You’ve done the smart thing. You used your cash back card for groceries and gas, and now you have a nice balance of points or cash sitting in your account.
It feels good to see that number grow. It feels like a savings account.
But it isn’t.
In fact, letting your points sit there is a financial risk. Inflation eats away at their value, and unlike a bank account, points are not your property—they belong to the bank until you redeem them. If your account is closed or (heaven forbid) you pass away, those points often disappear instantly.
As your trusted advocate, we are here to show you why “hoarding” points is a mistake and how to turn them into real value today using the simplest method possible: the Statement Credit.
Key Takeaways
- Points Don’t Grow: Unlike savings, points do not earn interest. They lose value over time due to inflation.
- The “Estate” Risk: Most credit card points expire immediately upon death and cannot be inherited. Use them while you can.
- Statement Credits are King: The best way to use points is to apply them directly to your bill, instantly lowering your monthly expenses.
- The Rule: Redeem your rewards every single month, no matter how small the amount.
The "Inflation Trap": Why Waiting Costs You Money
- No Interest: A $500 balance in a savings account earns interest. A $500 balance in “points” earns nothing.
- Devaluation: Banks frequently change their rewards programs. Today, 50,000 points might buy a $500 flight. Next year, the bank might change the rules so it only buys a $400 flight.
- Inflation: If you wait 5 years to use your cash back, the price of the groceries you want to buy will have gone up, but your points value stayed the same. You lost purchasing power.
The Verdict: Points are a depreciating asset. The best time to use them is right now.
The Best Way to Redeem: Understanding "Statement Credits"
- What it is: You tell the bank to take your cash back balance and apply it directly to your credit card bill.
- How it works: If your bill is $200 and you have $50 in rewards, you apply the credit. Now you only owe the bank $150.
- Why it wins: It is instant, tax-free, and keeps cash in your checking account. It effectively lowers your cost of living every month.
|
Redemption Method
|
Value
|
Verdict
|
|---|---|---|
|
Statement Credit
|
100% Value.
(Cash is Cash)
|
BEST.
Simple and instant.
|
|
Gift Cards
|
Variable. Often good, but restrictive.
|
OKAY. Only if you were going to shop there anyway.
|
|
Merchandise
|
Poor. You pay "full retail" price in points.
|
AVOID. You can buy the item cheaper elsewhere.
|
|
Pay with Points (Amazon)
|
Poor. Often gives you less than 1 cent per point.
|
AVOID. Better to buy with the card (earn points) and pay it off with credit.
|
The Estate Planning Warning: Use It or Lose It
- The Rule: In the fine print of almost every credit card agreement (Visa, Mastercard, Amex), unredeemed rewards are legally classified as “property of the bank,” not property of the account holder. They have no cash value until they are redeemed.
- The Reality: When a primary cardholder passes away, the executor calls to close the account. The moment that “Close Account” button is pressed by the bank, any unredeemed points or cash back balance is forfeited instantly. Unlike a bank account, these points do not go to your spouse or children. They simply vanish.
- The “Legacy” Graph: Compare these two scenarios.
|
Scenario
|
Balance at Passing
|
What the Family Receives
|
|---|---|---|
|
The Hoarder
|
$800 in unredeemed points
|
$0
(Bank keeps it all)
|
|
The Monthly Redeemer
|
$0 in points (all cashed out previously)
|
$800 (Sitting safely in your checking account)
|
The "Auto-Redeem" Hack (Set It and Forget It)
- How to do it: Log in to your card account and look for “Rewards Settings.”
- The Setting: Look for an option that says “Automatic Redemption” or “Auto-Redeem Statement Credit.”
- The Trigger: Set it to redeem automatically whenever the balance hits $25.
Pro Tip: Citi, American Express, and Fidelity cards are famous for having excellent auto-redemption features. If your card offers this, turn it on today.
Action Plan: Your Monthly "Cash Out" Routine
- Log In: Go to your credit card website or app.
- Check Rewards: Look at your “Available Rewards” balance.
- Redeem All: Select “Redeem for Statement Credit.” Choose the maximum amount available.
- Pay the Rest: Watch your “Amount Due” drop, then pay the remaining balance from your checking account.
Frequently Asked Questions (FAQ)
No. The IRS considers credit card rewards to be a “rebate” or “discount” on your purchases, not income. You do not have to report them on your tax return.
Be careful. Some banks count a statement credit as a payment, but others do not. Always assume you still need to make your minimum payment separately to avoid a late fee. Check your specific card’s terms.
No. Redeeming points has absolutely no impact on your credit score. It simply lowers your balance, which can actually help your utilization ratio slightly.
If you have a travel-specific card (like Capital One Venture), saving points for a specific trip is okay, provided you plan to take the trip within 12 months. Don’t save for a “someday” trip 5 years from now.
Some travel cards allow you to transfer points to another member’s account, but it is complicated. It is far easier (and safer) to redeem the cash yourself and then write your grandchild a check. Cash is the ultimate flexible gift.
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