REWARD POINTS

eCommerce-e1418345780752

REWARD POINTS

What are Reward Points?
Many credit card customers receive rewards, such as frequent flyer points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of card, rewards will generally cost the issuer between 0.25% and 2.0% of the spread.

Networks such as Visa or MasterCard have increased their fees to allow issuers to fund their rewards system. Some issuers discourage redemption by forcing the cardholder to call customer service for rewards.

On their servicing website, redeeming awards is usually a feature that is very well hidden by the issuers. With a fractured and competitive environment, rewards points cut dramatically into an issuer’s bottom line, and rewards points and related incentives must be carefully managed to ensure a profitable portfolio. Unlike unused gift cards, in whose case the breakage in certain US states goes to the state’s treasury, unredeemed credit card points are retained by the issuer.

8 ways to maximize your credit card rewards points
Just as the number of available credit cards has ballooned over the years, so has the number of reward cards. Compared with a few years ago, chances are you’ll have a much wider selection of goodies within your card’s program — such as a new DVD player, plane tickets, gift cards and even practicing air-to-air dogfighting techniques at the controls of a small fighter plane.

Choosing from among so many options is a good problem to have. But it can also be daunting to find good values.

So to find out how to get the best deals with your points, we turned to several people who know credit card rewards programs best — the people who run them. While card issuers oversee the programs, they rely heavily on outside companies to administer them and provide strategic advice.

In 2009, 68 percent of Americans said they participated in some form of loyalty rewards program, an increase of 10 percentage points over 2007, according to a study by Colloquy, the research arm of LoyaltyOne, which manages rewards programs for companies across a range of industries. That means there are increasing numbers of people trying to figure out how to spend their points.

Here are eight tips from the experts for maximizing your reward points:
1. If you have an airline, hotel or retailer credit card, look first at the rewards linked to that company. Typically, credit-card reward programs give back rewards of about 1 percent of what you spend. But it’s possible to beat that rate by using cards affiliated with other companies. For instance, if you have a Best Buy Reward Zone MasterCard from HSBC Bank, you can get back at least 2 percent in gift certificates, and the card’s rewards with Best Buy are probably better than any other card’s rewards at that electronics chain.

Similarly, if you have an airline rewards card, you can find good deals on plane tickets, especially expensive ones. Redeeming for cheap tickets, though, is often not as good a deal.

2. Compare awards on multiple cards. If you have more than one card and are looking for a rental car voucher, for example, see how many points that rental costs on each card. One could be a better deal.

3. Find smaller awards. Don’t think you have to stockpile points to get a decent reward. There’s been a big shift in recent years toward making awards available on the cheaper end, such as low-value gift cards and music downloads.

For instance, Citi’s Thank You network, for customers who have cards such as Citi Forward, offers one MP3 download from Sony Music for just 100 points. Some of the best sellers on Chase’s Ultimate Rewards include books, video games and DVDs.

4. Consider gift cards. There’s a reason gift cards are the most popular reward, accounting for about 55 percent of all reward redemptions in March 2010. Gift cards are flexible, and people can easily understand how much they’re worth. Compared with redeeming your points for merchandise, gift cards can offer a better value.

For instance, say you want an inflatable mattress for your daughter. If you have a Chase credit card, you could redeem 9,600 Ultimate Rewards points for a 50-inch-by-25-inch AeroBed. Or you could get the same AeroBed by spending 7,500 points for $75 in gift cards at Wal-Mart, where it sells for $65.

5. Look up the price of what you’re eyeing. Points are a different currency than real money. Using the 1 percent reward rate as a guide, look online for the price in dollars to help you figure out if it’s a good deal for the points. Credit card companies typically pay less than retail price for merchandise because they’re buying in bulk, but that doesn’t mean they make the products available cheaply to you.

6. Check out the specials. Just as you would at a store, look for sales in your rewards program. A lot of rewards programs offer a changing list of specials, typically items that aren’t moving and they want to get rid of.

7. Combine your points with someone else’s. An increasing number of rewards programs allow you to transfer your points to others, which means two people, could share a gift that neither could reach individually.

For instance, if you and your die-hard hockey fan buddy each had 20,000 points in RBC Bank’s rewards program, you could share a team autographed Carolina Hurricanes jersey, which at 40,000 points would have been otherwise out of reach.

8. Look for cash-back options. Redeeming points for cash back or a statement credit might not be flashy, but it could make sense for you if you want help paying your bills. If this appeals to you, be aware that there’s been huge growth in the number of cash-back credit cards in recent years that give you money back automatically. The return rates on those cards are often greater than the cash returns on more general rewards cards.

Types of Credit Cards with Reward Programs

  • Cash back credit cards 
  • General reward points credit cards 
  • Hotel or travel points credit cards
  • Retail rewards credit cards
  • Gas cards with points or rebates
  • Automobile manufacturer rewards cards
  • Home improvement rewards credit cards
  • Airline-specific credit cards 
  • Generic Airline miles cards