Use 'Em or Lose 'Em: Your Rewards Points Aren't Really Yours

Earlier this month, PerkStreet, an online bank that provided cash-back rewards for using your debit card, announced that it would be shutting down. That was disappointing news for account holders, but nobody lost their life savings: Their funds were all FDIC-insured, so they can still retrieve their money.

However, the same could not be said of their rewards. PerkStreet executives remorsefully explained that they "just didn't have the financial capability to pay out perks earned," so anyone with an unclaimed rewards balance as of the announcement lost their accrued cash-back. Many account holders had spent months or years earning rewards with their debit cards, so some customers lost a significant amount of money.

"I just lost $500 in perks with no warning," wrote one angry user. "I've been saving those for a long time, for special occasions and to treat myself."

"We were sitting on almost $300 in perks saving it for an anniversary cruise," complained another user. Yet another said he'd lost $500 that he'd planned to use to buy Christmas presents.

Unfortunately, there's nothing these customers can do about it, because they don't actually own their rewards points.

That may come as a surprise to most people, because federal law provides ample protection for consumers in their banking transactions: Whether your bank goes bust or your credit card gets stolen, your money is safe.

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But even though rewards are presented in commercials as the primary reason to open a new credit card, they're treated in the fine print as an add-on that can be changed or taken away at any time.

"The credit card companies' viewpoint about rewards programs is that they are just an extra benefit that they offer at their discretion, and they're doing you a favor," says Odysseas Papadamitriou of credit card tracking site CardHub.com. "But for a significant portion of the customer base, the main reason they use the card is the rewards. It's like a hotel saying that having a shower is just a luxury they give you, and if the shower doesn't work, you should shut your mouth about it."

And, frustrating as it may be, there are several ways that your hard-earned rewards points can disappear on you.

You don't pay your bill. This is the one that makes the most sense. It may seem like you're earning rewards every time you use your card, but keep in mind that you haven't actually spent any money until you've paid off your bill for that time period.

"If you miss the payment period, they'll hold the rewards," says Alex Matjanec, co-founder of MyBankTracker. As he explains, though, your rewards aren't permanently wiped out -- American Express, for instance, will give you the rewards you earned if you pay off your whole debt and a $35 fee.

You somehow violate the terms of your cardholder agreement. There are numerous ways that you can game the system to get more credit card rewards. But if your issuing bank figures out that you're doing something fishy, it could cancel your account, blocking access to your rewards in the process. That's what happened to this man, who had more than $2,400 in rewards points revoked by Chase after it apparently raised an eyebrow at what he had to spend to earn them. Only after intervention by local media did the bank give him the rewards he'd earned.

"The terms and conditions say they can close the account at their own discretion for any reason," says NerdWallet's Anisha Sekar, who points to illegal activity like online gambling as one reason a bank might shut you down. "You pretty much serve at the mercy of the bank."

The rewards program decides to devalue its points. In April, CardHub's Papadamitriou got a letter from American Express with some bad news: The travel rewards points he'd accrued with his Hilton HHonors Card were being devalued. The good news was that he had about a month and a half too book travel at the current rate before the new system kicked in. But once June 15 rolled around, he would need more points to get a free hotel stay.

That wasn't an isolated incident, by the way: Earlier this year, the three major hotel chains -- Marriott, Hilton and Starwood -- all made it more expensive to use credit card rewards points to book hotel stays. Cardholders still got the same amount of points for their purchases, but they were no longer worth as much as they used to be.

The bank shuts down. This is what happened to PerkStreet, though it must be said that this is a rare occurrence. PerkStreet was a startup, and was thus heavily reliant on securing funding to keep its doors open. A major bank like Chase, Citi or Bank of America is incredibly unlikely to suddenly shutter its operations.

Still, big banks aren't the only platforms that allow you to earn rewards -- there are, for instance, a number of deal sites that provide rewards when you buy a product after following a link from their site. While there's no reason to believe that any of these sites are in danger of going under, just bear in mind that not everyone who provides rewards is as secure as the titans of the banking industry.

Your account is inactive. If it's been several months since you've earned any Hilton HHonors points, expect to get an email that goes something like this: "We haven't noticed any activity on your HHonors account in more than nine months. Remember, to keep your account active, you must earn HHonors points at least once every 12 months. Otherwise, all of your points may be forfeited."

Hilton is hardly alone in requiring regular account activity for customers to keep the rewards they've earned. Credit.com points to the BarclayCard's NFL ExtraPoints Card, which will close your account if you go six months without charging anything to it. And it also notes that points and miles can expire if not used within a certain time frame.

So how can you avoid forfeiting your hard-earned points? As always, start by reading the fine print, where you'll find all sorts of information on expiration dates and unauthorized account activity. But your best bet is to just redeem your points on a regular basis so you never build up a large balance that can be taken away.

"People are treating their rewards points as a savings account, and they shouldn't be thinking about it that way," says Matjanec. "I think it's just the excitement of seeing that number grow."

But if something goes wrong, you also have to deal with the despair of seeing that number disappear. So, if you have a significant stash of unused reward points, use them to buy something -- or cash them in and stash the bonus dough in the secure confines of a a savings account.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.