I have several domains registered with 1&1. They auto-renew and charge your credit card just before they expire. It's automatic, and the price for each auto-renew is the same as registering it in the first place - $5.99 for a .com.
I agree that 1&1 doesn't make it easy to know exactly how this process is going to work. I was a little ticked off that I had to trust them to do it automatically. If anything went wrong in the automated renewal process, that would mean I would lose my domain name. But everything has worked smoothly so far with renewals.
While they seem to be one of the cheaper registrars, I'm not sure I'd recommend 1&1 if you have any special DNS needs other than setting primary and secondary DNS. Their control panel is extremely clumsy and limited. I/They have yet to figure out how to properly set up a custom DNS server for me (ns1.mydomain.com) - even after speaking with them at length on the telephone.