The Best Time to Withdraw Cashback Balance Is Right Now

If you’re using a bonus credit card to cash in on the ride, you’re probably biding its time and holding on to those points and miles until you feel comfortable packing your bags again.

But what if you are using a refund credit card ? How long should you allow this income to accumulate before you cash it out?

A reader recently wrote to ask about this timing:

For a while I put my cashbacks on my card, and I had about $ 1200 left there. My initial thought was to save it for a high value item, but I don’t know what it will be. Is it “unsafe” or “unwise” to just leave this money there? I wish they would grow even more, but I’m also suddenly nervous that the money might just go away.

This question got me all the alarms going off. The $ 1,200 reward balance is a huge amount of money, especially when you consider that most cash back cards have the potential to earn between 1% and 6% of your spending, often with a cap on how much you can earn. Even with the sign up bonus, that $ 1200 balance potentially represents years of earnings.

And it won’t do the reader any good if he hangs on that credit card account.

“There’s really no reason to keep rewards in your credit card account,” said Dan Miller, founder of Points With a Crew blog and owner of nearly 40 credit cards. “The only reason I could see this is when you might not have very good financial discipline and you’re just wasting your money. So in some cases there may be a reason why you want to make it even a little harder to access that money. “

But in the case of this reader, they were diligent enough to allow that balance to solidify, so I think it’s safe to assume that they have some degree of self-control.

The best place to hide this money until you figure out what you want to do with it is in a savings account. While the APY (Annual Percentage Yield) for high yield savings accounts fluctuates, let’s say you open an account that offers 1.5% per annum. In a year, that $ 1,200 will rise to about $ 1,218.

This is a small amount, but more than you will earn with this balance on your credit card account.

Plus, a savings account – or even a regular old checking account – will be FDIC insured, which means your money will be safe in the unlikely event that a bank goes bankrupt. Your credit card account does not have such protection for your reward balance. Think of your rewards as a free gift upon purchase, not a salary.

The good news is that refundable rewards cannot be discounted like travel rewards . Of course, your credit card issuer may decide that you will get a lower rate of refund on purchases, but that will not change the amount of rewards you have already earned. In the meantime, if you have travel points, you may find that the balance you have accumulated for a particular flight route no longer covers its cost.

The only time you might consider leaving this reward balance as it is, Miller and I agreed, if it costs more, to redeem it in another way. If you can use your balance for travel rewards, a credit for a statement, or a cash deposit, the balance may be higher when converted to travel points. Or, if you are saving up for a purchase at a particular store that has a deal with your card issuer, your balance may add up to an additional percentage when purchased through your card’s merchant portal.

“But if it’s just a direct cash reward, I would take the money,” Miller said. “Put it in a savings account or other emergency fund if you don’t need it.”

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