can in a package," Mr. Devlin said.
The thrift was founded in 1988 and has about 7,000 customers in 42 states, who conduct business by mail, fax, phone, or over the Internet.
"People are attracted to us initially because we tend to offer higher rates than other people do," Mr. Devlin said, 25 to 35 basis points above the market average, "which we can afford because we have lower operating expenses because we don't have a branch network."
