If you earn rewards points or airline miles with your credit card, now may be the time to cash them in. Recent additions to the financial reform bill include a limitation on interchange fees which are collected by credit card issuers every time you swipe your card.
Interchange fees, which are paid by merchants, generally run at 2% of the transaction. When you spend $100, $2 is split between your credit card issuer and the credit card network, such as Visa or Mastercard. Of the $2, the lion’s share goes to the credit card issuer. Part of this money is returned to customers in the form of credit card rewards.
While some credit card companies offer generous rewards of 2% or more, most credit card rewards are about 1%. This can be 1% cashback, 1 reward point, or 1 frequent flyer mile. If interchange fees are limited, credit card companies may stop offering these rewards altogether. However, even if these fees aren’t reduced, credit card companies may take proactive steps to protect themselves.
Fortunately, consumers who have earned cash back rewards are unlikely to lose out. After all, they’ve earned cash. However, anyone sitting on a pile of airline miles or rewards points could feel the sting.
Both airline miles and credit card rewards points have no cash value. Sure, you can use them to purchase plane tickets, gift cards, or even cash rewards. But the number of points or miles needed to get these rewards are not set in stone. Today, it may take 2,500 points to get a $25 gift card for the Olive Garden. Tomorrow, your credit card company could charge you 5,000 points.
The same issue could pose a problem with airline miles. At any point in time, and for any reason, credit card companies could decide that a ticket that once cost 25,000 miles now costs 50,000 miles. They have complete control over the value of your rewards and when push comes to shove, they’re going to do what’s best for themselves.
As many of us learned last year, credit card companies will go to great lengths to preserve their profits, even if it means chasing customers away. So if you’ve accumulated a substantial amount of credit card points or miles, it may be time to spend them before they lose their redemption value.
-Jeffrey Weber
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