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Credit Card Rewards are a Rip Off (for Some)

This article was written by in Credit. 16 comments.


CNN Money is taking a hard stance against credit card reward programs. Citing a study released yesterday by Consumer Reports, which I have not yet seen online, rewards cards entice customers to spend more than with regular credit cards. Additionally, the restrictions common with many cards make the rewards less valuable than they appear.

The article mentions the fact that reward credit cards often have higher interest rates. Interest rates should not be a consideration. If you carry a balance on your credit card from month to month, it is very unlikely that any rewards program will be beneficial. You’ll pay your rewards right back to the credit card company in the form of interest payments, or worse, in the form of late fees.

My cash back benefits seem to be decreasing despite my continued use. On my American Express Blue Cash for Business card, I’m only earning 0.5% because I haven’t reached a certain threshold of spending. My Citi Dividend World Mastercard is faring better, though I don’t have a good idea if I am earning all the cash back I am supposed to be earning according to the card’s terms.

Are you satisfied with your credit card reward program?

Credit card rewards are a real rip off [CNN Money]

Updated March 28, 2010 and originally published June 3, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar Tom

I am very satisfied.

I use a combination of the Citi Premier Pass – Elite and the Costco AmEx True Earnings Business Card. Paid in full every month.

Premier Pass – For every mile you fly, you get one point and for every dollar you spend, you get one point. You also get bonus points for drug/grocery stores and specific merchants. The mileage points are in addition to your regular airline frequent flier miles. The best part about this card is that you can buy an airline ticket for 20,000 points up to a $400 ticket value. This roughly equates to a $400 ticket for $200! I don’t think you can beat that.

AMEX True Earnings – 5% cash back on gas… enough said. 3% cash back on restaurants, 1% on everything else including Costco. I only use this card for gas, eating out and at Costco.

It’s very difficult to calculate the total rewards %, but I’d say I’m roughly at 2.5% cash/points back.

I’d also like to note that the Premier Pass – Elite should only be used if you travel often. There is a $75 annual fee, but, for me, is offset by the flight points.

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avatar Dan

I make great use of our cards; in fact, I just got the bills last night and we’ll be redeeming $200 and $150 respectively to put in the kids’ college accounts as we’ve been doing for years. Of course, we’ve never paid a dime in interest or late fees, so this makes sense for us. While my favorite card at 5% on gas, groceries and pharmacy changed the terms, I’ve been able to find a couple with desirable terms, like 3% on the top 3 categories, etc. I’d say that for consumers in a similar position, this is the easiest money we make each year. Without link dropping, and I see you have some similarly insightful posts, there are plenty of resources out there with good writeups and reviews on desirable card deals for cash back rewards (which I always recommend over miles, hotel stays, etc).

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avatar Emily

I agree that reward programs are rip-offs if you carry a balance and/or pay an annual fee — what’s the point of getting a reward program if you are carrying a balance? No point in paying higher interest. But I don’t do either, so I have had no problems with any of my reward cards. However, I also haven’t redeemed the points yet, so I am a little worried I will be in for some unpleasant phone calls when that moment comes…

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avatar Lamar

What was it that Jesus said, “I come to bring a sword”? The credit card is just another sword that divides the financially responsible from the irresponsible, and another instrument to make the rich richer and the poor poorer. That is, it’s another great benefit of a free and technologically advanced society. I’d guess that the average reward card holder carries a balance (or else the whole program wouldn’t exist). This is the audience CNN is targeting.

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avatar Eddy M

That’s not true – they earn about a 3% merchant fee on each purchase. The rewards on most cards are 1% cash (or an equivalent amount of airline miles). In exchange for virtually eliminating robbery and picketpocketing from our society and well as offering a great convenience, the credit card companies are keeping ~2% of our everyday purchases. Stop with the class-warrior rhetoric – the only people this is hurting are the ones who make bad decisions themselves. It’s like blaming the glue manufacturer for people getting hurt while huffing their glue. Rewards cards have a high interest rate because they do NOT want to be in the business of offering unsecured credit on these cards – they WANT everyone to pay their bill off every month.

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avatar Kyle

I am more or less satisfied with the actual rewards of my Chase Freedom card, but I am NOT satisfied with the hoops you have to jump through to cash in. The insist on making you build up $200 worth of rewards and then sending you a check in the mail which takes up to 2 months rather than just c rediting your account on a monthly basis, which would be the most logical and simplest way to do it.

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avatar Jason

I have a reward program check card. I get an airline mile for every dollar spent on my check card. It costs 30 dollars a year, but I spend enough to get a plane ticket out of the deal. Perhaps you should check with your bank and see if they offer something similar.

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avatar Douglas

Tom (Comment #1)

I also have the Citi Premier Elite, and also travel a lot. Have you tried to use your points? When I did, a bunch of restrictions came into play, which made my choices very, very limited and basically not worth it.

After many years collecting points from airlines and now Citi. I think cash is king. Give me my cash and I’ll find the cheapest most convenient flight in any airline that wants to compete for my money. Off course you have to spend a lot to earn decent cash, but I do, so I’m fine with that.

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avatar The Happy Rock

I keep it simple with just Chase Freedom. Solid overall percentages, no spending hoops to jump through, and a nice 200 for 250 bonus when you cash out.

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avatar Tom

Douglas-

Yes, but only for airline tickets. The only restrictions I ran into were: Roundtrip ticket, and a Saturday night stay. For my point travels these weren’t an issue as we were doing a lot of weekend trips.

I know they now have online booking using points, but I’ve never used it. I always call up the Thank You Travel Center and book through them, and in order to use the 20,000 point flights, you have to call them.

I agree with you though, research the flights before buying. Once I find the cheap flights I like, then I call Thank You Network and tell them specific flight numbers. The point cost always ends up being very close to the actual ticket prices.

I hope this helps!

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avatar Jennson

I have an InNYC card from American Express and another one from Providian (now Washington Mutual) that I use on a regular basis. I use the InNYC card for points towards gift certificates to restaurants and other various entertaining events. The Amex card is decent because I get double points whenever I use it at a restaurant, so it works for me. The participating restaurants though are all high-end and a bit out of my price range, so I don’t expect to redeem points very often.The Providian card doesn’t provide much in the way of benefits, but I still use it because I’ve maintained this account the longest. Generally, I need to rack up 1,000 pts (1 dollar per point) to even qualify to redeem a $10 gift card to various retailers. I just use it towards gift cards for Exxon and Starbucks. I will eventually move to a cash-back rewards program, but just don’t feel ready to open another credit card account yet.

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avatar PT

We’ve done “ok” with rewards but we’ve by no means developed a strategy to optimize their use. I’ve wanted for some time to sit down and figure out what card we should use where, but it seems like programs are changing all the time and our spending habits change all the time.

One thing we’ve done is maximize what I earn on my job travel (have to use my own card). With reward cards and hotel and airline rewards we’re able to take a personal weekend trip every year for just about free. That’s nice.

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avatar Mrs. Micah

I actually just attempted to get my first me-only credit card again now that I apparently have a credit history. I ended up going for one with no annual fee, but didn’t go for rewards. I figured that the way I plan to use this card won’t yield any rewards to speak of.

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avatar Ed

I use the Costco Amex. It has been good to me. The key is paying off your balance in full each month. If you do — free money. If not, then the interest payment you are making is paying for my rewards.

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avatar Pete

I’ve got one cash back rewards card, and that’s it. We only use it if we have the cash to pay it off right away – we never carry a balance. We use it mainly for large purchases (plane tickets, new TV, etc) and then get the cash back rewards as soon as we qualify.

I think rewards cards are fine if you are good at managing your credit, paying it off right away and not carrying a balance. unfortunately i think a majority of people that have these cards don’t manage them well, and studies show they end up spending more than they would have than with a regular card. They spend more, and I think the study said about 42% of them never even look at their rewards or request the cash/points/etc be used. How dumb is that?

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avatar Scott

We have a Discover Card that pays 1% of your purchases and 5% on special promotions (you have to activly sign up for every 3 months and caps at $400 of spending) like gas, travel, home improvement, clothing, entertainment. We have no annual fee and pay the balance off monthly. You can cash out in $20 increments and can also use their partners to increase the amount by reqesting store gift cards (works great if you plan on spending money there anyway). You can cash out online or over the phone. I’ve never had a problem cashing out, in fact whenever you are on the phone with them for something else, like requesting lower interest rates or arguing a charge, they ask if you want to cash out rewards while already talking to someone.

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