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Rewards Card Mistakes That Will Cost You Money
Contrary to what you may think, rewards cards may not fully work in your favor. In fact, it may cost you more in the long run. Except for frequent flyers who take full advantage of rewards cards programs, there is a downside to applying for and using rewards cards.
Perhaps you have seen the TV ad wherein Bank of America is promoting their "Keep the Change" program.
For example, let's say you purchase an item for $15.59. Their bank rounds off the charge to the nearest dollar and puts the $.41 into a savings account. While you think you may be saving money, the truth is that the interest paid on the money saved is less than .5%. Another bank may offer a 4% or 5% rate of interest.
Although rewards cards are popular, banks do not give away something for nothing. In fact, rewards cards come with higher interest rates than regular credit cards. Even the lowest APR rewards cards charge 1% more than average cards. For example, if you apply for a card that has a 14.5% APR and the balance is $5,000, the interest paid comes to about $600, but the rewards may only add up to $300.
Some rewards cards are only applicable at certain stores. This means that you could have to shop at a store where the prices are much higher than the one you normally shop at. Let's take groceries, for example. Is it worth getting only 5% back on pricier items, when you can probably save more than 10% at your local supermarket?
Let's take an online store as an example. Amazon.com offers a rewards program for purchases made using their Amazon Visa card. The reward is a $25.00 gift certificate to be used for Amazon merchandise only based on 2500 points accumulated. Each purchase equals so many points. Now unless you frequently shop at Amazon.com, you may or may not reach the 2500-point goal. It may take a year to do so.
Again, keep in mind that most rewards cards such as Capitol One and others do require an annual fee, usually $39.00. Since Capitol One offers a frequent flyer program, it is prudent to review the terms and conditions since they have increased the amount of points needed towards an airline ticket.
Rewards cards may work in your favor, but it all depends upon how much you spend and if you can afford the increased interest rates and fees associated with each bank's program.
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