Is Your Credit Card Reward Program Truly Rewarding?

| August 2, 2012

By WILLIAM E SUMMERS V
Your Voice Contributor

For many Americans, credit cards are essential to everyday life.  Some consumers have even designated particular cards for purchases – i.e., one to purchase gas for the car, another for booking flights and so on. With credit card rewards programs growing in popularity, it can take some navigating to figure out all the details and maximize the benefits.

Credit card rewards programs are a fairly new development. Within the past 20 years, the number of programs has increased substantially as companies have discovered they are an excellent approach to building consumer loyalty. By offering their customers incentives, banks hoped that customers would be more apt to use bank cards versus competitors.

Most programs target consumers who travel often or use their cards for entertainment, thus enabling them to acquire large numbers of “points” that can be redeemed for the benefit of the cardholder. Some companies, for example, will provide “miles” and travel incentives.  Other cards allow consumers to earn merchandise, such as jewelry or electronics, based on the amount they charge. Another popular option is getting cash back on money spent. Discover Card was the first to enact this option, beginning in 1986.

If a consumer uses a card frequently, simply put, they will gain more points and therefore receive more benefits. The best way to maximize your card’s rewards program is by paying off the balance at the end of each month. As discussed previously, another strategy is using several cards for different purposes.

Due to the current state of the economy, some credit companies have made significant changes to their rewards programs, making it even more difficult for consumers to comprehend. Many banks have cut back their incentives, as well as raised or introduced annual card fees. Moreover, some companies have enacted over-limit and balance-transfer fees, and review customers’ credit files to increase their interest rates. Some card companies that once provided cash-back options to their customers have decreased the percentage they will pay, from 2 or 3 percent to 1 percent. The bottom line is consumers may discover that a credit card that has worked well for them in the past is no longer a good fit because of new fees and hidden costs.

In order to be credit-savvy, consumers should study the terms and conditions carefully for each of their credit cards and decide what features will provide them with the benefits they value most. There are many questions that card users should ask when choosing a rewards program, including:

  • Does the card have an annual fee?
  • Will the card be used often enough to earn meaningful rewards?
  • What fees are attached to the card? Under what circumstances will you be charged?
  • What is the card’s interest rate?
  • Does the company offer balance transfers with special rates?
  • Is the credit card the only service you have with the company?

Some consumers may opt to open credit cards through their financial institution. The laws governing fees and terms may vary widely by state, so choosing a card issued by an out-of-state company may present some problems. For example, Central Bank owns and manages its own credit card program, which allows the bank to cater to the specific needs of the markets it serves.

Lastly, consulting a banker is a great way to find a rewards program that is most beneficial for you. An experienced financial professional can help to clarify “the fine print” of each card, as well as offer advice on which program will help to maximize your benefits.

William E Summers, V is the Senior Vice President of Central Bank of Jefferson County. You can reach him at wsummers@centralbank.com.

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