Ants, take heed of Equity loyalty card

The old parable about the grasshopper and the ant illuminates much in the personal finance world.

As you recall, the grasshopper lived for today and failed to prepare for the future. It's believed he retired to a meagre life of canned soup and black and white television. The ant, by contrast, made sacrifices in his daily life and ended up retiring to a condo in Florida, or something like that.

Like the ant's approach? If so, you should take a look at a new customer loyalty program called Equity Retirement Rewards.

Nearly all the loyalty programs out there now are for grasshoppers. Spend some money and you receive points that can be used to help pay for things such as vacations, or new cars or toys. Fun stuff, in other words.

Equity helps you earn money for your registered retirement savings plan, or a registered education savings plan. Sensible stuff, in other words.

Here's how the Equity card works. Make a purchase at selected retailers and you receive between 1 and 10 per cent of the cost as a deposit to an account held at a trust company, TD Trust.

Each time your holdings in the account reach $100, the money is deposited in a mutual fund of your choice at fund company Dynamic Mutual Funds. You can hold your fund in a non-registered investment account, an RRSP account or an RESP account on behalf of a young person.

The Equity people say that on average you'll receive about 3 per cent of your purchase in reward dollars. You can increase that by up to an additional percentage point if you make your purchase using an optional Equity MasterCard.

The promotional material that Equity is using paints an optimistic picture of how much you can earn through the program. "Depending on your age and spending habits, you could accumulate hundreds of thousands of dollars toward a comfortable and secure future," it says.

Let's just say that in terms of age, you'd have to be very young to earn that much and in terms of spending habits, you'd have to be free with a dollar.

At a reward rate of 4 per cent, you'd have to spend $2,500 on purchases to get 100 retirement dollars. If you accumulated $300 every year and your Dynamic mutual fund returned an average annual 10 per cent over 25 years, you'd end up with $29,504.

There's actually more to the story than that. If you put the $100 in a retirement savings account, you'll receive an RRSP contribution slip that you can use as a tax deduction. The Canada Customs and Revenue Agency has already agreed to this.

Loyalty programs are only as good as the list of participating merchants, and on this count Equity expects to make some improvements.

The short list of sponsors now includes Atlas Van Lines, OK Tire, Wine Rack, Sport Mart and a few other companies. More than 40 others have asked about joining and negotiations are under way to add gasoline and food retailers, both of which are necessary if cardholders are going to have a reasonable chance of building up their accounts over time.

Fees are another thing to watch for with loyalty programs. The Equity card charges a one-time $25 membership fee (plus GST) and then an annual administration fee of 5 per cent of the total rewards earned to a maximum of $15.

Comparatively speaking, that's not bad. The hugely popular Aerogold card offered by Canadian Imperial Bank of Commerce has an annual fee of $120, while Bank of Montreal's selection of Air Miles MasterCards can cost from zero to $95 a year.

One negative with the Equity program is that you could conceivably have to carry two separate cards with you, one of which is the actual Equity loyalty card and the other being the separate Equity MasterCard. The credit card is issued by MBNA Canada, a division of a big U.S.-based bank.

The Equity card's link to Dynamic Mutual Funds comes out of the fact that Dynamic parent Dundee Bancorp is one of the partners in the venture. There's apparently nothing to stop you from moving your money out of the Dynamic account at some future date, if that's what you wanted to do.

As well, you can have your Equity RRSP account folded into an existing retirement plan that you hold either yourself or through a financial adviser.

The Equity card people are buying copious amounts of advertising to build up the brand name, including newspaper inserts and a big spread of signage at Toronto's Union Station. If they somehow miss you, you can get in touch with them through the Equity Web site at http://www.equity.ca or by calling 1-866-350-1777.

Cardholders can use the Web site to keep on top of their account balances. The marketing pitch for the Equity card is that it's a painless way to provide for your future financial security. Ants, listen up. Grasshoppers, as you were. rcarrick