A Note of Encouragement

I am a firm believer in loyalty programs, but I know that with some of them it almost feels pointless to give your number/card since it looks like it could take years to reach a reward level.  But these past two weeks were great for me on that front, and I want to offer you a note of encouragement.

Two weekends ago, I received $2.50 Extra Bucks back (a free ½ gallon of milk or cereal?) from CVS for purchases I made during the spring.  A few days later, I redeemed $20 in cash back I had accumulated on Discover for a $25 gift card on Banana Republic, which I used over the weekend to get a top for free!  I use my Discover card mostly for purchases that give me a 5% cash back bonus, which means it takes me a little longer to accumulate cash back than if I used it as my primary card, but I still usually accumulate $20 every 3 or 4 months.

A $5 certificate on Best Buy also came through my Inbox last week.  Their Reward Zone program gives $5 for every $250 spent, and the netbook I bought for my mom last month was $250 and some change.  In the mail, I also got a $10 certificate from DSW just to welcome me to their rewards program (I have only ever made one purchase there before) – and there, $10 goes quite a long way.  And, a year since we first started using OpenTable, we finally reached the points for a $20 gift certificate, which can be redeemed at any member restaurant.  Admittedly, $20 is not much compared to how much we spent dining out over this past year, but being rewarded for using a service that makes life more convenient (no calling restaurants for reservations) is always great.

And in terms of future rewards, thanks in part to my AAdvantage/Citibank credit card, I recently reached enough miles on American Airlines for a free flight to Europe.  While I haven’t booked my ticket yet, I am planning on going to England in a month, and if my recent experiences with reward programs are any indication, I expect redeeming my miles for a flight will be a breeze, too.

Some rewards programs are obviously more generous than others, and I think that the instances in which it may make sense to spend money just to get a reward are few and far apart.  Nonetheless, if you diligently use your loyalty number/card whenever you do make a purchase, there just might be a reward coming your way sooner or later.

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Museum Visits, Compliments of Bank of America

Last week, I came across an article on Bank of America’s Museums on Us program, which gives free access to over 100 museums all over America during the first weekend of each month when you show your BofA active debit or credit card.  Even if there aren’t that many options in your own city, remember to check the list of participating museums when planning your next trip – the Met and the Aquarium in New York and the Museum of Fine Arts in Boston, for example, are part of the program.  It may also be a good place to start as you plan your July 4th or Labor Day weekends (both are the firsts of the month).  Be sure to check out the article and the Museums on Us website for more details.

Competing for a Slot in Your Wallet

Big news: Chase is unveiling a new Ultimate Rewards program for its credit cards to compete directly with American Express’ Membership Rewards loyalty program and Citi’s Thank You Network program.  For now, the program doesn’t seem as large or rewarding as Citi’s ThankYou Network.  You can only earn points through two credit cards (the Freedom and the new Sapphire), where you get a point for every dollar spent or three points for every dollar spent in categories (restaurants, clothing, gas) that change each quarter.  This is similar but still not as good as Discover’s 5% Cashback Bonus program.  You can also earn points by shopping from retailers through the Ultimate Rewards Mall, much like the Thank You Bonus Center and ShopDiscover.  You don’t, however, get extra points by linking your Chase bank account to the rewards program, and although Chase doesn’t have an Expedia counterpart, you can also earn points by booking travel on the Ultimate Rewards website.  Regardless, having one more choice in the credit world is good from a consumer’s prespective and hopefully Chase will improve its new rewards progam to make it more appealling and more competitive.

Thank You in So Many Ways

I recently applied for the new Citi FORWARD Visa Card, because I will resign from my company in a few months and be forced to relinquish my corporate Diner’s Club MasterCard. The Citi FORWARD is a pretty neat credit card and I will go into more details at a later post. For now, however, I would like to talk about the Thank You Network, which I recently discovered and which serves as the rewards program for all Citi-affiliated credit cards, financial products and services.

A unique feature of the Thank You Network is that you can amass all the points you have collected from various places into one consolidated account. Below are some of the ways to earn points:

  1. Use a Citi credit card, such as the Citi FORWARD.
  2. Link your Citibank account to your Thank You account. If you have a Citibank account (either the Access or Basic Checking), an ATM card, and a direct deposit set up, this will earn you 25 points each month. Think about it – you don’t have to make a single purchase and you still earn 25 points each month.
  3. AND if you do use your ATM card, you get a point for every $2 you spend on purchases with your signature (meaning you click “Credit” at the machine and sign your name) and for every $3 you spend with your pin (meaning you click “Debit” and enter your pin number).
  4. Make purchases through retailers at the Thank You Bonus Center and earn bonus points. For example, currently you can earn 3 points for every dollar you spend at iTunes.
  5. Book hotels, cruises, and vacation packages through Expedia. Of course, you should only do so if you were to come across a good deal. You can also earn points on flights if you book a hotel stay at the same time. In this scenario, you would earn frequent flier miles for the flight and Thank You points for both the flight and hotel.

And I am not even done. Once you are ready to redeem your points, the Thank You Network’s reward collection is akin to an Amazon store. You can redeem points for books, DVDs, music, and electronics, etc.  There is even a sale section, where you can get items at a discounted number of points.  In addition, you can also trade your points for a student loan rebate to pay for your student loans. A $25 rebate will set you back 3,300 points. 

Obviously, I am not advocating that everyone switch to/set up a Citibank account or sign up for a Citi card; I was simply struck by how quickly and easy I can earn points through the Network and the many rewards options I have to redeem my points. If you just graduated and are still wondering which checking account to get and/or for which credit card to apply, I think the Thank You Network presents a pretty compelling case to become a Citi customer.

Update on the Credit Card Legislation: Paying in Full Does Not Make You a Free Rider; It Makes You Profitable

Last Thursday we wrote about two possible and essentially opposing ways that credit card companies could respond to the new legislation and affect users who always pay their monthly credit card bills in full and on time: increasing annual fees and limiting rewards programs or buffing up rewards programs to encourage those consumers to use their credit cards more. In our view, the former would be a pity while the latter would benefit both credit card companies and us.

I thus find Sunday’s article in Michelle Singletary’s personal finance column in The Washington Post highly disturbing. On credit card companies’ threats to raise annual fees in response to the new credit card legislation, Singletary preaches,

I know many of you feel entitled to use a credit card without any cost because you diligently and responsibly pay off the bill before the due date. But did you ever stop to think what that is?

You probably never considered that the credit pushers made your access to “free” money possible by gouging the less fortunate with hideous penalty fees and wicked double-digit interest rates. Effectively, the most financially vulnerable consumers have subsidized the low interest rates and rewards programs that the more financially secure enjoy. . . .

That is how capitalism works. And at times it’s a selfish system.

This statement ignores an important system credit cards use to make money: interchange fees. These fees are charged by credit card companies to stores whenever a customer pays for a purchase by card. The interchange fee is usually made up of a flat fee plus a certain percentage of the purchase value, which varies according to the card company, the type of card (personal or business), the rewards program associated with the card, as well as the store, and generally ranges from 1 to 4%. In 2007, credit card companies earned $48 billion in interchange fees.

Credit card companies seek out lower risk customers (i.e., those who are most likely to pay their credit card bills in full and on time) not because high risk customers make it possible to include them, but because they are responsible for a big chunk of credit card profits. We pay our bills on time (i.e., credit card companies feel comfortable that they will get all of their money back, and know exactly when to expect it), and by paying off our monthly balance, we have the potential to earn credit cards companies 1-4% of our credit limit in interchange fees every month. Interest payments do not earn interchange fees. With this in mind, I really don’t think credit card issuers would want to lose low risk customers by raising annual fees and slimming down rewards programs. And if they do, I certainly will not celebrate that move as a victory over capitalism – it will only mark the day in which I (and many others) go back to shopping around for better credit card deals, as the new legislation does not stop the competition between credit cards, and compete they will.