What is a Credit Card Sign-Up Bonus?
Sign-up bonuses are promotional deals offered by card-issuing banks to entice customers to sign up for credit cards and/or transfer balances to them. These deals often include travel miles, rewards points, and cash back.
Like any credit card, it’s still important to check the APR, fees, and terms of any reward credit card or credit card bonus. If you pay close attention to card policies, you may notice that the rewards are not worth the fees in the long run. But, you can profit quite a bit from using these cards if you only hold them temporarily and pay off balances in full each month.
We show you how credit card sign-up bonuses work, how picks the credit cards with the best bonuses, and ways to maximize the value you get from them.
Common Credit Card Sign-up Bonuses
Every major credit card issuer uses different types of bonuses to attract new sign-ups. A typical sign-up bonus is a large sum of travel miles, points, or cash back that is awarded after a certain amount of spending. This spending has to happen during the initial months of getting the card.
For instance, to earn a $200 sign-up bonus, you must make $3,000 in purchases with the card during the first 3 months.
Some credit cards may offer multiple sign-up bonuses that are earned when you reach different spending levels. For example, an airline credit card would award 20,000 bonus miles when you spend $3,000 in the first 3 months. Then, you’ll earn another 20,000 bonus miles if you hit $10,000 in spending during the first year of cardmembership.
Generally, once the spending requirement is met, sign-up bonuses are posted to the account at the end of the statement cycle.
Selecting the Best Credit Card Bonuses
With many credit cards offering big sign-up bonuses, it can be difficult to pick the ones that are best for you. Also, a large bonus may not be worth as much you thought because the value of the bonus is lower than it appears.
There are 3 key factors that play into picking a good credit card bonus:
- 1. Are you able to meet the spending requirements?
- 2. Is the bonus actually worth a large amount of rewards?
- 3. Will you use the card after you’ve earned the bonus?
Meeting the Spending Requirements
You need to make the purchases necessary to earn the credit card sign-up bonus. Otherwise, you’ll miss out of a large chunk of rewards. If you picked a credit card that you don’t plan to use often, you’re stuck with a useless credit card with no great benefit to yourself.
Ideally, you are already spending enough money regularly to earn the sign-up bonus. If you having difficulty to hit the spending requirement, here are some tips you can use to do so:
- Wait for a major purchase before signing up. The time window to meet the spending threshold starts after you’re approved for the credit card. You can hold off on applying until you expect a large expense coming up.
- Buy gifts cards that don’t expire. To generate more spending, you can always buy branded gift cards, which tend to have no expiration date. The purchases will help you earn your credit card sign-up bonus and you can hold onto the gift cards for use whenever you want.
- Spend on behalf of others. Look for opportunities to swipe your card while knowing that you’ll be paid back. For instance, you can offer to put the dinner bill on your card and have the group pay for their share in cash.
Finding the Value of a Sign-up Bonus
A credit card sign-up bonus might include tens of thousands of points or miles. But, it means nothing if you do not know what points or miles are actually worth. It will not be as rewarding to find out that a bonus of 100,000 miles is only equivalent to $100 in free travel.
Take a look at the card’s rewards program to find out what rewards you can redeem with the bonus. If the credit card has an annual fee, you’d want the sign-up bonus to be worth several times that annual fee. Popular rewards credit cards often have sign-up bonuses that are worth at least 4 to 5 times their annual fees.
With travel credit cards, the free flights and hotel stays can carry much greater value. It'll depend on factors such as ticket class, destination, room size, and more. Their rewards programs may offer interesting ways to maximize the value that you get from your points or miles. Some cards allow you to transfer the points to various airline and hotel frequent traveler programs for free travel rewards.
A Great Card for Years to Come
Although a credit card can have a great sign-up bonus, the card can prove to serve no other purpose after you’ve already used up the bonus. More often than not, the card will have an annual fee too. You could be left with an expensive credit card that doesn’t help you earn a ton of rewards or provide convenient benefits in the long run. If that’s the case, the sign-up bonus wouldn’t have really been worth it.
Preferably, the credit card with a large bonus also comes with a great rewards program.
Examples of the Credit Cards With Great Sign-up Bonuses
There is a long list of credit cards that come with attractive sign-up bonuses, so we’ve chosen a couple of the best ones to show why they’re worth getting:
Chase Sapphire Preferred® Card
Chase Sapphire Preferred® Card is a travel rewards credit card that usually offers a big sign-up bonus. The bonus has a spending requirement that must be met within the first 3 months of getting the card. With this card, the points can be redeemed for cash back at a ratio of 1 point per 1 cent. However, these points can be worth much more when redeemed through Chase’s online travel-booking portal -- travel bookings can be redeemed with 20% fewer points.
And, the points can be transferred to certain airline and hotel partners, including United Airlines, British Airways, Marriott, and more.
British Airways Visa Signature Card
After getting a large amount of Avios (the British Airways name for their points), you are free to use them to book flights that will carry the most value. The bonus Avios can be worth more than $1,000 in value if you pick the right flights.
Tax Worries on Sign-up Bonuses
Taxes on the credit card bonus is an understandable concern. Unlike the tax rules for bank account bonuses, credit card bonuses are not taxed.
Credit card bonuses (and credit card rewards in general) tend to require spending your part. To the IRS, the rewards and bonuses are considered discounts (or rebates) on your spending -- it is not income. You will not receive an IRS form that reports the earnings of your sign-up bonus.
Churning Credit Card Bonuses
The practice of churning credit cards is opening credit cards with large sign-up bonuses and then closing them immediately after the bonuses have been redeemed. Some consumers repeat this process to take advantage of the big bonuses without the intention of keeping the card for more than a year.
Credit card churning is not suitable for everyone. Firstly, you’ll need great credit to qualify for the credit cards with the best sign-up bonuses. Secondly, the act of opening and closing cards can hurt your credit scores temporarily. If you want to keep your credit in good standing before applying for a major loan, you’d want to avoid credit card churning.
Also, credit card issuers may enforce a period of time of which you cannot reapply for a credit card that you’ve owned in the recent past. Typically, this lockout period ranges from 1 to 2 years.
Credit card signup bonuses entice customers by offering a lot of cash back, airline miles, and hotel points early on. While these offers can be great, they can also tempt you to spend more money than you actually have. People often fall into the trap of creating a lifestyle they now need to keep up with.
It’s possible to take advantage of these introductory offers by applying for and canceling different cards at different times to rotate debt and effectively delay (or avoid entirely) paying interest. Using points will require some knowledge on how to shop effectively with frequent flier miles or travel rewards.
Anyone can get a bunch of rewards from using credit card signup bonuses. It just takes a little planning, effort, and discipline to ensure bills are paid in full and on time.