Reward Points: The Real Deal
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22 Comments so far
leave a commentAs a general rule I do not sign up for *any* points programs.. It’s just not worth the mental bandwidth to keep track of points and how to earn them, and I know that even if I try not to, the presence of the point program will impact my purchasing patterns.
The only credit cards I use are my Schwab Visa, which gives me 2% cash back on all purchases *every month*. And there’s no limit.
My spare card is a Costco Amex, with no annual fee and cash back every year. Unfortunately their cash back program is more complex, with 1% on everything, 2% on travel, and 3% at restaurants and gas.
I recently counted up all my cash rebates/rewards received since 2003 (I track them in a spreadsheet), and was impressed to see they totaled about $4,300. Total interest paid to same credit card companies during the same time? $0. And an interesting not-often-talked-about feature of cash rebates/rewards are that they’re essentially tax-free!
We save literally thousands every year because we have a united mileage plus card. We pay off our balance every month so we never get hit with interest rates / fines, the annual fee is $120 which is far, far less than we pay for air travel in a year.
It doesn’t matter if a card as a points program or not, if you spend more than you can afford your going to get screwed. I’m not saying that credit card companies are saints by any stretch of the imagination, but people need to stop being so damned stupid and spending money they don’t have. Take some responsibility people and live within your means.
Quoting Shoppers Drug Mart for savings?? I thought Mint.com was a US based company.
The best reason not to use rewards cards is this: the card issuers charge the merchants a higher rate for rewards cards. If you purchase a widget with a non-rewards card, the issuer will take maybe 2.25% as its fee. When you purchase that widget with a rewards card, the issuer will take maybe 3.75% as its fee. It’s the merchant who is paying for your “rewards”, not Mastercard or Visa. And naturally the merchant passes that cost back to you, and me. So in reality you’re paying for your own rewards in the form of higher prices. Enjoy!
The logic here is completely wrong and it seems likely that Rudy himself is a merchant. Rudy ignores the reality of the tradgedy of the commons. Sure, you can stop using a rewards credit card but the merchant is not gonig to charge you less to do that. Meanwhile other people will use a rewards card and because your all paying the same price in the end – those using the rewards card will be better off.
If some government agency could make a law that said nobody use rewards cards and all merchants lower their prices 2%, everyone might be better off. But, untill then, work your rewards card for all it is worth.
http://www.thedelibero.com/2009/09/stop-paying-the-cash-tax/
I think credit cards of international banks like HSBC and american banks offers quiet good personnel financial help for the international clients.
I dont usually bother with rewards programs, but I use and love the Amazon Visa card. Since Im spending the money anyway, why not put it on a card where I get something useful back? I dont even pay attention to the points accumulation– just every so often I get a gift certificate in the mail for $25. I pay the balance off every month, so its totally free money.
I’ve been using the Amazon Visa for years and totally agree here. The $25 certificates have been great and given that it’s Amazon, you can find just about anything you would want to redeem them on.
This chart was needed. I am still struggling, however, with whether what’s the best hotel loyalty program to go with. Starwood, Marriott, Best Western, other? While I understand the program administrators have their reasons for the confusing system, I wonder how many more loyal customers there would be if like the previous commenter you decided not to get one because of the “mental bandwidth” involves in using the program.
Ben,
If you love to travel and like a bit of flexibility, I would look into the American Express Starwood card. Not only can you use those points for Starwood hotels, you can transfer them 1:1 to large number of airlines. The annual fee is a great deal at $30 and the first year is free.
http://money.cnn.com/2006/03/31/pf/goodlife_fortune_travel/index.htm
Yeah, I can see companies doing these reward cards just to get people buying more crap, just keep trying to do your normal purchases and you should be okay. its all about making more money to them.
This is great — thanks very much for putting it together.
One small point of order re: the Shopper’s Drug Mart Optimum Mastercard…in certain provinces in Canada when you redeem points on Bonus Redemption weekends, you get $200 for $150 worth of points (75,000 points).
So according to your calculations with a $320 purchase, you get a 62.5% discount instead of a 53% discount.
Cheers!
I think the author of the article offers one sided view of reward credit cards and can be summed up as saying “If one uses a reward credit card then he/she is doomed to overspend, charged huge annual fee and go to hell”
I don’t think that things are so bad. Here is why:
1) yes, having rewards program may cause you to spend more, but if you are prone to overspending then you you will overspend without rewards program too.
Rewards program may give an excuse to for overspending, but it’s not the real reason. If overspending is likely, then sadly switching to paying in cash might be the only option…
2) Cards analyzed for this article are not the cards that offer best rewards.
example of good cards with $0 annual fee would be:
* 2% schwab card (mentioned by the previous poster), and yes it requres opening schwab brokerage account, but there is no fee & no minimum balance requirement for it. (there is also Fidelity Amex card that offers 2% and requires Fidelity Account)
* Discover card periodically offers 5% in different categories
3) Many credit cards offer 1% cash back or more and do not charge annual fee.
* Chase Freedom and similar cards offer 1% cash back or equvivalent in points and have no annual fee
* above mentioned Schwab & Fidelity cards
My conclusion:
If you can’t control yourself, don’t use credit card or be ready to face the consequences of overspending.
If you are a mature person, who can control his/her spedinng, then get a good rewards credit card.
Some persons uses the cards a lot for the Reward points but I don’t believe that this is an saving options. Each items comes with a particular points and pricing as well. Persons should always practice good money management when using credit cards and not be over indulge because of these Reward Points.
I’m an AmEx cardholder, and have never heard that Gold cardholders get a 10,000 point bonus after spending $500 in 3 months? Where is that info from? I just scoured the AmEx Web site and couldn’t find anything saying that.
Why was Chase excluded from this article? I’ve had the Chase Freedom Rewards card since it was first introduced. Since then, it looks like they’ve changed it a bit for new cardholders. But, I get…
- 1% on all purchases (no cap)
- 3% on my top 3 spending categories ($12/month cap). Looks like this has changed to a quarterly bonus on rotating categories.
- I earn cash back. When I reach $200, I can redeem it for a $250 check! That’s $50 “free points”.
- No annual fee.
I also have a Chase Freedom card and think in general it’s a great card. But they have recently done away with the $250 check for $200 worth of points. They’re also now charging an annual fee. It’s still probably the best cash back card out there, just not quite as good as it was before.
reading on my new iphone!!
A few months ago, my Chase Freedom card sent a notice that said it would eliminate the $250 check for 20,000 points option effective October 2009. Then they sent another notice saying that no changes would be made to my account. I still have the 1%/3% and $250 cash option (which is the only useful reward) and no annual fee. So I guess the changes are being made selectively. I opened this card about two years ago after receiving an offer in the mail and a 25,000 point opening bonus. It can pay to receive “junk mail”.
Don’t use your card for any “foreign” transactions as you’ll often pay a 2 to 3% transaction fee thereby eliminating any rewards. For example, some international airlines which process the transaction outside the US are subject to this fee even if this is done entirely in US$. To avoid this, try booking though a travel agency (which may charge you a service fee, but this could still be less that the bank fee).
I don’t have any cards where you have to earn points. But it seems like there’s no harm in them if there aren’t any fees attached. My problem is having all of these cards from different stores, I myself have around 15. If you have any opinion about the quantity of rewards cards please take a look at this survey: http://www.surveypirate.com/Survey.aspx?surveyid=6971 hash=PflA8Pgvk6-1X9NcJxtczQ%3d%3d
Thank you for a very instructive article