Not So Breaking News: Credit Card Companies Slash Rewards Programs

If Google actually indexed my blog posts, people would have been aware that credit card rewards programs have been on the decline for quite some time.  Unfortunately, Google hates this website, and you may have only recently learned of the fact that credit card companies are cutting rewards programs through the mainstream media. 

A recent article on CNBC.com (http://www.cnbc.com//id/29637583) discusses some superficial trends in the credit card rewards landscape.  However, the article misses the big picture, which is best understood in the context of the past three years. 

A great place to start is cashback credit cards.  In 2006, Citi offered a card which provided a full, unconditional 5% cashback on all gas, grocery, and drugstore purchases.  This offer was quickly discovered by saavy consumers who not only just used their cards where they could get 5% cashback, but also paid their bills in full every month.  These consumers made handsome profits by simply using their credit card in place of cash.

It didn’t take the banks very long to isolate money losing rewards programs.  Consequently, full 5% cash back offers were quickly replaced with 3%, 2%, and ultimately, the 1% cash back rewards card.  Today, earning 1% cashback is about as good as it gets, although a few cards still offer double rewards.

Blue Cash from American Express, for example, still offers a full 5% cashback on gas and grocery store purchases.  However, there is a rather large caveat:  you must spend $8,500 in order to earn 5% cashback.  Until you hit that threshold, gas and groceries earn 1.5% and all other purchases earn 0.5%.  Despite this spending threshold, consumers who do all of their spending with this card and pay their bills in full can still make out pretty well with this deal.  However, I wouldn’t be surprised if American Express pulled this deal from the market tomorrow, as credit card companies are about as predictable as the weather these days.  (You can learn more about cash back offers in the cash back credit card section of Smart Credit Choices.)

While cash back credit cards have seen the most dramatic cuts over the past few years, airline rewards cards have remained relatively stable.  One reason for this lay in the fact that most airline credit cards associated with a single airline charge hefty annual fees of $75 or more.  Another reason these cards haven’t cut promotions as much lay in the fact that it takes quite a bit of time to earn enough miles to get a flight.  With most cards, you’ll have to spend $50,000 to earn enough points for a single flight. 

Consumers who want to earn airline miles without paying an annual fee still have options.  More than a few credit cards offer no fee airline rewards.  For additional information, see the airline credit card section of Smart Credit Choices.

Overall, it is quite true that credit card rewards programs are on the decline.  However, this is not a new phenomenon.  It has been going on for a few years.  What is alarming is the recent rate of change, which indicates that credit card rewards programs will get stingier before things improve.