Michael from CreditCardForum.com, a website dedicated to credit card discussions and blogs, has a knack for reviewing and ranking the best cash back credit cards. Today, he aims to clarify the details of credit card rewards programs.
Back in the 1970s and 1980s, finding a credit card that offered rewards was rare. Fast forward to today, nearly every card has some form of rewards program.
Michael estimates that over 70% of US credit cards offer rewards worth 1% or more, such as 1 point per dollar or 1% cash back. Some cards even offer up to 5% cash back on specific spending categories. This might sound like free money, but there are strings attached. When choosing a credit card with rewards, consider these key points:
### Spending Levels
For example, the American Express Blue card advertises 5% cash back on gas, groceries, and drug stores, and 1.5% cash back on everything else. However, this only kicks in after you’ve spent $6,500 in a year. Initially, you’ll earn just 1% back on the first three categories and half a percent on everything else. Always check these spending thresholds.
### Limits on Rewards
Banks lose money when they offer 3% to 5% cash back in specific categories, so they compensate by charging interest to those who don’t clear their monthly balance. But for people who pay off their balance every month, like Michael, these programs aren’t always profitable for the banks. Therefore, many cash back cards cap the total rewards you can earn. For instance, with the Chase Freedom card, the 5% cash back rate is limited to the first $1,500 spent quarterly in certain categories. Once Michael hits that limit, he switches to another card to keep earning high cash back.
### Increased Interest Rates
High-rebate cash back cards aren’t major profit generators for banks, leading to higher than average interest rates. So, it’s best not to carry a balance on them. The allure of 5% cash back fades quickly if you incur 15% to 20% interest, negating any rewards after a couple of months of carrying a balance.
### Annual Fees
Top-tier cash back credit cards often have an annual fee. Essentially, you’re paying to earn rewards. This might be worthwhile if you’re a big spender, but less so if you don’t make significant purchases. Compare the potential annual rewards against the annual fee to see if it’s worth it.
### Expiring Rewards
Don’t forget to redeem your points or cash back before they expire. Michael’s reviews show that rewards typically expire 36 months after being earned, though some cards have shorter expiration periods, sometimes as little as 12 months.
In conclusion, while cash back credit cards can offer savings, it’s important to pay attention to the details to maximize your benefits.