Banks & Credit Cards

Our Chase Credit Card Reward Pay Out

This week I received a $250 check from my credit card company after redeeming $200 worth of the rewards the wife and I had accumulated since we received our card in September 2007. I got $250 even though I only redeemed $200 because Chase bets it can entice enough individuals to try and wait until they have accumulated $200 but end up never actually redeeming their rewards. Not on my watch Chase. Since $50 of that $200 was awarded to us as a sign-up bonus the actual amount we are getting back from Chase is $150. Being the curious sort, I wanted to run a couple of though experiments to find out exactly how much money we saved by using our Chase Freedom credit card.

For my thought experiment I need to accumulate some hard data to be able to calculate the percentage of our purchases that Chase is returning to us from the thousands of dollars we have spent through them. Once I have done that I will be able to see what our savings were with $100 worth of rewards and without them. I am also going to have to include the effect of a late fee and subsequent finances charges, but this will only have a minor impact on my calculations1. Not only that, but I will also be able to estimate how much interest we accumlated in our savings account because we deferred payment on the goods we purchased by using a credit card instead of a debit card. Just for fun, I am also going to imagine how much we could have earned in interest if we had never spent the money at all.

In my search for the hard data I went to the place I expected to find it: my online account history. Unfortunately, they do not have my entire transaction history in this searchable (and copyable in a tab delimited format – a must for easy spreadsheet use) interface. So I wasn’t able to do a line by line analysis of every transaction I made, but I was able to get the big picture by getting into my monthly statements.

When I added it all up, we spent $10,360, an average of $1,295 a month over the eight month period. Our most charged month was December at $2,268 and our least charged month was May at $638. We averaged rewards of $20 per month with December ($32) as our largest and October ($10.36) being our smallest. This means that over the course of the entire eight months and including the sign-up bonus and the ‘patience’ bonus we saved 2.51% on all our purchases ($260.32/$10,364=.0251). If we remove the extra $100 we received we only saved 1.55% on our purchases, so the two bonuses were really significant to our return.

In terms of how much money we saved by keeping our money in the bank by deferring payment on the good that we purchase I estimate that we earned $12.93. I calculated this by assuming that the average time that a dollar stays on our credit card bill is 14 days and that our interest rate remain was what it is today throughout the whole time period (even though it didn’t and todays rate is close to 50% of what it was in November). I then used the equation for determining interest accrued (money in bank x (1 + .0325/365)^14) to determine how much I saved each month. No single month ever exceeded $3, do this strategy won’t save you lots of money unless you spend lots of money or get a really good return in your savings account.

And finally, we would have earned $138.12 if we had not spent the money at all. This has been a fun little thought experiment and here are the lessons that I have learned about our credit card rewards strategy:

  1. Late fees and finances charges suck – pay the bill earlier rather than later
  2. The interest you earn by using a credit card is negligible so only do this if you are disciplined
  3. We should investigate ways to increase the percentage we ‘earn’ back from our purchases
  4. Spreadsheets are fun!
  1. This is only because I am counting the late fee and finance charges as though they were expenses instead of subtracting them from our total rewards received. It would really be more honest to do it the later way, but this is my blog and my thought experiment and I didn’t want $43 taken out of my $250. So there. []