A recent study has found that as many as 20 percent of all credit cards have annual fees that are higher than the rewards they payout and the trend continues in several other ways.
Mozo, a financial comparison website, recently found that the rewards promised by credit card offers often cost cardholders more in fees than they are worth by the end of the year. Indeed, the site discovered that at least one in five rewards cards charges an annual fee that is higher than the maximum rewards benefits. Mozo also found that about one in three rewards cards offers a rewards return of only $20 per year. Obviously, these are not very impressive numbers and, to be honest, should be a major wake-up call to consumers regarding the importance of full disclosure when applying for a new credit card.
In order to determine the basic value of these rewards credit cards, Mozo examined the rewards programs for 67 different rewards-based credit cards with an average annual spending amount of $16,000. Subtracting the annual fee, then, the consulting site evaluated the rewards to reach the numbers provided here, determining their values to be quite unsatisfactory.
Rohan Gamble, managing director of Mozo, says that customers need to look very closely at the benefits structure and compare it to the fee structure before choosing a new card. Indeed, an annual fee is basically an innocuous charge simply for the privilege of carrying the card, regardless of whether or not you even use it, which makes them simply a thing of profit for credit card companies. This makes people more inclined to use the card with an annual fee in order to reap the benefits, and this is the reason it is important to examine the benefits.
Mozo found that only five of the cards studied provided the average consumer a value of $100 or more every year. Unfortunately for consumers, though, if the benefits do not increase, these numbers will quickly diminish, especially when you look at the statistics. For example, the average rewards credit card annual fee was $126 in 2010; it is now $152. The annual fee for non-rewards credit cards has actually declined (from $62 in 2010 to $44 today).
In regards to these statistics, Gamble says that you need to really examine the fine print and compare your spending habits before applying. Big spenders who regularly pay down their credit card balances will probably benefit from these cards. Consumers who rarely use credit cards and are, perhaps, more inclined to carry a small balance month to month will likely not benefit. Gamble says:
You’re behind before you even start… You need to be honest – if you’ve got interest you need to pay off then go for a low fee card. If you’re not a high spender on your credit card just forget rewards cards exist.
To follow up, Gamble made sure to include that airline rewards cards offer the best possible value. The reason for this is that they are able to offer cheap flights to their customers. It is kind of an “in-house” benefit that each company can offer to their loyal customer base and it works in many different forms within the travel industry. Gamble continues, then, to discuss a few details regarding how this works and why it may be of benefit:
A lot of us have credit cards that have Qantas points, but only some banks have a direct relationship with the airline, but if an airline themselves has their own credit card it is actually offering better value because they can get that flight cheaper.
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