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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