| November 9, 2011

Lenders boosting rewards rates for holidays

Every year during the holidays, consumers tend to make more purchases on their credit cards because they want to increase their spending flexibility while still purchasing gifts for all their friends and family members.

This holiday season, in an attempt to draw more consumers into opening new accounts and spending more on them, many of the nation’s top credit card lenders are dramatically increasing the value of their rewards programs, according to a report from Reuters. For example, both Chase and Citibank are offering new borrowers $200 cash back after they spend their first $500 on the account. Other offers include 11 percent cash back on purchases made with a new Bank of America credit card.

Lenders are likely more eager to offer these rewards incentives these days for two reasons, the report said. First, because revenues have been significantly pared back by a slew of government regulations in the last two years, most recently by the limit on how much they could charge businesses for purchasing debit card transactions. Second, and perhaps more importantly, because they know consumers tend to increase spending during the holiday season, making it more likely that they will have to carry a balance from one month to the next.

The latter reason may be more beneficial to lenders in the long run because rewards credit card accounts typically carry higher interest rates than those that have few or no additional benefits, the report said. As a consequence, those who spend a lot on their rewards account ahead of the holidays and don’t or can’t pay back the full balance at the end of the month will face more credit card debt than if they had made the purchases with another type of card.

As a consequence, it’s important to weigh whether the cost of these cards outweighs the increased value, and to keep in mind that these accounts are often only available to consumers with top-notch credit scores. Further, while lenders are boosting the value of these offers overall, they may make it more difficult to track down the most generous ones, the report said. Therefore, doing a bit of research to makes sure an offer makes financial sense before signing off on any agreement is also important.

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