Spending on Credit Cards to Increase Your Savings- Too Good to be True?

Written by CardRatings.com
Posted On: February 21, 2006

Credit card cash rewards deposited directly into a savings or retirement account are gaining momentum as more and more banks jump on board. The latest bank to add their card into the mix is EmigrantDirect, the online branch of Emigrant Savings Bank in New York. The arrival of the EmigrantDirect Platinum MasterCard issued by Juniper Bank, boldly advertised as America's Highest Cash Back Card, has been much anticipated and has created quite a buzz on the CardRatings.com message board.

Emigrant’s platinum MasterCard earns an aggressive 1.25% rebate on all purchases—as long as you have an average of $10,000 over a six month period in the Emigrant savings account linked to the credit card. As Bankrate's senior financial analyst Greg McBride points out, though, if you don’t maintain your savings account balance the rebate falls to a puny .5%, which is at least half the rebate percentage offered by most cash reward cards in the market place. And if you try to deposit $10,000 on the last day of the reward period, don’t expect to earn the higher rate—remember it’s an average over the entire six month reward period.

On a related note, the claim that this card is the highest U.S. credit card cash back only rebate program is based on the fact that the card offers a 1.25% cash back rebate on all net retail purchases. According to Emigrant, as of January 19, 2006, other card issuers may offer higher percentage rebates but require minimum spending thresholds before higher rebates are applicable and/or limit the higher percentages rebates to certain types of purchases.

McBride offers several suggestions to help you maximize the benefit of the card:

1. Unless you plan to pay the balance in full each month you are better off looking for a low rate credit card. The 1.25% rebate does not even come close to the interest that you'll pay if you carry a balance (a variable rate between 13.49% and 20.49%).
2. Use the card for purchases you make everyday. For example, even when going out to dinner with friends, pick up the check and have them pay you their portion in cash.
3. Resist the temptation to overspend. Some statistics show credit card users spend 30% more even if they do pay the balance in full every month. Any reward you receive from a credit card can’t outweigh excessive spending.
4. Keep the credit card account current. While there is no limit to how much you can earn, if your account becomes delinquent Emigrant can take back any rewards earned, including those already deposited to the savings account.

In addition to the high rebate, Emigrant also boasts an attractive APY (annual percentage yield) of 4.25% on the savings account linked to the credit card. McBride says,

“They are one of the mainstays for the highest yields that are available nationwide [on savings accounts].”

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