We've all likely heard the adage, "Good things come to those who wait." Well, that might not be true when it comes to your credit card rewards. It turns out they could depreciate in value, either from high interest rates or bait-and-switch tactics, according to the Consumer Finance Protection Bureau.
The consumer watchdog announced this week that it's cracking down on credit card issuers for devaluing their rewards.
Credit card issuers will often use heightened rewards to entice people to apply for their cards. But if an issuer changes the fine print and adjusts how much those rewards are actually worth, your rewards could be worth a lot less than they were advertised.
Other factors like high interest rates and inflation also play a part in the devaluation of rewards. So what can you do to ensure you're getting a good value?
Should you hold onto your credit card rewards?
If you want your rewards to be worth as much as possible, holding onto them for months or years might not be your best option.
People who redeem their rewards quickly tend to get the most value overall due to inflation and rewards program devaluations. The high interest rate credit cards often come with can also quickly eat into your rewards value if you don't pay off your statement balance by your next billing cycle.
"When credit card issuers promise cashback bonuses or free round-trip airfares, they should actually deliver them," CFPB Director Rohit Chopra said in a statement.
Of course, quickly redeeming rewards may not make sense in every situation.
Saving up points or cash back to cover your holiday gift list can take time. Saving up enough airline miles or hotel points for a family trip can also take months or years, and it can be worthwhile even if rewards are slightly devalued along the way.
At the end of the day, it's up to you to decide how long to earn rewards and what you want your points to accomplish. And there are ways to help you preserve the value of your rewards.
Earn rewards with purpose
First, make sure you're never earning rewards without some sort of plan. Figure out what you want out of your rewards, whether you hope to redeem for statement credits on your account or a big vacation next year. From there, you can tweak your rewards strategy to ensure you're earning thetypeof rewards you want and need.
This may require you to apply for a different type of credit card, or even a few different cards to help you reach your goals.
If you want to redeem for airfare and a hotel stay for a big anniversary trip but you're only earning cash back right now, for example, you could consider signing up for a co-branded airline credit card and hotel credit card from your favorite programs.
Also, consider a card that earns flexible rewards. These rewards can be redeemed for statement credits, gift cards, travel or be transferred to a partner airline or hotel program. The more options you have for your rewards, the more likely you are to redeem them for maximum value in the near future.
Pool points with others for big trips
If you're saving up rewards specifically for travel, the best thing you can do is to reach your rewards goal as quickly as possible without overspending.
To get where you want faster, consider having your spouse or partner earn their own credit card welcome bonuses in the same program. With this strategy, you can use both of your points balances to book different aspects of your trip. You can even book each airfare with your individual point balances.
Some programs, like Chase Ultimate Rewards, let you pool points, which is incredibly helpful when you're booking travel with a partner. Other programs that have points pooling include Hilton Honors, Marriott Bonvoy, World of Hyatt, JetBlue TrueBlue and Air Canada Aeroplan.
Redeem cash back right away
While it can make sense to save up cash rewards for a splurge purchase or your holiday gift list, you'll inevitably lose some reward value due to general inflation over time.
For example, if you had 10,000 points that could be redeemed for a hotel room worth $100, but instead opted to save the points, that same room might cost $150 a few years later. Then you would need 15,000 points instead of the 10,000 you had saved.
Ultimately, you'll get more bang for your buck if you redeem for cash back, statement credits or merchandise throughout the year instead of saving your rewards up.
Never carry a balance
This tip is less about avoiding rewards inflation and more about making sure your rewards value won't be eclipsed by the credit card interest you pay.
You should only pursue credit card rewards if you can pay your credit card statement balance in full each month. If you carry a balance and pay the average credit card interest rate (which is currently over 20%), the rewards you earn won't be worth it in the end.
Also, redeeming rewards for statement credits can help reduce your overall balance. This may not be how you hoped to redeem your rewards, but it can help you maximize rewards value if you find yourself dealing with credit card debt.
Where to find the best deals for your credit card rewards
If you're ready to redeem rewards you have saved up for a while, consider these tips.
- Look for discounted gift card options. While different rewards programs charge different amounts for gift card redemptions, some offer more than 1 cent per point -- at least sometimes. For example, Chase Ultimate Rewards regularly offers a handful of gift card deals at 10% off, and Discover credit cards often have similar redemptions available.
- Look for redemption discounts. You can also sometimes get extra value when you redeem points. For example, customers with most co-branded credit cards from Delta get 15% off award bookings just for being a cardholder. Also, if you have an eligible Chase travel credit card, you can get a 25% to 50% redemption bonus when using points to book travel through Chase Travel℠.
- Check for award deals with your favorite airline programs. If you're flexible on where you're traveling to and you have a stash of airline miles, check for award deals with your favorite programs. These deals can help you fly further or in a premium cabin for fewer miles than normal.
- Redeem points and miles for off-peak travel. While using points and miles during peak travel times (like holidays and school breaks) can require more rewards, off-peak travel can be a better deal. To find options with the lowest point requirements, compare award costs over several different dates you can travel throughout the year.
- Get a fourth or fifth night free with some hotel programs. Some brands offer "free night" programs through their loyalty programs. Most of them let you get a free award night when you book a certain number of nights in a row.
Try the CFPB's new tool
Along with the announcement of potential action against credit card issuers who engage in bait-and-switch tactics to depreciate your reward value, the CFPB announced a new tool people can use to compare credit cards.
You can select what your goals are -- for example, building credit, paying less interest or earning rewards -- and the tool will compare cards for you based on these features. The CFPB has no incentive to promote one card over another, so it's potentially more trustworthy than traditional credit card marketplaces.
