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Have Patience: Credit Cards That Pay Out Annually

Jason Steele

The battle for rewards credit card users is as fierce as ever, with banks looking to attract those with good credit and responsible spending habits. These banks want to use every trick in the book to retain existing customers, yet reduce the rewards they actually pay out. And the latest tactic seems to be offering rewards that are delivered once a year. Here are a few examples:

Costco True Earnings Reward Card from American Express: This card offers 3% cash back on gasoline, 2% cash back at U.S. restaurants, and 1% cash back everywhere else. Yet all rewards are only received in the form of an annual reward coupon included with the cardholder’s February billing statement.

Capital One Cash Rewards: Cardholders receive 1% cash back on all purchases, plus a 50% bonus each year on the anniversary of their enrollment.

Chase Sapphire Preferred: Cardholders receive one Ultimate Rewards point per dollar spent and double points on travel and dining. In addition, cardholders also receive a 7% points bonus each February, which effectively raises the total points received to 1.07 and 2.14 for these purchases (respectively).

[Related Article: The First Thing to Do Before Applying for a Credit Card]

What are the advantages of these rewards?

Reward cards with annual bonuses tend to be some of the more competitive products, and cardholders who are patient enough to wait for their bonus will enjoy some of the best rates of return. And it is not just cash-back rewards. For instance, the Delta SkyMiles Platinum card from American Express offers a free companion certificate for a round-trip flight in economy class each year when customers renew their card. This benefit can easily be worth more than this card’s $150 annual fee.

Are there downsides to annual rewards?

In most cases, credit card accounts must be open and in good standing to receive these rewards. For example, if a holder of the Costco True Earnings Reward Card from American Express closes his or her account in December, they could lose all of the rewards accumulated throughout the year. This is how banks hope to reduce the amount of rewards that they must eventually pay out.

Another problem with these programs is that they discourage cardholders from seeking more competitive products while they wait for their annual rewards. Of course, this problem for consumers is seen as a benefit to card issuers hoping to retain valuable customers. And likewise, cards that offer these rewards at the time of renewal often have an annual fee.

Can you have the best of both worlds?

With most credit cards, it is possible to redeem an annual award, pay the annual fee, but later cancel the card. And with many banks, the annual fee is refunded when cardholders close their account within 60 days of paying it. In other instances, the annual fee is pro-rated and returned in part. Be careful, however, of opening a bunch of credit cards, only to close them a few months later. This can have a negative impact on your credit report by lowering the average account age on your credit history.

Once credit card users understand how annual rewards work, they can make the best choices when it comes to using their cards.

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