Are Credit Card Signup Bonuses Worth It?
The right rewards credit card can enrich your financial life in a myriad of ways. Add a good signup bonus into the mix and you can earn some other benefits from the get go, such hundreds of dollars in cash back, travel points and miles, or shopping discounts.
Credit card providers use these signup bonuses to incentivize new customers to open a card. But the question is, are they worth it?
There are lots of reasons to consider the pros and cons of credit card signup bonuses, since the upfront rewards, while immediately attractive, might not compensate for what you receive in return. Knowing how to spot the best bonuses at signup can maximize your rewards - and prevent you from losing money. So, let's talk about how to decide if credit card signup bonuses are worth it for you!
Credit Card Signup Bonuses: Are they Worth It?
When picking a rewards credit card, it’s best to choose one that aligns with your financial needs and spending habits. In that light, signup bonuses could be one of the deciding factors in choosing one card over another.
That's why it's so important to understand when a credit card signup bonus is worth it and when it may cost you money in the end. To do this, consider the following questions:
Does the Card Have an Annual Fee?
You may or may not see an annual fee on your desired card (this usually depends on the level of rewards being offered and the type of credit card you're looking for). While not paying an annual fee is certainly ideal, there can be times when an annual fee pays for itself in rewards. Here are a few cards that come with varying fees:
Chase Freedom® doesn't come with an annual fee and it offers a $150 bonus if you spend $500 within the first three months of account opening. A large annual fee could easily devour most of that potential bonus, but the Freedom doesn't charge one.
Some cards that come with a fee will waive it for you in the first year. For example, Chase Sapphire Preferred® Card card’s $95 annual fee doesn’t begin until the second account year, so it won’t overlap with your initial bonus rewards.
Once you start veering into premium card territory, you're going to see more annual fees. That's when it's important to weigh the fees against the bonuses.
For example, The Platinum Card® from American Express comes with a $450 annual fee - something that may not be worth it for the average spender. However, it also comes with a $200 airline/baggage fee credit. If you're a frequent traveler sure to rack up that amount of airline or baggage fees in the next year, then that annual fee may have just gotten $200 cheaper overall.
Whether or not you should choose a card with an annual fee varies based on how you plan to use the card. There are times when benefits can mitigate a card's annual fee - if you find the card that best suits your day-to-day spending and lifestyle.
Should I Sign up for that Store Credit Card?
Store credit cards can be a great addition to your card rotation if you find yourself frequently shopping at the same places throughout the year. Most of these store cards offer a discount on your purchase the day you sign up for the card. So if you're going to get one, line it up with a time when you plan to make a large purchase with that retailer.
The main draw of a store card is just this, the signup discount you get right away as well as more discounts and coupons sent to you throughout the year. However, if you're primarily looking for points-based or cash back credit cards, store cards may not be the right fit for you.
Will Credit Card Churning Work for Me?
For the major credit card reward lover, a practice known as credit card churning can be a way of life. Unfortunately, if not done well, it can also wreck your credit.
Here's how credit card churning works:
- Apply for several cards at a time
- Spend enough on the cards to obtain the bonus rewards
- Cancel the cards before the annual fee hits
This can give you a nice collection of rewards without paying a dime in fees. But there are ways churning can negatively affect your credit score:
- Racking up several balances can lead you to miss making payments, which can have a huge effect on your credit score
- Opening and closing too many accounts at once can set your credit utilization ratio off balance
- Too much new credit at once could raise red flags for the credit bureaus who may assume that you’re irresponsibly applying for credit
Credit card churning requires excellent credit to begin with since you'll have to be approved for multiple credit cards. This is not an ideal practice for anyone that may have trouble handling several credit card balances (which could lead to missed payments and debt accrual).
Still, if your credit score is high enough, the few points you might lose here and there from credit card churning may leave less of an impact on your credit. But either way, this is a practice that should be approached with extreme caution.
Here Are More Signup Bonus Facts to Keep in Mind
If you’re shopping for a rewards credit card and want to make a signup bonus a big part of it, keep some of these pointers in mind:
You May Need to Fulfill Other Requirements
Some cards may call for other fulfillments, in addition to your minimum spending quota, in order to collect your bonus upon signup. As always, read the fine print to make sure you can meet whatever requirements are expected in order to obtain your rewards.
Your Annual Fee and Signup Bonus May Coincide
Some cards grant a signup bonus after a minimum spending threshold has been reached and others gift you with a bonus once the card is in your hands. But there are a few that will offer a partial bonus upfront and the remainder at a later date, which still counts as the initial signup bonus. Make sure you read carefully to see what kind of bonus is being offered with your desired card.
You Might Not Lose Your Signup Bonus if You Close Your Card
Whether you go for churning or just want to cancel a card, you won’t need to relinquish your signup bonus rewards. Mile or point-based rewards normally remain in your account even if the card is canceled and inactive. And for bank-branded rewards systems, keeping an account open with your financial provider allows you access to your bonus rewards.
Keep the Long Run in Mind
Card issuers and banks are always looking to draw in new cardholders with impressive signup offers, but keep in mind that short-term bonuses won’t necessarily benefit you in the long run.
Before you choose a card, make sure that you pick one that matches your spending habits and your financial goals. And make sure you'll be able to quickly pay back any amount of money spent to obtain those rewards.