How to Build Your Retirement Savings Using a Credit Card

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Female consumer uses, swipes credit card to make purchases at Wal-Mart Supercenter store in San Marcos, Texas
Marjorie Kamys Cotera/Bob Daemmrich Photography/Alamy
By Juliette Fairley

NEW YORK -- Credit card consumers are missing out on some $240 a year in retirement savings by not directing cash rewards from credit card spending to a retirement account, according to a new study from Fidelity.

The Fidelity Investment Rewards American Express card, for example, earns debtors an unlimited 2 percent cash back on purchases when holders invest their rewards into an IRA or Fidelity-managed 529 college savings.

"While using cash rewards cards can be a great way to help manage daily expenses and near-term financial priorities, these cardholders may be missing an opportunity to boost their savings for the long term," said William McLimans, senior vice president of cash management at Fidelity.

That missed opportunity is so grave given that only 9 percent of Fidelity cardholders elect to invest cash rewards into retirement or college savings accounts, compared to 50 percent who use cash rewards for short-term purposes such as everyday spending and 45 percent that apply rewards to pay off existing credit card balances.

"As consumers consider financial New Year's resolutions, we encourage them to make smart moves that will have lasting impact, including choosing a cash rewards program that will help turn their everyday spending into long-term savings," McLimans said.

Since 2008, these Fidelity card holders who charge $1,000 a month could earn $240 a year in cash back that can be directed to an IRA or brokerage account that is hosted on Fidelity's platform.

With compound interest over 20 years, that $240 would grow to $10,729, according to a rewards calculator at

By contrast, straight cash rewards expire in five years if not used or if consumers haven't amassed enough to transfer the cash rewards.

"From quarterly sign-up requirements to expiration dates and devaluation, these restrictions are a hold-over from the credit card market's pre-CARD Act opacity," said Alina Comoreanu, a research analyst with CardHub.

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 is federal credit card reform legislation that was passed by Congress and signed by President Obama in May 2009.

Some one-third of $48 billion in dispensed loyalty rewards are never redeemed due to forgetfulness and hidden restrictions. That's why Fidelity allows its clients to automatically deposit their rewards.

"If cardholders do not want their points automatically deposited into their Fidelity account, they can choose to accrue points continuously and redeem them at any time they choose once they have reached the 5,000 point ($50) minimum," McLimans told MainStreet.

%VIRTUAL-pullquote-We just need to get our spending under control and use our access to credit responsibly.%With some $60 billion in credit card transactions expected this year compared to only 38.6 billion two years ago, the opportunity for cash back rewards is on the rise.

"We just need to get our spending under control and use our access to credit responsibly," said CardHub's John Kiernan.

Selecting credit cards with the best cash back reward programs is one way to use debt responsibly.

Credit cards issued by Capital One (COF) scored highest in all categories of a recent CardHub study examining the earning restrictions, redemption restrictions and expiration dates across the industry. For example, with the QuickSilver Capital One card, users receive a $100 bonus after spending $500 on purchases within the first three months and earn unlimited 1.5 percent cash back on every purchase any time; plus cash back never expires, and there are no rotating categories or sign ups needed to earn cash rewards.
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