With fewer people using their rewards points for travel perks like upgrading to first class, credit card companies have made it easier to redeem them for everyday purchases like groceries and streaming services.
“People could really put these points to use, and some card companies have made cash back more attractive,” said Ted Rossman, a credit card analyst at Bankrate.com.
For example, Chase has a rewards program called “Pay Yourself Back” that used to offer the highest rewards — 1.5 cents per point — for travel charges, and only 1 cent back per point for a nontravel-related balance credit. But that changed during the pandemic as more card companies shifted their focus to more routine spending categories.
Now, charges for groceries, home improvement supplies, restaurants and even takeout and delivery food services can be redeemed for the same amount of cash-back points as they would get for air travel and hotel stays.
Rewards programs, such as the Pay Yourself Back program, is a roundabout way for companies to give cardholders a statement credit on the bill, which can be applied to offset some specific purchases.
Bankrate.com recently reported 31% of rewards cardholders didn’t redeem any rewards in 2020. That’s likely because they didn’t travel last year. But not using the points at all is the same as leaving money on the table.
“Credit card rewards do not become more valuable the longer you hold onto them,” Rossman said.
The opposite could occur.
“Airlines and hotels devalue the points over time,” Rossman said. “The points are basically like in-house currency. Companies can change how much the points are worth, and it’s not going to be in the customer’s favor. That’s why you want to use them as soon as possible.”
In other words, he said companies can increase the number of points needed for a free flight or hotel stay or any other merchandise or service. Cash back doesn’t get devalued in the same way, but cash back also doesn’t increase in value either. Inflation in the economy could erode the value of cash back in time, though.
However, most people redeemed at least some of their rewards last year, according to Bankrate.com.
Close to half — or 46% — of rewards cardholders who redeemed rewards last year did so for something of substantial value. The top three were gift cards or cash back worth at least $300 (30%), free hotel stays (15%) or a free flight (11%).
Overall, 59% of U.S. adults hav e at least one rewards credit card. That includes 36% of Gen Z’ers, ages 18 to 24; 57% of millennials, ages 25 to 40; 56% of Gen Xers, ages 41-56; and 69% of baby boomers, ages 57-75.
Roughly, two-thirds — 66% — of rewards cardholders typically pay their balances in full each month, which Rossman said is important because rewards cards tend to carry higher interest rates.
Rossman said cash back is a way for card companies to satisfy customers and get those rewards points off their books.
It’s something customers can use to get solid value, even if they aren’t traveling.
Capital One has a Venture Card that used to be primarily a travel card. But now those miles can be redeemed to offset everyday purchases. Chase offers a Sapphire Reserve Card that also used to be for travel expenses and now offers the same amount of cash back for dining, groceries and home improvements.
Both of those cards charge an annual fee. The Venture card charges $95 a year. Sapphire Reserve reduced their annual fee from $550 to $450 during the pandemic. While that fee still sounds high, it comes with a $300 credit that used to be only for travel charges, but during the pandemic, the credit was extended to gasoline and groceries, which effectively makes the annual fee $150.
“Paying the annual fee was worth it when you were going to the airport lounge and getting bumped to first class,” Rossman said. “But if you’re sitting at home, you might be wondering why you’re paying the annual fee.
“Your spending may have changed and your travel has changed, but you can take advantage of the new normal. If you want to use the points and get some value, cash back is a way to do that.”