Editorial Policy

What you don't know about rewards programs (but should)

Allie Johnson

October 24, 2014

The quest for better rewards is a top reason Americans switch credit cards, but experts say some consumers should carefully evaluate that new rewards program before they ditch their current card.

Some 42 percent of consumers who switched cards did so because of rewards, according to the J.D. Power 2014 U.S. Credit Card Satisfaction Study, released in August 2014. But many consumers don't understand the basics of how credit card rewards programs work, the study found. For example, 43 percent of consumers don't know if their rewards have an annual maximum limit, and 30 percent don't know if their rewards expire.

So, here are nine things you should know about rewards programs before making a hasty switch to a new card:

  1. How much time and effort are required from you? Some rewards programs, usually on straight cashback cards, are simple, says Jim Miller, senior director of banking services for J.D. Power and Associates. You have to do very little upfront work to understand the program, there isn't a lot to keep track of and redemption is easy, Miller says. Other programs, often airline mile programs, are the opposite, says Tiffany Funk, whose job at PointsPros.com is to help customers make sense of and redeem rewards: “You might have to be a very educated consumer or a mileage geek to understand how they work.”
  2. How much are the rewards worth? All rewards are different, Funk says. If you have a card that earns points or miles, you might have to do some research to find out how much a point or mile actually is worth, she says. “An American Express point is different from a Barclaycard Arrival point is different from a Capital One point,” she says. One starting point: The Points Guy offers a monthly valuation of points and miles. Funk says: “You need to understand what that point actually gets you.”
  3. How long does it take you to earn awards? It's also a good idea to look at how quickly you can expect to rack up enough points or miles to get the award you want, Miller says. Consumers who don't spend enough to accrue points for what they truly desire — say, a plane ticket to Thailand — might be better off with a simple cashback card that rewards them in smaller increments, he says.
  4. Are there caps or limits? Some cards have annual maximum limits on rewards, and other cards have caps on how much you can earn when higher rewards are offered in rotating categories, Miller says.
  5. Do you have to take any action to earn? Some cards, usually those that offer an extra percentage of cash back in rotating categories, require you to register to earn that higher percentage, Miller says. For example, Discover requires cardholders to sign up to receive 5 percent cash back on a featured category of spending — such as online shopping or gas or restaurants — that changes every few months.
  6. How long does it take for earned rewards to post to your account? It's important to know about posting delays so you don't count on getting points or miles sooner than you will, Funk says. For example, if you want to redeem your points from holiday spending for gift cards for your grandkids, make sure you'll actually have the points in time, she says.
  7. What different redemption options are offered? Even for a cashback card, it's good to know if you have different choices for how to redeem your rewards and if certain redemption methods earn you more. For example, Discover lets you get cash, pay for online purchases on sites such as Amazon.com or make a donation to partner charities such as the American Red Cross. Another option: You can double your cash back by redeeming for a gift card, according to Discover. Or, you can earn bonuses of 20 percent cash back by shopping on the ShopDiscover portal, according to The Points Guy.
  8. Are there any rewards redemption gotchas? With some rewards programs, usually ones that earn you airline miles, you might get hit with a snag when you go to claim the award you've worked hard to earn, Funk says. One common problem: lack of availability of seats on flights, especially around the holidays or other popular flying times, she says. Research to avoid surprises, she says.
  9. Do your rewards lose value or expire? “It's really important to know whether or not the miles or points expire,” Funk says, although that's becoming less common. Also, points or miles sometimes lose value — especially with co-branded airline or hotel cards that automatically transfer points into a partner hotel or airline account. “Over time, it takes more points to get a night's stay at the hotel or a flight on the airline,” Miller says.

Take the time to learn the ins and outs of your credit card rewards program, and you'll be able to make an informed decision on whether that card should stay in your wallet, Miller says.