Spending only in reward categories

[Anonymous]

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@red259 wrote:

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The only time this becomes an issue is if people start buying lots of GCs in reward categories on a card that does not have a cap (or a very high cap) on spend in rewards categories. Chase has named this as something they will be on the look out for. However, for normal spend in bonus categories it is a complete non-issue. I only use my freedom for items in bonus categories.My Amex BCP was only used for grocery spend, my chase hyatt card is only restaurant spend (at leats until I hit signup bonus).The lender will make more than enough on all your swipes.  

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I think that many 5% categories, especially general ones (e.g. gas rather than Retailer X) ARE going to be losses for the cc, but they clearly believe enough will buy other things and/or carry a balance to make up for those that use the card only for 5%

[Anonymous]

Thank you for bringing this up!  I've been wanting to have this answered as well.  With my current card lineup, I know at least a few cards will be losing money on me.

Chase I'll only use for the 3% restaurants.

Sallie Mae I try to put small (<$2) purchases on there because I like their card so much.

Capital One I'll only use overseas and for a biannual purchase to keep the account active.

BoA BBR will only be active once a month to generate a statement.

I don't want any accounts closed, I love my cards!

FWIW, my father had his card closed by CITI for "business reasons" after he cashed out a large sum of rewards.  He's never had any lates, never carries a balance, has a credit score in the 800s.  He thinks they closed his account because he only used it for category spending.  I realize that's a sample size of one.

In any event, I think it would be bad for business if they closed your accounts for taking advantage of the program.  On one hand, they may be losing money on a few customers, but closing accounts in good standing because they aren't profitable enough for a bank isn't good for image. I'd imagine that if word got out it would scare people away.

[kdm31091]

I think generally spending primarily in the reward categories is fine. Many people only use a Freedom or Discover for the bonus categories, and it doesn't seem to be any issue. The problem comes in when it gets abused with the churning and gift card stuff. I don't want to incite that debate again, but that's typically where an issue will come in. Regular spending in the categories shouldn't be a problem. If you are worried you can always throw a couple 1% charges on the card. In many cases the reward difference will be nominal anyway between 1% and 1.5 or 2%.

[Anonymous]

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@Anonymous wrote:

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@red259 wrote:

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The only time this becomes an issue is if people start buying lots of GCs in reward categories on a card that does not have a cap (or a very high cap) on spend in rewards categories. Chase has named this as something they will be on the look out for. However, for normal spend in bonus categories it is a complete non-issue. I only use my freedom for items in bonus categories.My Amex BCP was only used for grocery spend, my chase hyatt card is only restaurant spend (at leats until I hit signup bonus).The lender will make more than enough on all your swipes.  

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I think that many 5% categories, especially general ones (e.g. gas rather than Retailer X) ARE going to be losses for the cc, but they clearly believe enough will buy other things and/or carry a balance to make up for those that use the card only for 5%

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I think this is generally true although it requires some qualification. 

If we are talking points (airline miles, hotel etc) then it is possible that the company is making a profit on a 5% rewards rate, because the bank buys the miles and points at wholesale rate. This depends: I am guessing Chase would make a bundle of profit if you redeemed your UR points for Hilton points; if you redeem for Hyatt points, not so much. 

If we are talking cash, then 5% or more is a loss for the bank. Even the highest swipe fee on Visa Signature/WEMC/Amex are not over 4%. Which is why they cap these at $1500 per quarter or such. 

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@red259 wrote:

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The only time this becomes an issue is if people start buying lots of GCs in reward categories on a card that does not have a cap (or a very high cap) on spend in rewards categories. Chase has named this as something they will be on the look out for. However, for normal spend in bonus categories it is a complete non-issue. I only use my freedom for items in bonus categories.My Amex BCP was only used for grocery spend, my chase hyatt card is only restaurant spend (at leats until I hit signup bonus).The lender will make more than enough on all your swipes.  

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I think that many 5% categories, especially general ones (e.g. gas rather than Retailer X) ARE going to be losses for the cc, but they clearly believe enough will buy other things and/or carry a balance to make up for those that use the card only for 5%

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I think this is generally true although it requires some qualification. 

If we are talking points (airline miles, hotel etc) then it is possible that the company is making a profit on a 5% rewards rate, because the bank buys the miles and points at wholesale rate. This depends: I am guessing Chase would make a bundle of profit if you redeemed your UR points for Hilton points; if you redeem for Hyatt points, not so much. 

If we are talking cash, then 5% or more is a loss for the bank. Even the highest swipe fee on Visa Signature/WEMC/Amex are not over 4%. Which is why they cap these at $1500 per quarter or such. 

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Right, and I also excluded specific retailer bonuses, as I assume when for example, Freedom offers 5% at Starbucks, Starbucks bears some of the costs

[Anonymous]

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@Anonymous wrote:

FWIW, my father had his card closed by CITI for "business reasons" after he cashed out a large sum of rewards.  He's never had any lates, never carries a balance, has a credit score in the 800s.  He thinks they closed his account because he only used it for category spending.  I realize that's a sample size of one.

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When was this?   I ask because at least one "innocent" was caught up in the 5x TYP shutdown fest.   She had acquired large numbers of points over several years by normal spending, but Citi was so attunded to large reward balances being suspicious that they shut down first  (and didn't bother to ask questions later).  AFAIK, SCC got the value of the points back but the cards were gone.

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

FWIW, my father had his card closed by CITI for "business reasons" after he cashed out a large sum of rewards.  He's never had any lates, never carries a balance, has a credit score in the 800s.  He thinks they closed his account because he only used it for category spending.  I realize that's a sample size of one.

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When was this?   I ask because at least one "innocent" was caught up in the 5x TYP shutdown fest.   She had acquired large numbers of points over several years by normal spending, but Citi was so attunded to large reward balances being suspicious that they shut down first  (and didn't bother to ask questions later).  AFAIK, SCC got the value of the points back but the cards were gone.

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I want to say sometime in the last 2-3 years?  I honestly can't remember, my father didn't think it was such a big deal, but he brought up the possiblity again when I opened my Sallie Mae card.  He did have the opportunity to cash out his points, but in my opinion other banks operate much more professionally than Citi.  

Personally, the Double Cash is tempting, but I was not happy with their customer service when I called in for more information before applying and I've heard too many bad things about the company to want to do any business with them.

[kdm31091]

Double Cash is nice, but I just get leery because of Citi's nerfing and discontiuing history. Everyone says "oh, well there's no way they could nerf it!" There may not be a simple way to nerf it, but all that means is they will discontinue it eventually. Citi has basically said outright that the card is low profit for them and that's why people get low limits and high APRs. For what is meant to be a general spending card they want you to use every day, a tiny limit is not practical. If it isn't something they can sustain they shouldn't have come out with it.

You don't hear too many impressive stories from Citi, even from the EO. It seems like their customer service is never great.

[Anonymous]

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@kdm31091 wrote:

Double Cash is nice, but I just get leery because of Citi's nerfing and discontiuing history. Everyone says "oh, well there's no way they could nerf it!" There may not be a simple way to nerf it, but all that means is they will discontinue it eventually. Citi has basically said outright that the card is low profit for them and that's why people get low limits and high APRs. For what is meant to be a general spending card they want you to use every day, a tiny limit is not practical. If it isn't something they can sustain they shouldn't have come out with it.

You don't hear too many impressive stories from Citi, even from the EO. It seems like their customer service is never great.

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I agree with you.  I find Citi's nerfing and discontinuing history to be "unprofessional".  It's almost as if they don't spend on analysts to predict the outcome of releasing these cards...  I do think that the Double Cash can be nerfed, 1% on purchases, 0.75% back on payment.  This would encourage people to carry a larger balance, as their reward for paying is lower.  Heck, if I was a Citi exec, I'd be tempted to shift the current structure to 1.25% on purchases and 0.75% on pay back or even 1.5%/0.5%. 

[hot4u]

I have tried to always find which card I have..... to max Categories..

Then move to next Card after reaching there max for that quarter.

Example---Valentines- who gives most for FTD flowers..  airline Miles, Hotels points etc..

Yep ...I spoil My Mother-in-law ..

They make $$ on each transactions