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Cash-back credit cards offering fewer rewards

Credit Cards » Cash-back Credit Cards Offering Fewer Rewards

Cash-back credit cards aren't tinkering with their rewards formula this year to bait new customers. Instead, they're using zero percent introductory rates and more -- albeit smaller -- sign-on bonuses to lure new cardholders, according to Bankrate's 2013 Credit Card Cash-Back Rewards Survey of 54 credit card rewards cards.

More than 3 of every 5 cash-back cards surveyed featured an introductory annual percentage rate of zero percent, data that are new to this year's survey. The intro period ranged from six months to as long as 15 months.

Fifty-six percent of the cards also offered a cash-back incentive for new cardholders, a jump from 44 percent last year. However, card companies scaled back bonus amounts and made them harder to get than in 2012.

Compare cash-back credit-card rewards

What cash-back cards are leaving untouched from last year are the rewards programs themselves.

"Bonuses, by nature, are more dynamic and easier to tweak" than rewards formulas, says Greg McBride, CFA, Bankrate's senior financial analyst.

Just less than half of the cards pay 1 percent from the first dollar of spending, the same as last year, the survey found. Fifteen percent offer more than 1 percent, virtually unchanged from 14 percent last year. And nearly the same percentage of cards as last year (46 percent this year versus 48 percent in 2012) offer higher payouts for specific spending categories such as gas, groceries or dining.

Bankrate surveyed 54 cash-back credit cards from 21 issuers. The survey breaks down the cards by annual fee, introductory bonus, introductory purchase annual percentage rate, introductory purchase APR period, APR, rewards rate and expiration period for an easy side-by-side comparison.

Dangerously seductive intro rates

What sets 34 cash-back cards apart from others are zero percent purchase APRs for at least six months. Twenty-two cards offer the rate for 12 months, the most popular duration. Five offer periods of 14 or 15 months, while seven others feature periods between six and nine months.

These rates are intended to appeal to consumers who may roll balances from one month to the next rather than those who pay off their balances every month, says Bill McCracken, CEO of Synergistics Research, a market research firm for the financial services industry.

"(Issuers) hope they will stay past the intro period and become profitable interest payers," he says. "Consumers have to educate themselves on what the rate will be after the intro (rate) expires. (It) could be good but could be bad."

In fact, the average APR on the cash-back cards that offer zero percent intro periods is 17.78 percent, more than 2.5 percentage points higher than the average APR for all variable-rate credit cards. Some APRs can go as high as 25.99 percent if you're a riskier borrower.

That can be costly if you have a large balance at the end of the introductory period. You could wind up paying more in interest than the cash back you earned.

More bonuses, smaller bang

Another way issuers are getting consumers to spend more on their cards is to set up thresholds that must be met to get the bonuses. These hurdles also discourage consumers who game the rewards system by pocketing the bonus and then jumping to another card, says McCracken. Credit card companies essentially are forcing cardholders to stick around longer to earn a bonus.

Nineteen of the 30 cash-back cards that offered a sign-up incentive required consumers to spend between $500 and $3,000 within the first three months to get the bonus, according to Bankrate's survey. A handful gave higher cash-back percentages for up to six months to encourage spending. And the Miles by Discover card offers up to 12,000 bonus miles over 12 months if you make at least one purchase each month. (The miles can be redeemed for cash.)

Only three cards in Bankrate's survey made it easy to get the bonus. The Affinity Federal Credit Union Pure Rewards Visa card, the Barclaycard Rewards card and the Priceline Rewards Visa card awarded cardholders the introductory bonus after their first purchase.

End notes: Annual fees, expirations and caveats

Other features of cash-back cards look remarkably similar to last year's survey set. Annual fees are still uncommon with 78 percent of cards having no fee, compared with 82 percent from last year. None of the cards that appeared in last year's survey added or deleted a fee.

Nearly two-thirds of the cards surveyed have no rewards expirations, similar to last year. And among those cards with expirations, rewards are good for three to five years, the same as in 2012.

Bankrate's survey also noted important particulars about specific rewards programs that consumers should understand to get the most from their rewards.

For example, some cash-back cards cap how much you can earn in a year. Others restrict how you can redeem your cards, either by increments or only through statement credits or gift cards. Some cards that offer more cash back for supermarket purchases don't count groceries bought at superstores or discount warehouses such as Wal-Mart and Costco.

"Cash-back cardholders need to spend more time thinking about their rewards and understand the restrictions," says Amy Lenander, vice president of rewards programs at Capital One. "These are things they don't pay attention to until it's time to redeem."

Updated: June 26, 2013
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