If your credit is excellent, it’s a great time to apply for a rewards card — but you may want to get that super sign-up bonus while you can.
The good times may not last long, if card issuers decide that the super generous offers — which have recently become so ubiquitous that cards with more traditional rewards programs seem downright stingy — are just too expensive to maintain.
First the good news:
According to a recent analysis by CreditCards.com, generous reward card sign-up bonuses are topping $500 to $1,000 or more on a bevy of high-end rewards cards. Meanwhile, cards with no annual fees are regularly offering cardholders $100 to $200 or more just to open a new account.
Issuers are also fiercely competing for elusive “super prime” borrowers — cardholders with the best credit scores — by pumping up their standard rewards programs and offering an extraordinary amount of value for power credit card users who take the time to maximize their card’s rewards values.
Travel and hotel cards are especially generous these days. The ultra popular Chase Sapphire Reserve card, for example, offers an unprecedented amount of value in exchange for a $450 annual fee, including a sign-up bonus that’s worth an estimated $1,500 in free travel or other card rewards, a $300 annual travel credit and a generous point bonus on travel and restaurant spending.
Similarly, the Fairmont Visa Signature card (see review) offers two free nights at some of the world’s most luxurious resorts — many of which charge regular-paying customers around $500 or more a night — in exchange for a $95 annual fee. The Fairmont Visa Signature card also packs on value by offering an additional free night’s stay at a luxury hotel or resort each year if you spend at least $12,000.
Even cards that don’t charge an annual fee are baiting new cardholders with ample sign-up bonuses and generous card rewards.
For example, the Citi Hilton HHonors Visa Signature card (see review) offers Hilton hotel fans a 75,000-point sign-up bonus that’s roughly worth around $330, a significant point bonus on travel and everyday spending and valuable hotel perks, such as a free fifth night if you spend four consecutive nights in a Hilton hotel.
Meanwhile, the Blue Cash Everyday card from American Express just recently began offering up to $300 cash back if you spend $1,000 in the card’s first three months and then spend an additional $2,000 on Amazon.com in the card’s first six months.
Too good to last?
As card offers become increasingly generous, analysts are starting to wonder whether credit card rewards have ballooned to an unsustainable level.
In a March 2016 blog post, credit card expert Andrew Davidson of Mintel Comperemedia warned that issuers may soon start pulling back and trimming their opening offers — particularly if they start to feel squeezed by external events, such as the Federal Reserve’s upcoming interest rate hikes.
“Whether cash, points or miles, credit card sign-on incentives are escalating rapidly again as card issuers look to compete for an increasingly confident U.S. consumer,” wrote Davidson.
“It’s a play we’ve seen before, and we know it isn’t sustainable, but most card issuers can’t afford to sit on the sidelines while competitors lure their customers with rich offers and are, therefore, forced to adjust their incentive strategies accordingly. The result is an incentive bubble that is likely to burst. The question is when?”
Already, card issuers are beginning to show signs of feeling pinched. According to an analysis published Oct. 19 by Bloomberg, issuers are facing tough choices as their profits decline and their expenses mount.
“Issuers have sweetened rewards, cut fees and sought to improve services to lure customers, making it tougher to grow profits,” wrote Jennifer Surane. “In the past week, three of the biggest lenders – Citigroup, J.P. Morgan Chase and Bank of America – said combined income from card operations dropped 15 percent to $3.1 billion in the third quarter from a year earlier. At the same time, expenses in their consumer-bank units rose 1 percent to $15.3 billion.”
Consumers are also making it difficult for card issuers to generate income from credit card interest payments by increasingly using their cards as debt-free payment tools rather than loans. According to the American Bankers Association, the percentage of consumers who carry a balance is currently near record lows.
That’s great news for cardholders. As power users of rewards cards know, if you want to maximize your benefits and earn free money, you need to pay off your credit card balance in full each month so that you don’t get socked with interest charges. Responsible credit behavior, though, means issuers must rely more heavily on interchange fees — the charges paid by retailers whenever a card is swiped or dipped — and other sources of income.
Apply now if you want to capitalize on today’s ultra-competitive rewards market. The deals available are among the best American cardholders have ever been offered. But if issuers start to feel increasingly squeezed, they could start trimming offers relatively soon.