Wednesday, August 31, 2011

Credit Card Rewards So Far 2011

Some people don't really care about credit card rewards because it just doesn't sound significant.  I mean, how much can 1% become, anyway.  Is there really a big difference if I try to maximize my cashback and use cards that give more than 1%?  Since it's finally the end of August, I thought I'd show some personal year-to-date numbers which is 2/3 of the way through the year to see how high you could possibly make your returns.

So here's a look into my credit card expenses in 2011.  In the first chart, you can see the four main credit cards I use and what percentage of my overall credit card expenses each one takes up.  Unsurprisingly, my American Express which I got recently two months ago only makes up 3% of my overall expenses.  Chase also takes up a larger percentage because it was my main credit card for my hotel expenses for my internship (and a large part of that was outside of a 5% promotion which dropped my return which I will explain next).

Overall, my total return for my credit cards was about 3.33% for the year so far.  The second chart shows the return for each card separately, in case you were curious about the return for specific cards.  I've mentioned the credit cards I've used in previous posts.  The return on these cards is determined substantially by the user.  If I used my Discover card, for example, for all my expenses, the return would ultimately drop since I would be getting less than 1% on any non-promotional categories.  You can see that for my American Express, I have been quite strict with purchasing only groceries which give me a 3% return.  The yield on my Chase card is low because I spent about $1000 on my hotel at only 1% cash back for my internship this summer.  Capital One is the card I use for 1% cash-back if what I'm buying isn't groceries and the purchase does not fall under Discover's or Chase's 5% cash back promotion.

Some of you may look at my Discover return and see that I got 5.62%, a little more than half a percent above the normal 5% promotion.  Am I hacking into their systems and stealing money?  Actually, there is an interesting feature with these promotions.  I'm not sure if it's just Discover but when I purchased a plane ticket on my card (this was when travel was 5% for Discover, obviously), I was accidentally charged twice for the same ticket.  I called Southwest and they were able to quickly refund the second transaction.  However, Discover still credited me the reward amount for that second ticket which inflated my return above 5%.  Realistically though, the return on Discover should be about 6% since when you get your rewards as a gift card, you can exchange $20 of rewards for $25 in a gift card (which is how I plan on using my rewards anyway). This bonus isn't captured in my graph, but it's good to keep in mind when you think about yields.

So how much cash-back did I actually get?  This year, that 3.33% translated to about $150.  You can  calculate that my total credit card expenses from that is a little more than $4500, which may be much less than what most people spend in 8 months.  If you spend $10,000 in a year and manage to get around a 3% return on that, that's $300 in your pocket.  Best of all, you don't really have to do anything or expend any effort to get it (aside from keeping track of these promotions).  For those of you who enjoy shopping and buying clothes, this is where you can get a little bit of your money back.  And for people who drive a lot, almost none of my expenses this year have been on gas (I don't have a car).  I also don't eat out nearly as much as many of my friends.  Hopefully you may feel a bit more inspired that there can be significant returns on the money that leaves your wallet.  With good credit card management, you can make the most of your normal expenses to earn a little extra on the side.

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