Reward Programs not so Rewarding: How to find the best card for you
Everyone's looking to save money these days, right? With the economy tanking and the prices for the essentials you need going in the opposite direction, many people are looking to reward programs for some relief while shopping at supermarkets, drugstores, bookstore chains, warehouses and other such retailers.
But Consumer Reports' July issue says Consider where you shop. Save your key ring or wallet space for cards that will earn rewards at stores you use most often.Project your spending. Translate the amount you’re likely to spend into cash back or points, depending on the program. If it’s points, find out how many you need to get something you might want. If you’re using a credit card, subtract the annual fee, if any. If that calculation shows you’d have to spend a fortune to earn a pittance in rewards, you might want to use another card.Favor cash back. You might never redeem your points, so at least you will get something. Plus cash-back cards tend to be more generous in their rewards, CR’s research has found.Skip credit if you carry a balance. Rewards credit cards often charge relatively high interest rates, which will eat up your reward (and then some) if you carry a revolving balance. The issuer can also hold points hostage or stop adding to them if your payment is late.Do the math on do-good programs. Cards that give your reward to a charity usually pay only about 25 to 50 cents for every $100 you spend. And you can’t write off the donation on your taxes. Both you and the charity might do better if you use a more generous rewards card, keep the money, and just write the charity a check.Use airline miles fast. Cashing in frequent-flyer rewards has become more difficult because airlines have cut flights and now have fewer seats available. So rack them up and use them up as quickly as possible. Airlines also change their rules frequently, and several big carriers have recently gone bankrupt.Avoid temptation. Research has shown that people who use rewards cards charge more. It’s easy to overspend just to earn a new digital camera or set of golf clubs. Beware.
Consumers with higher spending habits, typically around $1000 or more per month, should seek out tiered rewards cards that reward larger amounts with higher percentages of cash back. Consumers who spend less each month should utilize flat percentage reward cards to get the biggest yield for what they spend.Be careful of cards that provide more cash back for milestones such as maintaining a revolving balance, transferring a balance from another card, or cash advances. Often the interest rates on these transactions will outweigh the reward benefits.
When picking a card, consider where you’re shopping. For example, many cards disallow purchases from warehouse stores as counting towards your cash back rewards. However, if you’re a frequent wholesale shopper, you can look into a card such as the TrueEarnings card from Costco and American Express. Understanding your shopping habits will help you find the best deal.
Look for cards with no cap on how much cash you can earn back. Many companies will cap the amount you earn back at an amount between $300 and $600 annually, but typically $500 is a good cap for how much you can earn.
Watch out for fees. Some cards in Bankrate’s survey charge an annual fee to participate in the cash-back rewards program. Fees can minimize or negate the cash-back rewards you can accumulate.
Stay within your means. Spending extra money outside of your budget to accrue more rewards points is particularly a problem with tiered rewards cards.
Read the fine print and do your research. Use Bankrate’s survey data at www.bankrate.com/creditcardrewards to determine which card will be best for you. Bankrate’s tools use data such as how much you spend, which stores you spend at, and traditional credit card data such as fees and APR to determine which card is best for you. No one cash-back reward credit card will be right for everyone.
