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New Credit Card Rewards

Posted on 30. Sep, 2009 in Credit cards, General News, Saving money

Traditionally, credit card company reward programs have featured airline mileage, gift certificates, and cash back for customers who spend more on their cards to get top ups. However, today card companies are offering new sets of incentives perhaps in response to the implementation of the first set of rules by credit card bill last week.

The new incentives are: lower interest charges, reimbursement of interest payments, and other to get cardholders to make early payments of their debts.

New reward programs

Some card companies like MBNA are giving consumers top ups and reduced yearly interest rates for honoring on a regular basis the repayment terms as well as keeping to credit limits (that is, from 0.25% up to 2% cutback in interest rate each time a cardholder makes a bare minimum payment for three successive months)

Other incentives are based on the percentage of balance paid off. For instance, payment of 10 percent off or more wins the lowest interest rate, while a 5 percent pay off attracts the highest interest rate. Some banks give as much as a whole month’s interest back following a six successive on time payment by their clients.

Benefits

Card companies believe that the new rewards will enable their customers to manage their finances and debt much better and at the same time enjoy more options to choose from including on-line services that help consumers to know the amounts they need to pay every month to clear the balance of payment by the set date.

They further argue that the available choices will encourage card users to pay their debts more easily – on time and enhance their credit worthiness. Indeed some banks claim to be recording a fall in customer default rate as a result of some of their products.

The challenge for card companies is how to balance increasing benefits to consumers as they pay up interest fees each month and ensuing that they do not default on payment.

A recent survey has shown that 57 percent of card users with the new reward system pay off 70 per cent of their balances each month.

Who really benefits?

These new deals do not always come in the interest of all consumers.

According to experts, while card users generally may benefit from improvement in their credit as a result of these programs, they are best suited for card users who maintain a balance on their cards regularly. Such users will benefit more from getting a card that offers very low interest rates.

Consumers who are not usually able to pay off significant portions of their balances at each month are better-off going for a low interest rate card.

At the end of the day it is the consumer’s decision to choose between the rewards. But the consumer must be well-informed on the benefits and the terms.