Editorial Policy

4 Signs Your Rewards Card Isn't User-Friendly

Eva Norlyk Smith Ph.D.

March 6, 2013

With regular use, rewards cards can help you earn a pretty penny in cash back or let you stockpile air miles toward the winter escape of your dreams. However, not all rewards cards are created equally.

The right rewards card works should work for you, letting you earn a regular rate of cash back or rewards miles, no questions asked. But with the wrong rewards card, you could find yourself working too hard for meager rewards.

Here are four signs that a rewards card may not be so user-friendly:

1. Minimum spending requirements: When applying for a rewards card, it's easy to get lured in by tantalizing sign-up bonus offers. For airline credit cards, the sign-up bonus is often enough for a free trip. For generic rewards cards, the value of the sign-up bonus can run from $100 to as high as $500, a nice wad of extra change by any standard. But, increasingly, there's a catch.

“Rewards cards that require thousands of dollars in spending before the bonus is rewarded are becoming more and more common,” says Joe Ridout, consumer services manager at the consumer rights group Consumer Action. “And that easily opens the door to overspending. It doesn't make sense to get a rewards bonus worth $300, if you have to spend thousands that you might otherwise not be spending to get it.”

How to avoid it: Don't get blinded by attractive sign-up offers. Before applying for a rewards card with a spending requirement, make sure you can easily meet it. If you have to adjust your spending to get the rewards bonus, it's not a good match.

2. Annual fees that exceed rewards earnings: Card issuers typically waive the annual fee on rewards cards the first year, making it easy to overlook the fee when applying.  However, many rewards cards come with annual fees of $75 or more, which may make a card no longer worthwhile once they kick in.

How to avoid it: Do the math based on your previous year's card spending. If it will take you 10 months to earn back the annual fee in rewards earnings, this is not the right rewards card for you. Fortunately, many popular rewards cards have no-fee counterparts. If you like American Express's Blue Cash Preferred card, for example, consider the fee-free Blue Cash Everyday. Considering the Capital One Venture card? Have a look at the VentureOne card. The no-fee cards offer lower rewards than their annual-fee sister cards, but may be a better value for you.

3. Hidden earnings caps: The cards offering the most generous rewards also often put a cap on how much you can actually earn at that top rewards rate. Worse, you may have to dig to find out exactly what that cap is.

For example, the Discover It card (which recently replaced the Discover More card), advertises its 5 percent cash-back rate in rotating shopping categories each quarter. Read the fine print, however, and those earnings are capped each quarter, and worse, the amount of the cap may change with each new category. In other words, you have to look up the earnings cap every few months.

Caps can limit effective earnings considerably. The American Express Blue Cash and Blue Cash Preferred cards, for example, reward a generous 3 percent and 6 percent cash back, respectively, on grocery purchases. However, that rate applies only to the first $6,000 in grocery purchases each year — or an average of $500 a month. If you have a large family and were hoping to cash in on your giant shopping bills, keep in mind that rewards earnings drop to a standard rate of 1 percent after you hit your limit.

How to avoid it: Know your caps. Serious rewards card users maximize earnings by switching to a different card after hitting the cap on another. For example, if your yearly spending warrants the $59 annual fee, the Capital One Venture cards lets you earn 2 percent on all purchases with no annual caps on earnings, making it a lucrative standby once you hit your cap on another card.

4. Obscure rewards value: With cash-back cards, it's easy to determine the value of rewards earnings, because they are listed as a simple cash-back percentage. With points, however, it is far more difficult to determine what the rewards are actually worth.

Worse, the value of rewards points often differs according to how you redeem them. For example, points from the Citi ThankYou card can be redeemed for a free flight at a value of about 1 cent per point. Use the same points to get a cash-back statement credit, however, and the redemption value drops to 0.6 cents per point, a 40 percent decrease.

“Figuring out what to do and how best to redeem miles or points, you potentially create a problem for yourself,” says Tim Winship, founder of FrequentFlier.com. “There are so many programs and types of miles, it's easy to get overwhelmed.”

How to avoid it: For some, finding the best rewards deals is a serious hobby, and they devote a considerable amount of time and energy to it, Winship says. So if sifting through rewards options to find the best value is your idea of fun, go for it.

However, for most, simplicity is better. If that sounds like you, focus on a simple set-it-and-forget-it cash-back credit card that lets you maximize rewards earnings without putting you through a whole lot of hoops.