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Ushering in the New Year often means taking a closer look at your finances, in terms of savings and reducing taxes in the coming year. Using your credit card rewards points for investment purposes, may not be something you’ve ever considered before, no doubt partially due to the fact that until very recently it wasn’t a possibility.
According to a 2011 study released by the Fed 60% of consumers have at least one rewards based credit card, so it’s not all that surprising that lender’s are looking for new ways to peak customers interest. For investment minded consumers two banks recently rolled out rewards programs designed to help them save money relatively painlessly, by making it easy to invest their reward dollars.
Barclay Bank’s Upromise World MasterCard allows their customers to earn anywhere from 1%-5% cash back on purchases. While you can use your points to get traditional rewards, you can also use them to invest in your future by converting them into cash, which is then transferred into the investment account of your choice. If you want to put money away for your child’s education you can add them into a 529 College Savings plan. However, you can also deposit them into a Sallie Mae High-Yield Savings Account, or if you have outstanding student loans with Sallie Mae they can make a payment.
Fidelity’s Visa Signature Card is branded as being a no fee and no limit “investment rewards card” which provides customers with 1%-2% cash back. Once you have 5,000 points in your account, they can be converted into cash, which in turn is deposited into your linked investment account. They have a variety of options available including individual retirement accounts, 529 plans and brokerage accounts.
There’s even a credit card for people new to investing. The BetterInvesting Visa® Platinum Rewards card offers members access to a series of investing tools, while also providing rewards, and giving a percentage back to Better Investing, a non-profit, that helps new investors get up and running.
One thing to keep in mind when considering these kinds of cards is that they have the same level of risk attached to them as regular investment accounts – so you may make or lose money depending upon the account and the market. So before signing up it’s a good idea to evaluate the risk, and think about whether or not this kind of account is the right match for you. You may also want to take a look at other investment options as well.
In the end you may decide that you would rather rack up points in order to get free airline tickets, or merchandise, but if you do want to invest them, doing your homework is key. This means reading all the written material included with the card, so there are no surprises later on. Also when investing in tax deferred accounts you want to make sure that the card you decide to go with will automatically keep you within IRA limits, and out of the gift tax red zone that’s often associated with 529 accounts.
Whether you’re looking at traditional reward cards, or these new additions to the market, take the time to evaluate the ins and outs of each one, so that you get a card that’s right for you
January 31, 2013 at 10:13 pm
That’s quite interesting, I have never seen programs that offer investing rewards before.
The key is to avoid large incentives to put massive spend on the credit card to get the rewards and find that you end up paying interest on the balance which actually mean those rewards cost you far more than you bargained. This holds true for all rewards programs- whether they provide investing rewards or not.
February 3, 2013 at 10:47 am
Agreed, one should never ever pay interest on a credit card.
February 1, 2013 at 11:26 am
I’ve never seen cards that give investment related rewards, though it’s a pretty cool idea. We tend to like travel rewards cards as we have family all over the country and it helps us not have to spend so much on travel.
February 3, 2013 at 10:48 am
We like travel rewards as well, right now we’re working towards our starwood rewards! =)
February 1, 2013 at 11:40 am
The mentioned the Fidelity Visa, but the Fidelity Amex is the king (2% into your Fidelity account on all purchases). The old king used to be the Schwab Invest First visa at 2% (and no forgein trans fees) but that one went belly up.
If I wasn’t churning cards, I would probably choose the Fidelity Amex at this point as my main card.
February 3, 2013 at 10:50 am
2% is a great return on your money for making purchases that you normally make.
February 1, 2013 at 10:04 pm
I wish that Schwab would bring back their card, but sadly they won’t. If I had a Fidelity account I would opt for the Fidelity Amex card. I didn’t know about the BetterInvesting card.
February 3, 2013 at 10:52 am
I have a Fidelity account but right now we’re working towards travel rewards. One of these days when our kids are a little older my wife and I are going to take a much needed vacation!
February 3, 2013 at 12:03 am
Those cards sound interesting. I buy virtually everything on my credit card and pay it off every month just to get points, but usually all I end up with at the end of the year is a free toaster or something along those lines. Cash back – and more specifically cash into an investment account seems like a much better idea.
February 3, 2013 at 10:53 am
I know what you mean. Recently I was trying to pay my mortgage with our credit card using vanilla reload cards but that program has ended. We purchase everything on our credit cards as well and even pay bills with our credit cards in order to get points.
February 3, 2013 at 11:33 am
I like my travel rewards, but try to use my Chase Freedom card as my primary card. I definitely use it on whichever category is giving 5% for that quarter. Since I have a Fidelity account, I’ll have to check into both the Visa and the Amex that they offer. Could be a nice extra boost to the FI account.