Back in '08 MasterPo wrote about trying an experiment with my credit card .In brief, MasterPo had found an article on a financial blog site spoke about a guy who was using his credit card for as many purchases and payments as he could (as oppose to cash or debit). Why? To maximize the rewards/bonus points he gets on his credit card.
The strategy seemed simple and easy enough:
1) Open a high yielding savings account and link it to your checking account.
2) Anything you would have used cash or debit to purchase for now use your credit card.
3) Then transfer the money that you would have used from your checking account to the high yield savings account.
4) Now you are earning interest on the money, earning rewards/bonus/gift etc. points on your credit card, and when the credit card bill comes you have the money to pay it in full.
Easy peasy, right?
Well, it wasn't.
Today MasterPo is calling the experiment officiall OVER and labeling it as a failure.
Reasons:
1) Interest rates had been better for savings accounts 2 years ago. Today, you're lucky to get 1.5% APR (and that's before taxes!). So what little interest you do earn is truly pennies. Not worth it in MasterPo's opinion.
2) The time to administer the daily transfer of funds from checking to high yield savings was a lot. Doesn't seem like it should be but it is. You must do the transfers daily at least. Can't do it weekly or monthly. The loss of interest accruing time defeats the purpose if you wait that long.
3) The time and effort to track how much in the high yield savings is really temporary to be used to pay the credit card bill when it comes.
4) All the charges makes for a much bigger credit card statement each month. And if you are as detail oriented as MasterPo is that's many many more rows of charges to review and confirm as valid/correct. Again, more time and effort.
5) Finally, while the rewards MasterPo's credit card offer are very useful, they are only paid out at the end of the year (early the following year really) so they can't really be used during the year. Perhaps another credit card with different rewards/bonuses would accrue a value that can be tapped during the current year. But the one MasterPo uses (MasterPo purposely has very few credit cards) doesn't. So again, lots of work and long time for the pay off.
For all these reasons MasterPo is going back to using more cash and debit for his purchases in 2010. Perhaps the experiment will be revisited another time with a different credit card and rewards/bonuses. But for now, it's done.
A lesson learned.
Posts
1 comment:
Congrats on this experiment and its outcome. I will add the credit card rewards programs are very expensive for card issuers who pass those costs on to the retailers, who pass them on to consumers. If folks would use cash for purchases, retail prices in general would fall 3-5% across the board. But alas, we are addicted to plastic.
Post a Comment