The Problem With Points Rewards Cards
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Americans love the idea of paying by credit card, but using one to pay for trips, food, and household supplies is even more tempting if it rewards you for doing so. That may explain why a recent survey from the American Bankers Association, says that 29 percent of credit card users now carry a general points rewards credit card, down from 34 percent in 2012.
This trend is not surprising. Points rewards cards beckon with eye-popping bonuses, contingent on your spending typically several thousand dollars within the first couple of months you have the card: 50,000 points for US Bank's new Altitude Reserve Visa Infinite card, launched last week; 60,000 points for Amex Platinum; 80,000 points for Chase’s Ink Business Preferred.
But figuring out how best to use these points rewards cards can be difficult. "Some card holders are not earning enough in points to offset the card's annual fee," says Jim Miller, senior director of banking services at J.D. Power, the product satisfaction rating firm. That was one reason why a J.D. Power study last year found that more than 20 percent of rewards card holders have the wrong card.
Consumers do have other choices. For many, cash-back rewards cards make more sense. Cash-back card holders can earn a 1- to 2-cent rebate for every $1 charged to the card and 3 to 5 cents per dollar spent in certain purchase categories. "Cash back is much more transparent and simple for the consumer than points," says Sam Dogen, the blogger behind FinancialSamurai.com.
Be Careful
For those who want to earn points instead, there are some things to be careful about when signing up.
Don't be lured in by a great offer that doesn't match your spending patterns. For example, if you want to earn enough points just to break even on the Altitude card’s sky high $400 annual fee, you’ll have to spend $40,000 a year in charges to the card; $13,334 a year in purchases using the card with a mobile wallet like Android Pay, Apple Pay, Microsoft Wallet, or Samsung Pay; or $7,500 a year in travel charges.
Understand that there is no reliable rule of thumb for value. “The value you get with points depends on how you redeem them,” says Miller. For example, 56,240 Citi Thank You points redeemed for a $450 KitchenAid professional 600 series mixer are worth 8⁄10 of a cent per point, while 2,500 Amex Membership Rewards points redeemed for a $25 Home Depot gift card are worth 1 cent per point.
Consider a points card only if you are among the 29 percent of credit card holders who pay off their balance in full each month. If you carry a balance, finance charges can more than eat up any points value you might accumulate.
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