MasterPo says: This blog is about topics and issues that are of importance to me. I am not one of the countless blogging lemmings that are tripping over each other scurrying down the hill and off the cliff of blogging oblivion trying to write the greatest blog on the latest topic de'jour. Your comments are welcome.

May 5, 2009

Results of the Great Credit Card Experiment (or Maximizing Freebies?)

A couple of years ago I applied for a Costco American Express card. This version of Amex gives me a percentage rebate for things charged that ends up being a rebate voucher for purchases at Costco. Certain purchases acquire more rebate than others. At this time I get a 3% rebate for dining out and gas purchases, 2% for travel related purchases (plane tickets, hotel, car rental etc), and 1% for everything else.

It seemed like a good idea because 1) My family shops a lot at Costco, and, 2) As of writing this Costco does not accept Visa or MasterCard for payment at the store; Only Amex, Debit or cash. So it looked like a win-win scenario.

And it was to an extent. I charged some things on my Amex during the year and the following year I would get a rebate voucher for Costco. Generally the rebate was in the $200-$300 range. That helped buy a few items each year (since Costco sells in bulk it's very easy to ring up several hundred dollars each time you go there!).

Then I read an article on a financial blog about get the most rewards from your credit card. The author said he charges everything he possibly can to his card to get the max (in his case airline miles). He charges not only basics like groceries and gas but his utility bills, insurance, subscriptions, memberships etc etc. But, so as not to get stuck with a high credit card bill at the end of the statement period, he opened a high yield savings account and everyday he adds up how much he charged and transfers that total from his checking account to this savings account. That way, he explained, he earned a bit of interest on the money temporarily. But more over, when the bill comes it's already been "pre-paid" by having this pot of money on the side waiting for it.
Therefore, in the end he gets the maximum amount of rewards from his card, has the money on hand to pay the bill off so he doesn't run up a big balance, and earned a touch of interest to boot.

Sounded very logical and practical to me.

I thought I'd give it a try.

So in the beginning of 2008 began charging all I could on my Amex and each day setting aside cash from my checking account that I otherwise would have used to pay for these purchases. I continued this all year long and just recently received my 2008 rebate voucher.

The results of this experiment: Mixed.

On the plus side my rebate check was the largest I have received yet with the card, approx $150 more than prior years. That will buy a few more steaks for the BBQ this summer! And the rebate is tax-free so I essentially can buy several hundred dollars worth of products with found tax-free funds.

That's sweet!

On the negative side it was a lot of work every day (more or less) adding up my purchases and transferring the funds to cover them. Then needing to keep track of what purchases had been pre-paid and which ones were not (can't cover all purchases, some have to paid out of the pay check directly). And the billing cycle of my Amex isn't as clear cut as for my MasterCard so it was harder to time purchases to get into the next cycle and thus not get hit with a big bill.

Overall I'd say the experiment was worth a try but not as grand a payoff as I had hoped for given all the effort to manage it throughout the year. I'm still following this strategy, albeit at a much more scaled down pace (a lot having to do with the overall economy and future outlook as well).

Would I recommend this strategy? Yes but with caution. It's very easy to over charge and get stuck with a bigger bill than you have covered already. This strategy is probably better suited to someone who travels a lot for work and can expense many of the charges that way insuring the funds to cover them.

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