If you have a credit card, it’s likely you’re earning some sort of points or rewards. These, in theory, are an awesome way to turn your daily spending into perks! But… many credit card holders waste their credit card rewards, or fail to identify the annual fees, minimum spending requirements, or tiered reward structures some credit card companies have. 

Let’s talk about it. You deserve to get rewarded for your purchases – and have all the information you need to access your rewards.

Wasted Credit Card Rewards

An annual Consumer Spending Index released by TD Bank found that 18% of consumers have allowed credit card rewards to expire.

Plus, of that 18%, it’s more often the millennials who end up wasting their credit card rewards. Yikes!

Of the 87% of millennials who have a rewards credit card, 30% have allowed reward points to be wasted, as opposed to 19% of Generation Xers and baby boomers at 8%. [Source]

So…. Why is this happening? Points and rewards can be highly valuable. So why do credit card holders let them go to waste? Let’s talk about it.

Ways You Waste Your Credit Card Rewards

• Conversion Ratios: look at the conversion ratio for your rewards points. If you are redeeming points for a gift card, different gift cards will likely cost different amounts of points.
• Points for Merchandise: avoid redeeming your credit card points for merchandise – the value of the points you redeem will often be above the item’s monetary value. Instead, look for cash-back rewards which hold more value. Only 55% of survey respondents from CreditCards.com reported choosing cashback and gift card rewards with their points. [Source]
• Confusing Redemption Process: some companies will make it confusing or difficult to actually redeem your rewards. This makes many consumers give up without redeeming their points. 
• Waiting for the Right Redemption: of those who didn’t cash in their rewards, 51% were waiting for a specific opportunity to redeem them.  [Source]
• Low Value: 23% of those who didn’t cash in their rewards said they didn’t think their points were worth redeeming given their low value. [Source]

Credit Card Companies’ Complex Rules

Credit card companies use rewards to get you in the door – but they can come at a hidden cost.

Some rewards programs have complex rules and restrictions that make it challenging to keep track of your earnings. Annual fees, minimum spending requirements, and tiered rewards structures can add another layer of confusion to the mix.

Basically… your rewards program will only work for you if you use it correctly.

“Financial literacy matters a lot. Unsophisticated people, naive people, make a lot of financial mistakes.”

Andrea Presbitero, senior economist in the research department of the International Monetary Fund and co-author of a 2022 paper looking at rewards and redistribution in the credit market

At the end of the day, credit card companies usually win when it comes to rewards points. 

Researchers found that banks profit most from near-prime and prime consumers in the middle of the FICO score distribution. For subprime consumers, 60%+ of banks’ revenue on rewards cards comes from interest income. 

For super-prime consumers, 80%+ is from interchange income, meaning the swipe fees merchants pay when people spend. In the middle, banks can make money on both interest charges and swipe fees. [Source]

What This Means for YOU

Before you sign up for some flashy credit card rewards program, look at the pros and cons – and make sure you’re getting all the information before moving forward. 

When used correctly, points and rewards can be an awesome tool in your personal finance arsenal. When used incorrectly, they can be costing you more than you think… while benefiting banks. (Click here to learn about which banks donate to fossil fuels!)

Plus, these days, credit cards aren’t the only way to earn rewards for your purchases. Learn more about our go-to alternative below!