Credit Card Rewards Programs Are Not Made Equal

Apr 23, 2016 | Be First to Comment!

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You're watching TV when a commercial comes on. With exaggerated enthusiasm, the credit card company TV spokesperson emphasizes that you can get up to “five points" per dollar spent on purchases. If you’ve ever taken a look at various rewards credit cards, you’ll find a 5-points-per-dollar reward rate to be rather attractive. But is it really that amazing?

The Citi ThankYou Preferred card offers 2 points per dollar spent on dining and entertainment. However, as appealing as it sounds, those points don’t actually equate to 2% cash back. If you redeem the points for cash back, you’re actually getting the equivalent of 1% cash back on dining and entertainment, which is unremarkable to say the least. Most cash back credit cards offer at least 1% cash back on everything.

When shopping for a credit card, it’s easy to focus on the number of points that you can earn but the value of those points is often hidden from view, requiring the smart consumer to do a little digging. Rewards programs can have different points-to-value ratios for different rewards.

Before you sign up for any credit card in anticipation of lofty rewards, it’s always a good move to take a look at the rewards and how much they cost to redeem. You’ll find that some credit cards aren’t worth the buzz that they generate.

Credit Card Point Value by Issuer

Card Issuer Point Value (in cents) Notes
American Express Membership Rewards 2 When used towards qualifying travel. Different values for statement credits and partner transfers.
Barclaycard Arrival Miles 1.05 You can pay travel expenses at a rate of 1 mile per cent, and then receive a 5% mile rebate.
Capital One 1 When used for future/past travel. General statement credits redeem at 0.5 cents per mile.
Chase Ultimate Rewards 1.25 When booking travel through the Chase UR portal. Statement credits and shop with chase have a value of 1 cent per point. Transferring to partners can increase point value in certain cases.
Citi ThankYou Points 1.6 When redeeming on American Airlines with Citi Prestige. 1.33-1.25 cents for other travel. 1 cent per point in statement credit.
Diners Club Rewards As high as 2 You can transfer points to a number of partners at varying rates.
US Bank Flexperks 2 When redeemed for airfare. Lower values for other redemption options.

Gift cards offer more value

As shown by the rewards programs from American Express and Citi, customers can get more value from their points when they redeem them for branded gift cards. If your goal is to get cash back from a rewards program, American Express or Citi credit cards linked to those respective rewards programs should not be considered. For every point earned, customers only get half a penny in cash value.

While the above chart may depict American Express Membership Rewards as an unappealing program, not all of the program’s rewards have less than a 1-point-to-$0.01 ratio. For instance, Membership Rewards participants can redeem a $25 Gap gift card for 2,500 points.

If you’re considering an American Express or Citi credit card that offers points, be sure to see what rewards you would redeem in order to ensure that you get the maximum value for your hard-earned points.

Meanwhile, Chase and Bank of America’s rewards programs don’t make it more costly to redeem their points for cash -- when their credit cards say “earn X points,” it also means “earn X percent cash back.”

Cash back is more straightforward

Maybe you find no need for rewards such as merchandise and gift cards, or prefer the liquidity and versatility of cash.

These are the common reasons that consumers opt for a cash back credit card. You don’t have to worry about making the most of your rewards currency, and the rate at which you earn cash back will translate to how much you get when you redeem your cash back balance.

While the American Express Membership Rewards program is inferior for cash rewards, American Express offers cash back credit cards that provide very attractive cash rewards. The American Express Blue Cash Preferred card is a very popular cash back credit card because cardholders get 6% cash back at supermarkets, on the first $6,000 spent at supermarkets in the year (though there is a $75 annual fee).

Before you apply for any rewards credit card, think about the rewards you would realistically redeem. You might find that it’s not as great a deal as it appears.

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