August 4th, 2014
Credit Card Sign-up Bonuses Increase While Overall Value Decreases
3 Comments |
Consumers – lenders are trying to get your attention.
According to new data from CardHub.com, the points or miles value of sign-up bonuses is at an all-time high with an average of 13,265 points or miles per card. Issuers are also offering sign-up bonuses as high as $400 to entice consumers to open a cash back card.
However, rewards and cash back rates aren’t keeping pace with the sign-up bonuses. For cash back cards, the average earning rate has fallen to its lowest point in the past four years. This isn’t good news for the many consumers who are increasingly choosing to open new rewards cards.
As for points and miles, the base earning rate may be increasing slightly, but the rewards themselves have also taken a hit. Frequent-flier programs are often requiring participants to cash in more points in order to land a free ticket. All of this paints a conflicting picture: While up-front bonuses are increasing, the actual benefit of the rewards is decreasing.
Although most are still applying for credit cards, some people are saying no to credit cards completely. A recent Gallup poll found that 29 percent of Americans don’t own a credit card. This might raise some eyebrows, and if this number grows, lenders could begin to worry. Playing around with sign-up bonuses might be just one of the tactics credit card companies will employ to entice more people into borrowing.
Odysseas Papadimitriou, founder and CEO of CardHub, also says that it’s difficult for lenders to convince consumers who already have excellent credit to change their credit card. Sign-up bonuses could be boosted to convince that demographic to open up their wallets when they might not otherwise.
Lenders bank on the fact that people are often too lazy or absentminded to take advantage of their rewards. So they increase sign-up bonuses to get your business and a spot in your wallet, knowing full well you most likely won’t use your rewards or even notice that their value has decreased. A CardHub study from earlier this year found that while around $48 billion in rewards are issued each year, one-third of that total isn’t redeemed.
If you’re looking for a new card, it’s always wise to do your homework. Gather as much information as possible around a card before you apply for one with an attractive sign-up bonus, especially because rewards cards often come with higher interest rates. Since your credit health is a long-term work in progress, ask yourself if this deal will actually pay off over time.
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Charmaine Ng is the Communications Coordinator at Credit Karma. When she isn’t writing her way through life, you can find her reading about the latest in entertainment and watching television almost every night of the week. Say “hi” @noodlemaine!
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