Should You Choose a Credit Card With a First-Year Introductory Bonus?

Ben Luthi

Credit cards offer sign-up bonuses as a way to entice consumers to apply and use their new credit cards regularly. But while card issuers have traditionally provided an upfront bonus of cash, points or miles after just a few months, some are transitioning to incentives that encourage you to use the card consistently for an entire year.

Currently, more cards offer a three-month sign-up bonus than cards that offer a first-year introductory bonus. However, the yearlong bonus timeline could gain popularity, so consumers should be versed on how first-year introductory bonuses work, how to choose the right one and how to maximize the value available.

Why Credit Card Issuers Are Switching to First-Year Bonuses

Sign-up bonuses are effective incentives, but savvy credit card users can take advantage of the system to maximize the value of these offers at the credit card companies' expense.

"If you understand how credit card bonuses and point reward systems work, you can apply for a number of cards, use them for the introductory period, get the bonuses and then use them rarely beyond that," says Janet Alvarez, executive editor at personal finance advice site Wise Bread. This strategy is called credit card churning.

Alvarez believes that credit card companies are wising up to that reality. Enabling the behavior and footing the bill, some banks are finding creative ways to offer equally enticing bonuses that encourage consumers to use their credit cards for a longer period of time.

[Read: Best Sign-up Bonus Credit Cards.]

Lee Huffman, a credit card expert and travel blogger at BaldThoughts.com, says, "From a business point of view, it makes complete sense. Banks spend a lot of money offering sign-up bonuses and too many applicants close their accounts soon after receiving the bonus."

By switching to a bonus structure with a longer promotional period, credit card issuers may be betting that it will be more likely for you to keep the card in your wallet rotation going forward due to habit.

Credit Cards That Offer First-Year Introductory Bonuses

While there's no telling how quickly this new approach to sign-up bonuses will catch on more widely, or whether it will at all, there's a handful of credit cards that are leading the way.

Discover credit cards. What started out as a limited-time offer in 2015 is now the norm for the card issuer's entire product line. If you get a Discover credit card, the card issuer will match all the cash back or miles you earn during your first year.

The Discover it Cash Back, for instance, earns you an effective rewards rate of 10% on up to $1,500 spent each quarter on rotating bonus categories and 2% on everything else during that time.

There's no cap on how much Discover will match, and you'll receive the match amount on your first anniversary with the account. However, remember that the card's 5% bonus categories are capped at $1,500 spent each quarter.

Chase Freedom Unlimited. The Chase Freedom Unlimited normally offers 1.5% cash back on every purchase you make. But during your first year with the card, you'll earn double that on up to the first $20,000 spent.

If you spend enough to max out the bonus offer, you'll earn $300 in extra cash back -- that's $150 more than the card's old sign-up bonus. Unlike Discover credit cards, which reward their match at the end of your first year, the Chase Freedom Unlimited gives you the bonus cash back as you earn it.

SunTrust Cash Rewards Credit Card. The SunTrust Cash Rewards Credit Card typically offers unlimited 2% cash back on qualifying gas and grocery purchases. But during the first 12 months, you'll earn 5% cash back on up to $6,000 spent in those categories.

If you spend the maximum amount allowed to earn the bonus, you'll earn $180 in bonus cash back during the promotional period. You'll receive the bonus cash back as you earn it.

Wells Fargo Rewards Card. Cardholders with the Wells Fargo Rewards Card earn just one point per dollar on all purchases. But during the first six months, you'll earn five points per dollar on the first $12,500 spent on gas, grocery and drugstore purchases.

If you can manage to max out this bonus offer, you'll earn up to an extra $500 worth of rewards during that time. Just keep in mind that you'll only have six months instead of a full year to do it.

Is This New Trend a Good or Bad Thing for Credit Card Users?

Only a small percentage of credit cards currently on the market have switched to a first-year bonus over the traditional three-month incentive. But if the trend continues, there are both benefits and drawbacks for cardholders to consider.

"As a consumer, you hate to see additional hurdles put in place to keep you from receiving a bonus," says Huffman. That's especially the case with cards that require you to wait until the end of the year to get the rewards you've earned.

For credit card users who are accustomed to getting an easy incentive, stretching out the promotional period could decrease motivation for new applications.

[Read: Best Rewards Credit Cards.]

According to Alvarez, though, missing out on that instant gratification might not be a bad thing. "(Credit card churning) doesn't teach you good credit habits," she says. For example, if you don't normally spend enough to meet the requirements for a sign-up bonus, you could end up overspending.

Alvarez says it's also possible to end up with too many credit cards, which can be tough to manage if you're not disciplined and organized.

With cards that offer a first-year introductory bonus, consumers are more likely to focus on that one card, keeping things simple.

Who Should Consider a Credit Card With a First-Year Bonus Period?

If you spend a lot of money, you could potentially earn more rewards with one of these cards than you would with a traditional sign-up bonus.

For example, many cash back credit cards offer sign-up bonuses worth $150 to $200. With the Chase Freedom Unlimited, however, you'll get an extra $300 if you max out the promotional offer. And with Discover credit cards, there is no cap on how much you can earn, making the sky the limit for big spenders.

If you have a specific plan for how you want to use a sign-up bonus, though, and need to earn it fast, Alvarez recommends getting a card with a traditional bonus.

"If you want to take a trip to Bali this summer and you just really need a certain number of airline miles to make it happen," she says, "you should probably get an airline rewards card of some sort and get the quick miles in three months."

In general, it's best to compare how much you can potentially earn through a first-year bonus with similar cards that offer an upfront incentive.

How to Maximize a First-Year Introductory Bonus Offer

If you're planning to get a credit card that stretches out the promotional period to up to 12 months, you should squeeze as much value out of it as you can.

"When the bonus timeline is three months, focusing is easy because the deadline is in sight," says Huffman. "For a deadline 12 months out, some people will forget about it and may not maximize the opportunity."

[Read: Best Cash Back Credit Cards.]

Here are some ways you can take full advantage of such an offer.

Read the fine print. The last thing you want is to think you're earning bonus rewards when you're not. Some of these bonuses might have limitations on what counts toward rewards.

For example, cash advances and balance transfers typically don't yield rewards. And for cards that offer bonus rewards at grocery stores, retailers like Walmart, Target and Costco might not count, even if you're buying groceries there. Make sure to read the terms and conditions to avoid disappointment.

Use the card for (almost) everything. The more you use your credit card, the more bonus rewards you can earn. Consider switching some of your recurring charges from your checking account to your credit card to take advantage of the opportunity. Also, use the credit card instead of debit or cash whenever you shop online or make in-store purchases.

As you do this, however, note that some merchants may charge credit card users a convenience fee. If the fee represents a percentage of the transaction that's higher than the rewards rate you'd earn on it, use a different payment method.

Add an authorized user. If you're married or have a partner, consider adding them as an authorized user on your account. Typically, an authorized user's purchases will also earn rewards at the same rate as the ones you make with your card.

Just be sure you can trust the person you add to your account. As the primary account holder, you're responsible for paying off the bill each month.

Avoid overspending. Earning a big bonus is nice, but not if it comes at the expense of your budget. "Don't overextend yourself and get into credit card debt," says Huffman. "The interest rate that banks charge is considerably higher than any rewards you will earn."

If you follow these tips, you'll have a better chance of maximizing the value of your first-year bonus without losing ground to unnecessary spending and interest.