Maybe you are considering applying for a rewards card after viewing a flashy commercial on TV for a credit card that comes with perks. This is understandable, since those commercials are created to entice you into filling out an application, eagerly awaiting approval and, finally, happily receiving your new card in the mail. For many people who go through this process, there is palpable excitement as they quickly go out and begin making purchases with their rewards card in order to accumulate points.
But, hold on there a minute. Exactly who are these rewards cards really created to benefit? If you think it is strictly you, the consumer, you’d be only half right. The truth is that credit card companies create cards with a rewards program attached in order to make themselves more money – a lot more money.
Oh, and along the way, a small percentage of their customers will reap some benefit as well, but only if they are smart.
You see, a rewards card works out well only if you are someone who can easily pay off your credit card balance each month. This means, never allowing that card to carry a balance for any reason. The savvy rewards card user understands that they need to accumulate as many points as possible, without incurring any additional fees or interest charges. This is the only way to make sure that your points are free and clear. On the other hand, if you do obtain an awards card and carry a monthly balance on that card, you’ll be making lots of interest payments that go directly into the pocket of the credit card issuer.
To put it another way, carrying a monthly balance actually wipes out any financial gain you receive in points. For example, most cards with rewards points are going to have high interest rates (15-25%), so if you carry a $1,000 balance each month and your interest rate is 20%, you’ll be paying an extra $200 annually just to win some points that may only be worth $150. Knowing that many people won’t be disciplined enough to not carry a balance, the credit card companies reap most of the financial rewards while you continue adding to your debt in order to win something special.
Therefore, these types of cards are only recommended for people who have excellent month-to-month personal financial management.
So, what types of rewards cards are available?
- Cash Back Cards
Many people like the idea of getting cash back after they’ve made a purchase. This offers you a percentage of money back for buying groceries, travel tickets, gas, etc. You may be required to sign up for a specific program to participate. The redeemed money is transferred to your account, or you are mailed a check after a specified time period.
- Gift Cards
Earn points towards specific gifts that you can purchase online.
- Discount Cards
Earn automatic discounts for shopping with specific retailers who participate in the program.
Watch Out for Point Caps
Most reward points are capped up to a certain point. As a consumer, you should be aware of how many total points per year you are allowed. While most people will not reach their limit, if you use your card frequently, you may come close or go over the limit without realizing it. If you do happen to reach your limit, then it’s time to redeem those points.
Be Aware of Losing Points
Reward cards allow you to accumulate points for a maximum of three years. After that, you’ll begin to lose points if you don’t use them by then. The whole purpose for you having one of these cards is to save money and maybe earn some nice freebies. Once you begin losing points, they are gone for good, so keep that in mind.
Best Cash Back Credit Cards of 2018
- Chase Freedom®: Best for 5% categories and a cash bonus
- Discover it® – Cashback Match™: Best for 5% categories and a unique bonus
- Wells Fargo Cash Wise Visa® Card: Best for Cash sign-up bonus
- Blue Cash Preferred® Card from American Express: Best for Families
- Citi® Double Cash Card – 18 month BT offer: Best for Flat-rate cash back
- U.S. Bank Cash+™ Visa Signature® Card: Best for Customizable rewards
- HSBC Cash Rewards Mastercard® credit card: Best for Annual 10% rewards bonus
- Alliant Cashback Visa® Signature Credit Card: Best for High rewards for bigger spenders
- Capital One® QuicksilverOne® Cash Rewards Credit Card: Best for Average credit