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2014 Credit Card Rewards Study: Issuer Limitations & Transparency

CH 2014 Credit Card Rewards Study

The value of credit card rewards has increased to record levels in recent years. Issuers are now using initial rewards bonuses worth hundreds of dollars to lure the business of consumers who maintained above-average credit standing through the Great Recession.

But while roughly $48 billion in loyalty rewards are dispensed each year, one-third of that amount is never redeemed. Why?

Simple forgetfulness obviously plays a big role, as do the various rewards limitations that are buried in fine print by issuers, preventing consumers from redeeming their points and miles for what they want when they want. These “gotcha” tactics actually come into play not only with rewards redemption, but also in terms of one’s ability to simply earn credit card rewards to begin with. Consumers are therefore likely leaving even more money on the table than they realize.

From quarterly sign-up requirements to expiration dates and devaluation, these restrictions are a hold-over from the credit card market’s pre-CARD Act opacity. In order to help consumers make the most of their rewards, CardHub examined the rewards credit cards offered by the 10 largest issuers to determine the prevalence of rewards earning restrictions, redemption restrictions, and expiration dates across the credit card industry. Keep in mind that this study only examines the restrictions that limit one’s ability to earn and redeem rewards; it does not take into account the overall value of the rewards that one is ultimately able to accrue, relative to any applicable membership fees.

A complete breakdown of our findings and the methodology that we used to conduct this study can be found below.

Main Findings

 

  • Capital One cards have the fewest reward limitations. All Capital One cards received an overall Rewards Friendliness Score of 96.43%.
  • The Discover It Card has the most rewards limitations, earning the lowest overall score in this study (50%).
  • Requirements that consumers meet a minimum threshold before rewards could be redeemed and rewards expiring after a missed payment were the most common limitations found amongst all reward cards. The first limitation was triggered by 79% of the reviewed cards, while the second was triggered fully by 36% of the cards and partially by another 54% of the reviewed cards (i.e. 90% in total).
  • Barclaycard, Capital One and Wells Fargo received the highest scores (100%) in the Rewards Earning category, while Discover received the lowest score (50%).
  • Capital One received the highest score (100%) in the Rewards Redemption category, while Discover received the lowest score (60%).
  • Bank of America received the highest score (100%) in the Rewards Expiration category, while Citibank, Barclaycard, and Discover tied for the lowest score in this category (33.33%).

Tips for Avoiding Rewards Limitations

 

    1.Take Advantage of an Initial Bonus Once a Year: You can now get as much as $400 cash just by signing up for a new credit card and meeting an initial spending requirement. As long as you have excellent credit and you will not have to spend more than usual to earn a bonus, taking advantage of such on offer on an annual basis is a great way to help pay the bills.
    2. Get an Everyday Card that Allows for Regular Redemption: A lot of people save up points and miles for years, hoping to one day accumulate enough to score a free vacation. That approach opens you up to the threat of rewards devaluation, as credit card companies can change the thresholds needed for a free flight or hotel night whenever they want. The best strategy is to get an everyday rewards card that will enable you to redeem what you earn at least twice a year.
    3. Set-Up Automatic Bill Pay: One of the most common reasons that people lose their accumulated rewards is a failure to pay the bill. Setting up automatic ACH payments from a bank account – at least for the monthly minimum – is therefore a wise rewards retention strategy.
    4. Avoid Rotating Rewards Categories: Many credit cards offer points, miles and cash back in spending categories that change on a quarterly basis. Others offer different amounts of rewards depending on how much you spend over the course of a month, quarter or year. Avoid those cards. Not only do they make planning difficult, but they often require semi-regular registration that consumers often forget about and wind up earning far less than they’d expect.
    5. Always Redeem Before Closing an Account: Your credit card company won’t tell you about any remaining rewards balance before you close your account, and you won’t be able to access your remaining rewards once you’re gone. You should therefore always make sure to cash out before closing an unused account.
    6. When in Doubt, Go Cash Back: Cash is the most straightforward rewards category. It makes card comparison easier and eliminates the threat of rewards devaluation. It’s also easier to use cash back rewards to pay your bill.

For more tips on maximizing your rewards portfolio, check out CardHub’s Rewards Guide .
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Earning Limits

 

Issuer & Rank Overall Earning Cap Minimum spend to earn points Rotating Categories/ Quarterly sign-up Rewards vary by amount spent Total Total (on a 100% scale)
Max 2 points Max 1 point Max 2 points Max 1 point Max 6 points Max 100%
T-1. Barclaycard 2.00 1.00 2.00 1.00 6.00 100.00%
T-1. Capital One 2.00 1.00 2.00 1.00 6.00 100.00%
T-1. Wells Fargo 2.00 1.00 2.00 1.00 6.00 100.00%
4. American Express 2.00 1.00 2.00 0.64 5.64 93.94%
T-5. USAA 2.00 1.00 2.00 0.50 5.50 91.67%
T-5. Bank of America 2.00 1.00 2.00 0.50 5.50 91.67%
T-7. Citibank 1.50 1.00 1.50 1.00 5.00 83.33%
T-7. Chase 2.00 1.00 1.33 0.67 5.00 83.33%
9. U.S. Bank 2.00 1.00 1.33 0.33 4.67 77.78%
10. Discover 2.00 1.00 0.00 0.00 3.00 50.00%
In order to make the results easier to digest, we multiplied the final score by a factor of 16.66 and then divided by 100.

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Redemption Limits

 

Issuer & Rank Min. threshold to redeem for statement credit Rewards Devaluation: Advertised as cash-back but valued in points Merchandise value limited to online catalog of products? Does issuer communicate available rewards at time of card closure? Total Total (on a 100% scale)
Max 1 point Max 2 points Max 1 point Max 1 point Max 5 points Max 100%
1. Capital One 1.00 2.00 1.00 1.00 5.00 100.00%
2. USAA 0.50 2.00 1.00 1.00 4.50 90.00%
3. U.S. Bank 0.33 2.00 1.00 1.00 4.33 86.67%
4 . Bank of America 0.25 2.00 1.00 1.00 4.25 85.00%
T-5. Wells Fargo 0.00 2.00 1.00 1.00 4.00 80.00%
T-5. Barclaycard 0.00 2.00 1.00 1.00 4.00 80.00%
7. American Express 0.09 1.64 1.00 1.00 3.73 74.55%
8. Citibank 0.00 1.50 1.00 1.00 3.50 70.00%
9. Chase 0.00 1.33 1.00 1.00 3.33 66.67%
10. Discover 0.00 2.00 1.00 0.00 3.00 60.00%
In order to make the results easier to digest, we multiplied the final score by a factor of 20 and then divided by 100.

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Rewards Expiration

 

Issuer & Rank Rewards Expiration by date Reward Expiration for account inactivity Rewards Expiration for missed payment* Total Total (on a 100% scale)
Max 1 point Max 1 point Max 1 point Max 3 points Max 100%
1. Bank of America 1.00 1.00 1.00 3.00 100.00%
T-2. Capital One 1.00 1.00 0.50 2.50 83.33%
T-2. Chase 1.00 1.00 0.50 2.50 83.33%
T-2. American Express 1.00 1.00 0.50 2.50 83.33%
5. USAA 1.00 1.00 0.00 2.00 66.67%
6. Wells Fargo 0.67 1.00 0.00 1.67 55.56%
7. U.S. Bank 0.00 1.00 0.50 1.50 50.00%
T-8. Citibank 1.00 0.00 0.00 1.00 33.33%
T-8. Barclaycard 1.00 0.00 0.00 1.00 33.33%
T-8. Discover 1.00 0.00 0.00 1.00 33.33%
In order to make the results easier to digest, we multiplied the final score by a factor of 33.33 and then divided by 100.
*This category includes both expiration of rewards and the inability to earn rewards while an account is not in good standing.

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Methodology

Reward program details were collected for all reward credit cards from the top 10 largest issuers of consumer credit cards, excluding student, business and co-branded cards. In the case where an issuer offered multiple rewards cards with exact same rewards programs, we reviewed only one card. If a rewards card allowed a customer to choose between two different and distinct reward programs, or offered different reward programs depending on the user’s credit score, we reviewed each rewards program separately.

Program details were collected from the websites of each issuer. Where we were unable to locate the information, we contacted the issuers directly.

Each card was scored using the following criteria.

Earning Limits (points, miles, or cash-back) – Max 6 points:

  • Does the card limit the total amount of points, miles or cash back one can earn? (2 points)
  • Does the card have a minimum amount you need to spend in order to begin earning rewards? (1 point)
  • Does the card have rotating categories or require the consumer to sign up for the program quarterly? (2 points)
  • Do rewards vary by the amount the consumer spends (i.e. up to $3,000 earns 1%, >$3,000 earns 2%)? (1 point)

Redemption Limits – Max 5 points:

  • Does the card have a minimum threshold to redeem earned rewards toward a statement credit or cash back? (1 point)
  • Are the rewards advertised as cash back but valued in points that would allow the issuer to devalue at a later date? (2 points)
  • Is merchandise limited to an online product catalog? (1 point)
  • Does the issuer communicate available rewards at time of card closure? (1 point)

Rewards Expiration – Max 3 points:

  • Do rewards have an expiration date? (1 point)
  • Do rewards expire if the consumer’s account is inactive for a period of time? (1 point)
  • Do rewards expire if the consumer misses one or more payments? (1 point if all reward balance expires and 0.5 points if a customer loses or cannot earn the rewards for the billing cycle in which the account is not in good standing)

Full points were assigned for the absence of each limitation in each category. Thus, those cards with the fewest rewards limitations received the highest score. The maximum number of points is 100 – obtained by multiplying the total average score for each issuer by a factor of 7.142857.

Credit Cards Reviewed By Issuer:
American Express: Blue Cash Everyday, Blue Cash Preferred, EveryDay, EveryDay Preferred, Platinum Card, Green Card, Blue Card, Gold Card, Premier Rewards Gold Card, Blue Sky and Blue Sky Preferred.
Bank of America: Privileges with Cash Rewards, Travel Rewards, Cash Rewards and Better Balance Rewards.
Barclaycard: Rewards Card – Excellent Credit, Rewards Card – Average Credit, Arrival – Earn 2x on All Purchases and Arrival – Earn 1x on All Purchases.
Capital One: Quicksilver, QuicksilverOne, VentureOne Rewards and Venture Rewards.
Chase: Freedom, Sapphire and Sapphire Preferred
Citibank: Dividend Platinum Select, ThankYou Premier Card, ThankYou Preferred Card and Prestige Card.
Discover: Discover it
U.S. Bank: Cash+, FlexPerks and Perks+
USAA: USAA American Express with both Cash Rewards and Point Rewards
Wells Fargo: Rewards Card, Cash Back Card and Home Rebate Card.

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UPDATE – 5/7/14: We inadvertently penalized certain cards that have tiered rewards structures when we first released this report. More specifically, offers such as the Discover it Card – which offers 5% cash back on certain quarterly purchases up to $1,500 spent and 1% thereafter – were deducted points for both of the following categories:

  • Does the card limit the total amount of points, miles or cash back one can earn? (2 points)
  • Do rewards vary by the amount the consumer spends (i.e. up to $3,000 earns 1%, >$3,000 earns 2%)? (1 point)

The first category was intended to indicate whether a card has an overall limit on annual, quarterly or monthly rewards earnings, not whether there are limits on the amounts card holders can accrue at certain rewards earning rates. As a result, the scores for cards with tiered rewards structures have been revised upward.

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