American Express has a reputation for enticing only the excellent credit, high-rolling crowd, no surprise given that its signature cards are the AmEx Platinum and Centurion, both of which boast high fees, great rewards and more exclusivity than the Upper East Side. But it’s mellowed in recent years, showing up with average Joe offerings like the Costco card and Blue Cash series that privilege everyday spending categories like gas and groceries. To take examples from each end of the spectrum, here’s a rundown of two AmEx cards: the Platinum and the Blue Cash.
In fact, for all that the AmEx Platinum sets the NerdWallet fingers typing away, the Blue Cash Preferred continually tops out our lists for best store, gas and cash back credit cards.
A major downside of American Express is that it has nowhere near the acceptance that Visa and MasterCard command. While certain areas are perfectly AmEx-friendly (New York, for one), the network has a pretty low profile internationally. What’s more, it’s not uncommon for a gas station to accept Visa/MasterCard but not AmEx.
American Express Membership Rewards: American Express split its Membership Rewards program into three levels. The lowest tier, AmEx Membership Rewards Express, is for credit cards. The Green and Gold charge cards receive Membership Rewards, while the Platinum and Centurion receive the Membership Rewards First designation. The perks and redemption options step up with each level, but as long as you redeem for airline/hotel programs or gift cards, you can redeem them at the full 1 cent value. However, if you use points to pay taxes or get cash back, they’re only worth 1/2 cent apiece. For a full explanation, check out our analysis of Membership Rewards Points.
Network Benefits: All AmEx cards come with pretty standard benefits: purchase protection for 90 days, travel assistance, travel accident insurance, and rental car insurance. The Platinum’s benefits are, of course, substantially better and include lounge access, roadside assistance, a concierge service and companion tickets.
Prepaid debit cards: American Express, in another move to shed its high-end image, rolled out a prepaid debit card offering in the middle of 2011. It’s revolutionary in that it has remarkably few fees, and those that it does have are easy to understand. And at first, we were pretty excited about it, but then we realized: the only way to reload the card without a checking account is by buying a $4.95 Green Dot MoneyPak to reload with cash. That’s a pretty pricey reload, and if you’ve already got a checking account, well, you don’t need a prepaid debit card anyway. So as of now, the AmEx prepaid debit card isn’t impressing us, but read on for an explanation of why it might get a lot better soon.
The Durbin Amendment, part of the Dodd-Frank financial reform bill of 2010, required the Federal Reserve to set a limit on debit interchange, or swipe, fees. On June 29th, the Fed released its final ruling: swipe fees would be capped at ~24 cents a transaction, but prepaid debit cards would be exempt. Those would continue to receive, on average, 44 cents a transaction. That’s why AmEx is offering this prepaid debit card. It doesn’t want to make money off of fees from cardholders, but rather from interchange fees. It’s a great idea, but as we noted above, the only way you can avoid pretty steep fees is by already having a checking account, which makes a prepaid debit card irrelevant.
American Express said that they would try to enable direct deposit sometime this year or next, allowing employers to deposit cardholders’ wages (for free) straight onto the card. If that comes to pass, the AmEx prepaid debit card would get a lot better, since you could use and reload it while still avoiding fees.
Whether or not AmEx enables direct deposit, we might see some changes to other prepaid cards that makes it more attractive by comparison. See, when the Fed exempted prepaid debit cards from the 24-cent cap, they stipulated that the only way to access the funds on prepaid debit cards would have to be through the card itself. Otherwise, the card would still be subject to the swipe fee cap.
Based on that rule, if you swipe the card to pay for something, that’s fine. If you hand a cashier a check, cash or a MoneyPak and your card, and ask him to load the former onto the latter, that’s fine too. But if your employer can deposit your check onto the card without ever physically touching it, then the prepaid card loses its special status. This could hit popular prepaid debit cards like the Walmart MoneyCard, or Visa and MasterCard’s offers, pretty hard. They may have to raise fees, cut back on ease of use or both.
Why doesn’t AmEx have the same problem? Excellent question. American Express is exempt from pretty much everything related to the Durbin Amendment, since they’re not technically a “payment card network.” In fact, the Fed specifically names AmEx as exempt from the Durbin Amendment. So they’re free to access their prepaid cards’ funds any way they want, while not having to worry about swipe fees. To recap, AmEx gets an exemption to the underlying funds exemption to the prepaid debit card exemption to the Durbin Amendment.
Long story short, the AmEx prepaid debit card might get really attractive, really soon.