FDIC Consumer News
From Coupons to Cash Back: Our Latest Tips on Choosing and Using Bank "Rewards"
Bank rewards programs tied to credit or debit cards or other products can provide you with appealing offers for things such as points to be used for travel and shopping or cash added to your account. But finding great deals is only half of the equation.
"It's important for consumers to understand that to make the most of any rewards program, they need to make sure that they do not overlook other, more important account features in addition to the rewards," said Susan Boenau, Chief of the FDIC's Consumer Affairs Section.
Before jumping into any rewards program, consider these tips for maximizing the potential benefits and minimizing mistakes.
Comparison shop different rewards programs, including their fees and other costs, before deciding to apply for one. One credit card or deposit account might offer seemingly terrific rewards but also charge fees that may negate the rewards. So it's important to take a look at other products (such as a rewards card without an annual fee) and weigh the costs and benefits of each one.
Choose a rewards program that fits your lifestyle. The best way to maximize benefits and avoid spending problems is to choose a program that rewards you for purchases or deposits you would make even without the gifts.
"You may want to think about rewards programs in terms of reaching your goals, because each one has different features," Boenau added. "For example, if you are planning a vacation, then a credit card offering a lot of points for airfare and hotel costs may appeal to you. But if the card also has a high interest rate and you plan to carry a balance, you may find another credit card offering a lower interest rate may be a better deal overall."
Also look for credit cards and other bank products that provide rewards tailored to consumers at particular stages in their lives. For instance, some credit cards allow consumers to automatically deposit cash-back rewards into a college savings account, and certain banks have bonus (above market) interest rates on deposit accounts and rebates on ATM fees for senior citizens and students.
Remember what it takes to earn rewards. Many credit cards provide rewards when you use them to make purchases, but it's important to know exactly how much you can earn. For example, a card issuer may offer 5 percent cash back on groceries, but the fine print may say that reward is available only on the first $1,000 spent each year. Likewise, while some banks offer sign-up bonuses for simply obtaining a card, others may require you to charge a certain amount of money to the card within the first few months.
In addition, some card issuers offer specials that double or triple rewards for purchases in certain categories. "These specials change from time to time, so be on the lookout for opportunities to increase your rewards earnings by signing up for alerts or checking your card issuer's website," said Heather St. Germain, a Senior Consumer Affairs Specialist at the FDIC.
While rewards can be beneficial, don't spend just to earn rewards. A recent Federal Reserve Bank of Chicago report noted that overall spending and debt accumulation may increase slightly among consumers who use a rewards credit card. "Make sure you're not spending just to earn a small rebate," St. Germain advised. "Use the card for purchases you would typically make, and try to pay your account balance in full each month so you can avoid interest charges."
Check your account regularly to make sure you receive your rewards. A mistake or a coding error by a merchant may result in you failing to receive the full rewards amount you're due.
Understand how you may lose access to rewards. Consumers focus on the potential rewards they may earn but can forget that it is possible to earn rewards and lose them. Here are some examples involving credit cards:
- If a cardholder misses a payment on a monthly credit card bill, some card issuers will take back the rewards earned during that month;
- Some card issuers place expiration dates on using rewards, which may be an unpleasant surprise if you plan to save rewards over a period of time; and
- Card issuers may require customers to spend a minimum amount on the card to continue to earn rewards or keep the rewards they've already earned.
Also be aware that card issuers may reserve the right to change the terms of their rewards programs or cancel the programs at any time.
Manage your credit and debit cards. Any rewards you receive can become worthless if you allow fees or other penalties to pile up. So try to pay your credit card bill on time and in full each month to avoid interest charges and late fees. And when using your debit card, be careful to not overdraw your account or make other transactions that could rack up costly fees, such as when using an ATM not affiliated with your bank (see At the ATM: 10 Ways to Minimize Fees and Maximize Security).
Be wary of signing up for too many rewards programs. Some consumers take on many rewards cards, either because they see a reward that is too enticing to pass by or they're trying to build as many rewards as possible. However, using several cards may sometimes reduce your rewards. For example, if your purchases are spread out among multiple cards, it may be difficult to accumulate enough purchases on one card to acquire rewards. Be sure to look strategically at the cards you have before making a decision to apply for another one.
Using mobile banking services for purchases may also get you rewards. Some banks have relationships with specific retailers that provide customers with extra rewards when they shop with that merchant and pay with the bank's credit or debit card. And with a mobile banking application (app) on their phone, consumers also can access those rewards while they're shopping.
At the same time, be certain you understand how each mobile rewards program works. "One issue to keep in mind is how your personal information will be collected, stored and used," cautioned Elizabeth Khalil, a Senior Policy Analyst at the FDIC. "For location-based offers, you will need to allow the app to access your location through your smartphone. No matter the type of mobile rewards program, be sure you understand what you're signing up for and that you are comfortable with it."
For more tips on choosing the right accounts (with or without rewards) and managing them effectively, see the Winter 2013/2014 FDIC Consumer News article on credit cards and our Spring 2014 story on checking accounts.