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Many Rewards Programs Not Worth the Effort: Consumer Reports
This entry was posted on 6/3/2008 11:14 AM and is filed under Credit Card.
YONKERS, N.Y., June 2, 2008/PRNewswire-USNewswire/
— In tight economic times, savvy consumers may look to rewards programs for
relief when buying essentials, but Consumer Reports' July issue finds reaping
real savings can be tough, and even the more generous programs have limits on
how much consumers can earn.
To keep shoppers coming back and spending
more, supermarkets, drugstores, warehouse clubs, gas stations, bookstore
chains, and many other retailers are pushing points programs.
About 85% of U.S. households participate in at least one
rewards program. A recent poll of Consumer Reports Money Adviser subscribers
found that 41% of the newsletter's subscribers carried three to five such cards, 9 percent had six to nine of
them, and 3% somehow found room on their key rings or in their wallet
for 10 or more.
Consumer Reports finds that along with
the dizzying number of programs have come increasingly complex rules,
restrictions, and limits on how much consumers can earn, making many of the
programs not worth the bother.
"Carrying the right cards and ignoring
the rest can save you a little money on your purchases, but consumers must
choose programs that compliment their spending habits," said Amanda
Walker, senior project editor at Consumer Reports.
Some rewards cards do double duty as
credit cards. Cash-back, gas, and grocery rewards credit cards can offer some
relief for costly essential items, but often carry higher Annual Percentage
Rates than traditional credit cards. Looking at some of the more generous
credit card rewards programs, CR found that rates varied from 9.74 % to as much
as 19.99 %.
"If the rates are high, the cost to
carry a balance will often erase any savings the rewards program may
offer," Walker said.
A look at some of the more generous
cash-back, gas, and grocery store credit card rewards programs is online at
www.ConsumerReports.org.
For consumers looking to reap the most
rewards and avoid the traps, Consumer Reports offers the following advice:
- Save your key
ring or wallet space for cards that will earn rewards at stores you use most
often.
- Project your spending.
Translate the amount you're likely to spend into cash back or points, depending
on the program. If it's points, find out how many you need to get something you
might want. If you're using a credit card, subtract the annual fee, if any. If
that calculation shows you'd have to spend a fortune to earn a pittance in rewards,
you might want to use another card.
- Favor cash back. You might
never redeem your points, so at least you will get something. Plus, CR's research has found that cash-back
cards tend to be more generous in their rewards.
- Rewards credit cards often charge relatively high interest rates,
which will eat up your reward (and then some) if you carry a revolving balance.
The issuer can also hold points hostage or stop adding to them if your payment
is late.
- Cards that give your reward to a charity usually pay only about 25 to
50 cents for every $100 you spend. And you can't write off the donation on your
taxes. Both you and the charity might do better if you use a more generous
rewards card, keep the money, and just write the charity a check.
- Use airline miles fast.
Cashing in frequent-flyer rewards has become more difficult because airlines
have cut flights and now have fewer seats available. So rack them up and use them
up as quickly as possible. Airlines also change their rules frequently, and
several big carriers have recently gone bankrupt.
- Avoid temptation. Research
has shown that people who use rewards cards charge more.
For more information or to see a complete
breakdown of some of the more generous credit card rewards programs, consult
the July issue of Consumer Reports, or to subscribers at www.ConsumerReports.org.
Source: Consumer Reports
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