Credit card rewards can be a free way to travel and get cash back for your daily expenses.
But if you’re not paying your credit card bill in full when it arrives, then you’re paying interest and those free rewards are no longer free. That’s not a surprising fact, but it’s a top one to keep in mind when considering these four surprising facts about credit card rewards:
A 1% reward
Don’t expect to receive nearly in much in rewards points as you do in spending to get them. The typical reward point is worth about 1 percent of what you paid to earn it when you cash it in for airline miles, hotel room, cash back or any other reward.
The lender expects that you won’t pay the monthly bill in full, and possibly late, meaning you’ll pay interest charges and late fees. That can make rewards points more costly.
Remember the annual fee
Rewards cards with annual fees usually offer better rewards than cards without them. But the fees can require you to spend a lot of money to make the rewards worthwhile.
If the average rewards point is worth 1 cent, you’d have to spend $9,500 annually, or $791 per month, to offset a $95 annual fee.
Annual fees can be worthwhile in other ways. A rewards credit card can offer rewards such as upgrades on flights and rooms, airport lounge access, and free luggage check-in. New cardholders may have the fee waived in the first year as an enticement to join.
Look on your credit card’s website or in the agreement it mailed you, and somewhere in the fine print you’ll find details on when your rewards points expire. From 12-24 months is likely, though some may let you buy back points after they expire.
Points drop in value
If you don’t redeem points regularly, you could see them drop in value as airline frequent flier programs and other programs change their redemption requirements.
You’ll likely get advance notice from the credit card company before any program changes are made. With a few months’ notice, you should have some time to redeem your points earlier than planned and get the most out of them.
As with any financial product you pay for, be sure to read the fine print in the long, boring contract you get in the mail when the credit card is sent to you. It should explain in detail how its rewards points work.