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Frequent flyer miles. Cash back. Loyalty points. Ah, the incentives credit card companies use to get you to wield their particular bit of plastic just keeps on growing. But not all credit card rewards are created equal. Here’s our guide through the rewards maze, to help you determine which ones will prove most valuable, given your spending habits, lifestyle and general preferences.

The Annual Fee Tradeoff

A wallet with three credit cards that offer credit card rewards.Depends on what sort of cardholder you are. If you usually carry a sizable outstanding balance on your credit cards from month to month (don’t feel bad, many Americans do), your primary consideration should be finding a credit card with the lowest interest rate. If having a much lower interest rate comes at the cost of a reasonable annual fee, there may be more money to be saved with that card versus a no-annual-fee card with a higher APR (of course, you’d have to do some math to figure that out, based roughly on the annual total you’d spend)—even if that no-fee card offers great rewards. If your balance isn’t paid in full every month, the high interest charges could well eclipse any cash back earned.

On the other hand, credit card users who always pay their balances in full (and of course on time) should be looking for credit card rewards that return the highest value in cash back or loyalty points/miles.

For example, Capital One offers two similar products, the Venture Rewards card and the VentureOne card. The VentureOne earns 1.25 airline miles per dollar spent and has no annual fee. The Venture Rewards card has a $59 annual fee (after the first year), but earns two miles per dollar spent. Since each of their miles is worth one cent as a statement credit against any travel-related expense, there is clearly a point at which the card with an annual fee returns enough money to offset the fee itself. In fact, after $4,720 of spending, users would be better off with the Venture Rewards card, even with the $59 annual fee.

Other values don’t depend on the card holder’s level of annual spending. For instance, Delta offers several versions of its SkyMiles card from American Express. The Gold version has an annual fee of $95 (after the first year). The Platinum version has a $195 annual fee, but comes with a free companion ticket good for any round trip domestic flight. Therefore, you could argue the Platinum version is actually a better value than the Gold, provided you can use that companion ticket, of course.

Credit Card Rewards: Cash Back or Airline Miles?

Now, let’s look at some of those spending-related perks. In the beginning were the airline miles: The first credit card rewards came in the shape of added points to your frequent flyer account at a specific airline. For a long time, these miles were incredibly valuable, allowing customers to redeem them for almost any flight they wanted, even at the last minute. Alas, these days the airlines have drastically restricted the availability of award seats, especially during holiday seasons and to popular vacation destinations. The seats they do make available often “cost” a higher number of miles; These inflated rates mean that a passenger’s hard-earned miles are worth less than two cents each, and occasionally less than a penny. Once additional fees for point redemption, fuel surcharges, and luggage are added in, the award tickets don’t seem anything close to free.

The Rise of Cash Back Alternatives

While the airlines were devaluing their own currency, the credit card industry was turning to a simpler sort of award: money. Discover Card pioneered the concept with its “cash back bonus” in 1986. Essentially, customers gained a 1% rebate on the sum total of purchases made with the card each year.

Eventually, other card issuers—Visa, MasterCard and American Express—began to jump on the cash back bandwagon. Nowadays, 1% cash back is the bare minimum offered, while other credit card rewards offer as much as 2% back on all purchases. Schwab Bank was the first to offer a 2% card, and others have followed suit, either literally or figuratively. For example, the aforementioned Capital One Venture Rewards card offers double “miles” that can easily be redeemed for one cent each as a statement credit towards any travel expense, effectively making it a 2% cash back card. In addition, many cards offer an even higher percentage, sometimes as high as 5%, on certain types of expenditures (transportation, restaurants, retailers, etc.) for limited three- or six-month periods.

When Miles Make Sense

So, what’s the better card to opt for: one offering miles or one offering money? First, mileage earners must come to the realization that redeeming this currency for travel can be difficult unless they are willing to be flexible in their plans. Next, they must be interested in some of the higher-value credit card rewards. Redeeming miles to fly coach between New York and Chicago—a relatively short trip on a competitive route—is a very poor use of them: You’re not saving that much money.

In contrast, mileage awards are an outstanding value if used for premium-class international travel, where the cost in miles can be only 50% more for business class over coach, It is not uncommon to redeem 100,000 miles for a business-class ticket to Europe that sells for $5,000. In this way, cardholders are getting five cents in value for each dollar spent and mile earned, far greater than any cash back award.

When to Stick with Cash Back

Cash will always be king for those who have no tolerance for these games—or who don’t have a trip abroad in their short-term future. Sure, you can save up for an award trip over several years, but bear in mind that mileage sitting in an airline frequent flyer account does not earn interest; in fact, it’ll probably decline in value as carriers keep upping the redemption levels and charges for redeeming.

It might just be simpler to earn 2% cash back, invest the money and purchase the flight of your choice on your terms someday. Furthermore, paid tickets are eligible to earn miles and receive upgrades. And if you don’t travel a lot? That cash back could be used on your utilities, car payment or even a Roth IRA contribution.

Credit Card Rewards for Roth IRAs

There are actually a few cards on the market that allow you to earn rewards which can be used for investments, including Roth IRAs. Basically, they work by having your annual cash back amount go directly into your account. These cards offer a few distinct advantages:

  • They are affiliated with specific brokerage firms and in turn, they strive hard to offer excellent customer service, since they know more is on the line than just your credit card account (the last thing they want to do is have a customer take his account elsewhere!).
  • The rewards percentage is often higher than the standard 1% most cash-back credit cards offer.
  • It is a “pain-free” way to increase contributions to your Roth IRA account.

Let’s take a look at a few of the most popular.

Roth IRA Cards

Fidelity Rewards Visa Signature Card: You earn two points for every dollar spent and there are no caps on total rewards. Each 5,000 points ($2,500 in spending) can be redeemed for a $50 contribution to a Fidelity IRA account. It’s a great value, considering there is no annual fee and the 2% rebate is unlimited.

Ameriprise World MasterCard: You’ll earn one Ameriprise Rewards point for every dollar spent on purchases, which you can redeem into an eligible Ameriprise account, or for gift cards, travel and more. Your points are worth 1.25% cash back when you redeem in increments of 30,000 into eligible Ameriprise accounts.

Schwab Investor Card from American Express: Gives 1.5% cash back, without any tiers or limits. That cash back is automatically deposited into a linked Charles Schwab investment account. There’s no annual fee.

More Ways Credit Cards Can Bolster Your Roth IRA

The aforementioned cards definitely have their advantages – if you have (or are willing to open) an account at the affiliated financial institution. But when you think about it, there’s no reason why you can’t use any cash back credit card to earn money that can be deposited into your Roth IRA. If you choose to go this route, here are three tips to maximize your earnings potential:

1. Use more than one credit card. Especially if you have a card that periodically offers a larger-than-normal cash-back sum on rotating categories, like the the Chase Freedom card. You can earmark the extra cash as a bonus contribution. If you wanted to do even better than that, you could use card namely for the 5% categories and then a different card that offered more than 1% on other purchases.

2. Use your credit card for work expenses. Of course your employer has to agree to it. But if they’ll reimburse you for charges on your own card, instead of making you use a company credit card, you’ll will have the ability to earn cash back for those expenditures too. It might be best to have a separate credit card just for these business expenses, so money doesn’t get mixed up.

3. Don’t let credit card cash back detract from normal contributions. It’s important to not let credit card rewards become a justification to contribute less on your own. Rather, they should be viewed as being above and beyond the amounts you already contribute.

Just remember that you have to have earned at least as much as you contribute to your Roth IRA and that can be no more than the year’s permitted annual contribution.

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