For those of us that can pay our bills on time, rewards credit cards are a great way to get something for nothing. It feels pretty good to earn airline miles, or cash back, just for making your daily purchases.
However, it takes more effort than you might realize to make sure you’re getting the most reward bang for your buck. In the past year, credit cards have soared in popularity, which means the number of credit card marketing gimmicks has increased right along with it. At NerdWallet, we deal with the best (and worst) of credit cards every day. Here are four credit card marketing tricks we see all the time:
1. Reward Spending Caps
The popular rotating bonus category rewards card, which offers 5% back at several types of retailers that change every three months, is ripe for the spending cap trick. The retail categories are usually appropriate for the season (gas stations might be featured just in time for summer road trips, for example), but there’s always a limit to the amount of rewards you can earn.
Both the Discover More card and the Chase Freedom offer 5% back for your first $1,500 in qualifying purchases per quarter. With the Citi Forward, you’re only eligible for $300 worth of total rewards per calendar year.
2. Reward Thresholds
It’s bad enough that all 5% rewards cards require you to sign up each quarter to qualify for the bonus categories. Some rewards credit cards also require you to spend a minimum amount before qualifying for your maximum rewards rate.
At least the Chase Freedom offers a consistent 1% back on all non-bonus-category purchases. With the Discover More, you only qualify for your 1% back base rate after your total annual purchases exceed $3,000. Before that, all your non-bonus-category purchases will earn 0.25% rewards, a whopping 75 percent lower than the industry standard. Ouch!
3. Reward Minimums
Ever wonder why some rewards cards give “points” instead of cash back? It’s hard to quantify the value of a point, and that makes it easier for credit card companies to make up their own rewards rules.
Remember when you were a kid and you needed a certain number of tickets just to get the cheap, plastic kazoo at the carnival? Most point-earning rewards cards make you play the same game: You have to earn a certain number of points before you can redeem them for anything.
At least most minimums are reasonable. Citi’s ThankYou rewards program, for example, requires you to earn 2,500 points for most of their gift cards, which typically start at $25 denominations. Bank of America’s World Points program, however, requires you to hoard 25,000 points before you can redeem them for their full 1-cent value.
4. Inconsistent Redemption Rates
This is another way credit card companies use point systems to their advantage. Your rewards may only be worth their full amount if you redeem them in a certain way.
Citi ThankYou Points offer a pretty consistent 1-cent-per-point redemption rate for gift cards, loan repayments and music downloads, but the value of your points goes down by as much as 50 percent if you opt to redeem for merchandise.
To end on a good note, sometimes different redemption rates can work in your favor, but only if you’re earning extra rewards, not fewer. For example, if you shop through your credit card’s company’s online mall, you earn extra points or cash back for each purchase.