Amidst the rising popularity of rewards credit cards, many U.S. financial consumers find themselves grappling with a lack of clarity regarding the operational intricacies and the actual rewards yielded by their cards. A 2019 study conducted by J.D. Power indicates that the competitive landscape among rewards card providers, coupled with an abundance of diverse rewards offerings, often results in consumers falling short of their expectations from the rewards card experience.
John Cabell, Director of Wealth and Lending Intelligence at J.D. Power, notes, “The average credit card customer today is presented with approximately 16 different benefits, yet only about one-third of customers claim to have a comprehensive understanding of all the benefits available to them. While the recent years of rewards-driven competition among issuers have contributed to a consistent rise in overall customer satisfaction, issuers may have maximized the potential of this approach.”
Defining Rewards Credit Cards, these financial tools empower users to accrue benefits through their card usage. The more frequently customers employ their rewards cards, the greater the benefits they accumulate.
Mark Nicholson, Marketing Director at Match Financial, a personal financial services platform, emphasizes the inherent incentive for users to opt for rewards cards when making purchases. “Most rewards credit cards offer users the opportunity to earn cash back, points, miles, or merchandise based on their spending. Utilizing a rewards card for purchases enables cardholders to accumulate various perks or credits on an ongoing basis,” he explains.
Crafting effective strategies for utilizing rewards credit cards is deemed both an art and a science by experts. Jeff Rose, CEO of Good Financial Cents in Nashville, TN, underscores the importance of intentional spending and strategic planning to fully leverage the benefits of cashback or rewards credit cards. When managed judiciously, these cards offer a range of advantages, including signup bonuses, no annual fees, and complimentary FICO score updates on card statements.
As asserted by Rose, the market boasts numerous outstanding reward credit cards, presenting consumers with diverse options to align with their preferences and financial goals.
Categorized Distinctions: A Delineation of Rewards Cards
Card strategists often categorize rewards cards into two distinct types, a crucial awareness for financial consumers seeking to optimize their card usage.
Alex Miller, Founder and CEO of UpgradedPoints.com, sheds light on the traditional duality of rewards cards, stating, “Traditionally, rewards cards manifest in two primary forms — the first encompasses frequent flyer miles, hotel points, or other non-cash rewards. The second involves tangible cash back, where users receive a percentage of their purchases as cash, which can be directed towards a bank account, offset credit card charges, or, in certain instances, invested into a brokerage account.”
Despite the potential drawback of an annual fee associated with many rewards cards, an upside exists for those who actively use the card. Miller notes, “Several no-fee versions of cards are available that still accrue rewards and offer benefits. Generally, the higher the annual fee, the more extensive the benefits provided.”
Miller particularly favors rewards cards that yield cash back on everyday expenditures, emphasizing their potential to provide a substantial two percent return on all purchases. Notably, these earnings can be transferred into an account for stock investments, adding an additional layer of flexibility and utility to this type of rewards card.