Some credit card customers pay more but get better perks

Credit card rewardsSometimes it feels like WalletPop is the official "bad news about credit cards" website. And granted, there's plenty of bad news to go around when it comes to the sneaky ways banks are still trying to get their pound of flesh, even after passage of the landmark CARD Act. But a new report indicates that some Americans are managing to get a few, new perks out of their card issuers.

According to this article, a handful of big banks have started increasing the perks on their reward cards. For instance, both JP Morgan Chase & Co. as well as Citigroup Inc. have increased the number of miles customers can earn for each dollar spent. While that may sound surprising, the banks aren't doling out these goodies out of the goodness of their hearts. The article notes that only the best customers are getting these offers, and most of the cards that let customers accrue the additional rewards are cards that charge annual fees.

According to research firm the Tower Group, the total number of bank card accounts dropped from approximately 440 million in July 2008 to just over 360 million a mere 10 months later, so the financial service companies are under pressure to make more money from the remaining customers they have.

One piece of good news, though, is that many of the Americans getting these offers are those who pay their balance in full every month. Why are card companies targeting these zero-balance consumers? Well, card companies aren't making any money from them in the form of interest payments, so they're trying another tack.

We've told you before about "interchange fees"; this is the money that credit card companies collect from merchants every time you swipe your card at a cash register. According to the post linked to above, each American household is responsible for $337 in interchange fees each year - for a whopping total of $48 billion last year. These fees can be as high as 5% of the total purchase price. So if your card company can convince you to use your card more because you want to rack up points, miles or other rewards, it's going to make money from the merchants.

So what's a savvy credit card customer to do? For starters, don't let the prospect of rewards sway you into paying an annual fee on a card you wouldn't otherwise keep. Nearly as important is to use those rewards once you earn them. Some reward programs have expiration dates for points or miles, and those unused rewards go right back to the banks' bottom line.
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