More than half (55 percent) of credit card borrowers own a rewards card, with cashback plans the most popular option at 63 percent, according to a new survey from Fidelity.
After cashback rewards, 47 percent preferred cards offering points toward merchandise, followed by airline miles (39 percent) and gas, dining or other forms of rewards (39 percent).
Fidelity found that 50 percent use cash rewards for short-term purposes, such as everyday spending and 45 percent use rewards to pay off existing credit card balances. Only nine percent of cardholders said they opted to invest cash rewards into retirement savings or 529 college savings accounts.
“Our cardholders who redeem their rewards into their Fidelity account will average nearly $1,500 in cash rewards by year end1—a significant sum for money they were spending anyway, and money they could surely put to good use, whether it’s paying down debt, saving for college, a new car or their retirement, “said William “Sam” McLimans, senior vice president of cash management at Fidelity.
These cardholders could be missing an opportunity to boost their savings, said McLimans.
For example, Fidelity cardholders putting cash rewards into a Fidelity account will average $1,476 in cash rewards in 2014. If they earn a similar sum each year and direct the cash towards a 529 college savings account every year for 18 years, the total rewards accumulated could exceed $26,000, without even factoring in potential compound annual growth, Fidelity says.
“As consumers conduct their last minute holiday shopping, or consider financial New Year’s resolutions, we encourage them to make smart moves that will have lasting impact, including choosing a cash rewards program that will help turn their everyday spending into long-term savings,” said McLimans.