LendingTree has curated an exclusive panel of professionals, spanning various areas of expertise, to help dissect difficult subjects and empower you to make smarter financial decisions. Read on for more cash back credit card insights.
- Would you recommend a cash back credit card to a first-time credit card user? Why or why not?
- How do words like “bonus” or “rewards” impact consumers’ buying decisions?
- What are a few sensible ways in which consumers can utilize their cash back rewards?
- In your opinion, how well do cash back rewards programs work at keeping customers loyal to a brand?
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The commentary provided by these industry experts represent their viewpoints and opinions alone.
Would you recommend a cash back credit card to a first-time credit card user? Why or why not?
Yes, cash back is a great additional benefit for credit card users. The purpose of using credit cards responsibly is to build a history of excellent credit so you can tap into the larger loan markets. The cash back feature is an added benefit that helps users save money while using credit cards.
How do words like “bonus” or “rewards” impact consumers’ buying decisions?
These words motivate the consumers in making decisions. The consumers themselves when wanting to purchase something have an internal desire to do so. However, they are oftentimes bounded by budget and opportunity costs. These words help create external motivation that makes it easier for the consumers to make decisions by adding one more item on the benefit side of their decision-making chart.
What are a few sensible ways in which consumers can utilize their cash back rewards?
The best way to utilize cash back rewards is to use the cash back balance and apply towards payments of the credit card balance. Credit card users can also ask for a paper check or ask for the cash reward to be deposited directly to their bank account. Another great way to utilize cash back rewards is to convert them into gift cards to use at other stores.
In your opinion, how well do cash back rewards programs work at keeping customers loyal to a brand?
Cash back rewards program works well at keeping customers loyal. Customers love to accumulate points or rewards so seeing their rewards adding up will discourage them from finding an alternative option. Many times the fear of losing what they have accumulated overtime is what keeps customers from parting with a business, a brand or a product. For a business, the cost of giving away rewards to keep their current customers is much cheaper than the cost of acquiring new customers.
Would you recommend a cash back credit card to a first-time credit card user? Why or why not?
It really depends on the individual circumstances of the person. There are so many “so-called” loyalty cards out there: cash back, flexible cash back, rewards, airline, etc. My recommendation as to the specific type of loyalty credit-card would depend on the person’s spending patterns. One needs to also take into account the annual-fee, from a cost-benefit standpoint. That said, cash is fungible (vs. other more specific loyalty cards like airlines).
How do words like “bonus” or “rewards” impact consumers’ buying decisions?
Those are charged words when it comes to the “psychology of consumption.” Similar to the word “sale” or “free,” these terms often function like a neon flashing sign in the minds of consumers. Hence, consumers can engage in a kind of faulty mental calculus where they overweight the value of these benefits relative to the costs. For example, when someone drives across town to get the lowest price per gallon on gas but winds up actually paying more per gallon than had they gone to the corner gas station nearest their home (when you factor in fuel and time to drive across town). So, the danger is when these terms cause consumers to “chase” the rewards or reward tiers by spending more than they typically would.
What are a few sensible ways in which consumers can utilize their cash back rewards?
Don’t spend any more than you would otherwise spend in a given month just because you are getting cash back on purchases in general (or on certain categories of purchases). Use the cash back to pay off your credit card (or to pay down your credit card balance). Given credit-card interest rates, that’s a pretty great “reward” or “deal” in and of itself!
In your opinion, how well do cash back rewards programs work at keeping customers loyal to a brand?
They definitely move the loyalty needle. Otherwise, we wouldn’t have seen the proliferation of such cards over the past decade plus. However, with so many of these cards nowadays, it’s becoming less of a “point of differentiation” for financial institutions and more of a “point of parity.” It’s almost expected now by consumers that the differentiators in this space offer percentage of cash back, flexibility, etc.
Would you recommend a cash back credit card to a first-time credit card user? Why or why not?
Yes, I would recommend a cash back credit card, provided it pays at least 2% on all purchases. Some cards pay only 1.5%, which is perhaps not as valuable as frequent flier miles or hotel points, depending on one’s activity and status with these travel partners. These days, frequent flier miles are worth only about 1% of what you’ve spent; so 2% is definitely more valuable.
How do words like “bonus” or “rewards” impact consumers’ buying decisions?
These tend to be “buzz words,” and their impact likely depends on the perceived value of the “bonus” or “reward.” The “devil is in the details,” implying that in order to be effective, the “bonus” and/or “rewards” should be meaningful and valuable to the consumers, and, ideally, designed with knowledge of the specific consumers’ habits and preferences.
What are a few sensible ways in which consumers can utilize their cash back rewards?
Most important, pay the entire balance due on your credit cards each period (I recommend “auto pay” in which the credit card company draws funds on your bank account to pay the entire balance on the date that payment is due). Now that you are getting cash back and not paying in credit card interest, you can spend or invest the cash rewards on products or services, or as accumulated, investments that will provide good returns
In your opinion, how well do cash back rewards programs work at keeping customers loyal to a brand?
As long as the cash back is worth more than other incentives offered by competitors’ programs (or credit cards), consumers will continue to favor using the credit cards that give them valuable cash back, and/or they will tend to favor buying from companies that reward their loyalty with incentives that provide meaningful experiences (e.g., airline lounges, upgraded flights or concert experiences) or combo deals (BOGO, “buy one get one” (free), and the like).
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Get cash back from points: Some cards earn flexible points that can be redeemed for cash or other rewards. Some of the best cash back credit cards technically earn points rather than cash rewards (like the Chase Freedom Unlimited®). When you redeem these points for cash back at a value of 1 cent per point, these cards are effectively cash back cards.
Example: 12 months x $500 per month x $0.02 rewards rate = $120
