According to the 2016 U.S. Consumer Payment Study conducted by the credit card service company TSYS, credit cards have displaced debit cards as America’s most preferred payment method. Why is credit the new king? The sheer number of credit cards plays a role, with 61% of Americans saying they have two or more credit cards at their disposal – but rewards programs may be the primary driver.
TSYS found that the type of rewards offered with a credit card was the most attractive feature by far – almost double the amount of any other feature, including interest rates – as long as baseline security issues are met. When asked to prioritize security versus rewards, almost three-quarters of respondents chose security. Rewards are merely an attractive option, but security is a requirement.
Within rewards categories, cash is king. Cash rebate programs were preferred by 69% of study participants, compared to gift cards (36%), travel rewards (34%), merchandise rewards (20%), and dining rewards (17%). Presumably, cash rebates are preferred because they represent the ultimate in flexibility – cash redemption is straightforward and you can always spend cash on anything you want.
Cash rewards are also the most frequently redeemed category of reward, with 82% of respondents saying they redeemed cash rewards at least infrequently. (We assume the remaining 18% haven’t spent enough to earn and redeem rewards yet – otherwise, why even maintain a rewards card?) Multiple yearly redemptions are common, as 30% of study participants redeem their cash rewards more than once a year.
Gift cards are the next most popular rewards category at 36%, and are the second most likely to be redeemed at least infrequently (63% of participants). Travel rewards programs may be the best deal for credit card companies, since 34% of respondents prefer travel rewards but only 51% of respondents have ever redeemed them. Event-related rewards have the worst redemption rate, with only 36% of respondents ever redeeming that type of reward.
Everyone has his or her own preference with respect to the most important rewards – but, in general, the easier a reward is to acquire and the more flexible it is to redeem and use, the more popular it is.
Are you getting the maximum rewards out of your credit cards? With all the available options in today’s market, it’s wise to review your current rewards program against competing offers, even if you are satisfied with your current card issuers. Review your rewards preferences and check comparable cards for the best combination of perks important to you (ease of earning rewards, ease of redemption, targeted programs with specific vendors, international travel advantages, etc.).
If you have more than one card, try to make them complementary with respect to rewards – for example, a travel card that accommodates your favorite airline and hotel chain, along with a card focusing on cash back rewards for general purchases.
Don’t be tempted by a card with a superior rewards program but deficiencies in other aspects. Make sure that the interest rate and other terms and conditions meet your requirements. If you tend to carry a balance, a great rewards program can easily be overwhelmed by a higher interest rate and extra accumulated interest. Excessive fees can also neutralize your gains.
Don’t forget to shop around. If you strike gold (as in a gold card), you could contact your card issuer and use the threat of a competing offer as leverage to acquire an improved interest rate or other perks. On the other hand, you may find that you already have a great deal and confirm the wisdom of your original choice.
If you want more credit, check out MoneyTips’ list of credit card offers.