Don't Lose Your Share of $48 Billion in Credit Card Rewards

Michele Lerner
Updated
business man holding credit cards
Alamy

Consumers with good or excellent credit often play the game of switching their loyalty from one card to another to accumulate airline miles, hotel room vouchers, gift cards or cash back, so that they can enjoy maximum rewards. At least that's how it's supposed to work.

But a recent study by CardHub shows that while credit card companies provide about $48 billion in rewards each year, about one-third of those rewards are never redeemed.

Some of the blame for leaving money on the table (or in the hands of credit card companies) lies with consumers who forget about the rewards points they've been earning. But the study also found that limitations set on redemption and the way points can be earned prevent cardholders from using credit card rewards programs to their maximum potential.

Credit Card Rewards Programs Compared

CardHub's study compared rewards credit card offers from the 10 largest credit card issuers, reading the fine print on dozens of rewards programs, to see which ones were the easiest to use. Then it scored the credit card companies in several categories, such as:

  • Capital One (COF) cards received an overall "Rewards Friendliness" score of 96.43 percent because its cards have the fewest rewards limitations. In addition, Capital One received the highest score (100 percent) in the "Rewards Redemption" category.

  • Bank of America (BAC) received the highest score (100 percent) in the "Rewards Expiration" category -- for having the longest-lasting rewards.

  • Barclays' (BCS) Barclaycard, Capital One and Wells Fargo (WFC) each received a 100 percent score for the "Rewards Earning" category.

  • The Discover (DFS) It Card has the most rewards limitations of all the credit cards reviewed and earned the lowest overall score (50 percent). It received the lowest score in the "Rewards Redemption" category (60 percent), and it tied with Citibank (C) and Barclaycard for the lowest score (33.33 percent) in the "Rewards Expiration" category.

CardHub found that the most common requirement among credit card rewards programs that prevent consumers from redeeming rewards is a minimum spending threshold. Rewards expiring after a missed payment were the most common limitation among the cards.

%VIRTUAL-article-sponsoredlinks%A recent Bankrate study looked at 54 cash-back credit cards from 21 credit card companies and found that the companies are offering sign-on bonuses to entice new customers, but they're requiring consumers to make a minimum amount of purchases within a small introductory period to earn those bonuses.

For example, 19 of the 30 cash-back credit cards that offered a sign-up bonus required consumers to spend between $500 and $3,000 on the cards within the first three months of having them. Only three cards handed over the bonus just for making a single purchase: the Barclaycard Rewards card, the Affinity Federal Credit Union Pure Rewards Visa (V) and the Priceline (PCLN) Rewards Visa.

Credit Card Rewards Tips

CardHub and Bankrate offer these tips for consumers looking for the best rewards credit card:

  • Go with a cash-back credit card for the easiest way to accumulate rewards. Cash-back cards have the bonus of letting you use your rewards to pay your bill.

  • Watch out for credit cards with a zero-percent introductory rate. If you carry a balance and think you might not pay off the balance in full before the introductory period expires, check to see what the annual percentage rate will be before you accept the new card. You could end up paying more in interest when the intro period ends than you're paying on your current credit card.

  • Look for a sign-on bonus. If you have excellent credit that won't be hurt by signing up for a new credit card, get a new one each year to accumulate up to $400 in cash or airline miles.

  • Read the fine print. Make sure you understand the minimum spending threshold you need to meet before you earn rewards, and whether there's a cap on how much you can earn each year and on how much you can redeem each year.

  • Set your bills on autopilot. CardHub found that one of the most common reasons cardholders lost their rewards was that they missed a payment, so set up an automatic payment for at least the minimum each month.

  • Avoid rotating categories. If you have to sign up for different rewards categories or the categories for earning the most points change periodically, you're less likely to earn the maximum rewards.

  • Redeem your points before you close an account. It's best for your credit score to keep older accounts open anyway, but if you decide to cancel a credit card, make sure you redeem your rewards points first; otherwise they're gone forever.

  • Try an "everyday" rewards card. Unless you're extremely loyal to one airline or hotel chain, it's best to get a rewards card that lets you choose from a variety of rewards and allows you to redeem your rewards earnings at least twice a year.

Playing the rewards game can be valuable, but you need to stay on top of the rules and restrictions in order to maximize your winnings.

Michele Lerner has no position in any stocks mentioned. The Motley Fool recommends Bank of America, Priceline Group, Visa and Wells Fargo. The Motley Fool owns shares of Bank of America, Capital One Financial, Discover Financial Services, Priceline Group, Visa and Wells Fargo and has the following options: short June 2014 $48 puts on Wells Fargo.

Advertisement