Who really benefits from rewards credit cards?
Posted
Jul 11 2008, 06:45 PM
by
Karen Datko
Rating:
If you thought credit card companies offer rewards and cash back because they want to give you things, think again.
Several bloggers were intrigued by a study in the July issue of Consumer Reports about how rewards programs work -- in favor of the companies. "Consumer Reports found that people who have rewards cards often end up spending more money than those with a regular card, and on top of that, they don't always reap the benefits of having the card," wrote Peter at Bible Money Matters.
Rewards cards are popular; the study found that 85% of American households have them, despite the fact that they generally have higher interest rates, come with confusing rules and restrictions, and sometimes charge annual fees. Another study found that more than 41% of cardholders rarely, if ever, take advantage of the rewards. Consumer Reports notes that you often have to request your rewards; they aren't automatically sent to you.
As the Wall Street Fighter said, "Turns out credit card companies are just trying to earn a profit and are not in the business of giving stuff away for free!"
Peter relays some recommendations from Consumer Reports about how to get the most use from rewards cards, including:
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Don't carry a balance -- a rule that should apply no matter what type of credit card you have. Monthly interest charges could wipe out any benefits.
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Be careful not to overspend. You're really not benefiting if you're spending money you otherwise wouldn't just to get a reward.
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Pick a card carefully. For instance, if you buy gas with a credit card, a card that gives cash back on gas purchases may be worth it. Read the fine print first to find out about teaser rates, caps and other restrictions.
We like an alternative posted at Bible Money Matters by reader "GFish": "Next time I'm at the grocery store with $100 of groceries, I think I'll just put back one of those $3 bags of chips, and call that my 3% cash back. I definitely don't need the chips."
