How to come out ahead with rewards cards

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Sign at Whole Foods market grocery store in San Ramon, California announcing promotion in which Amazon Prime credit card holders receive a 5% discount when shopping at the store, February 27, 2018.

And it’s working. Credit card originations from consumers ages 18 to 34 rose 10 percent from the same period last year, according to TransUnion’s latest quarterly report.

However, rewards cards, which dole out points when you make purchases at airlines, gas stations and restaurants, aren’t always as good as they seem.

For starters, these credit cards generally have higher-than-average interest rates to compensate issuers for the additional perks.

The national average APR is already over 17 percent — a record high — according to CreditCards.com, but the annual interest rate on the Ikea card, for example, is even higher at 21.99 percent.

So the benefits of using a fancy card are quickly negated if you carry a monthly balance.

Further, depending on how much you spend each month, signup bonuses and other rewards don’t always offset the cost of an annual fee, which can be as much as $450 depending on the card, according to WalletHub’s 2017 Credit Card Rewards Report.

On the other hand, don’t rule out a card entirely because of the fee. Often these cards have better initial bonuses and higher earning rates than cards without a fee. For big spenders, it is easier to rack up enough charges to reap the benefits of a rewards card and offset the fee.

But overall, only a select few are even taking advantages of all the perks that reeled them in in the first place, according to Ted Rossman, an industry analyst at CreditCards.com.

A little more than half of rewards cardholders have redeemed for cash back within the past year and another 29 percent have redeemed for gift cards, Bankrate found. Only 13 percent of cardholders exchanged their points for merchandise and less than 10 percent traded in for a free hotel stay or airfare.

Nearly a quarter, or 22 percent, of cardholders haven’t redeemed any rewards, according to Bankrate.

That’s why cash back is often a better bet, Rossman said, even though travel rewards are still considered the best deal because they have more redemption value.