Credit Card Rewards Are for Spending, Not Hoarding

Old coins, holographic Pokemon cards or “extremely rare” Beanie Babies might grow more valuable over time. But credit card rewards? They’ll almost always lose value.

Loyalty programs are great for earning perks, but they aren’t the safest place to keep a small fortune. The longer you sit on your stash, saving for some far-off dream vacation, the more you expose yourself to risks like inflation, devaluation and reward forfeiture.

Your issuer giveth and taketh away

If you don’t touch your stocks for a long time, you’re like Warren Buffett. But try that with credit card rewards, and your issuer might close your account because of inactivity, causing you to forfeit your rewards.

That’s what happened to Ahmed Bhuiyan of Seattle, who says he lost $3,730 worth of credit card points when his issuer closed his account due to inactivity last year. He didn’t notice until he checked his account one day.

“In the right-hand corner, where you see how many points you have, it said zero,” says Bhuiyan, who was working in Singapore at the time and had stopped using that card to avoid foreign transaction fees. “I thought it was a mistake.” Despite spending more than two hours on the phone with customer service, Bhuiyan wasn’t able to reinstate his points, which he had been saving for his honeymoon.

Bhuiyan isn’t the only cardholder who has lost rewards like this. It’s legal for issuers to close accounts for almost any reason without giving advance notice. During the 2008 financial crisis, creditors closed large numbers of accounts to prevent defaults.

» MORE: Will your issuer close your inactive credit card?

Devaluation happens

Loyalty programs seem predictable — you earn, you redeem, end of story. But in reality, your issuer can change the rules of the game at any time. And it probably will at some point, for reasons such as rising expenses, competition or financial pressure.

When frequent flier programs were first introduced in the U.S. in 1981, they were “unbelievably generous by today’s standards,” writes Jay Sorensen, president of loyalty research firm IdeaWorksCompany, in a 2013 report on airline loyalty. “American’s first program made every first class seat available and didn’t bother with reward seats in economy.” Now, availability is much more limited.

The cost-cutting continues. This year, for example, American Airlines and Delta increased award prices on certain flights, effectively reducing the value of their airline miles.

Inflation happens

If your credit card offers cash back or travel statement credit, you don’t have to worry about airlines increasing their award ticket prices overnight. But your rewards balances will still be affected by rising prices.

Inflation is the reason that your grandparents were able to rent a swanky apartment for $200 a month in the ’60s, but you’ll have to pay way more today. It’s also why a $100 cash-back sign-up bonus earned in 2013 will get you only about $96.37 worth of stuff today.

The longer you keep your cash-like rewards with your issuer, the more purchasing power you’ll lose — even if your issuer never changes the terms of its program. Rewards accounts, sadly, don’t earn interest.

» MORE: How to beat inflation, the silent killer of your finances

How to manage your rewards instead

“Don’t hoard your credit card rewards” is easy to say, but harder to do. If your rewards are piling up, here’s how to deal.

If you have travel rewards, watch for bargains. Bhuiyan says his experience made him more careful about keeping his loyalty accounts active, and it changed the way he manages his points. “I’ve started redeeming them more,” he says. When he sees a good deal, he takes it. You can scope out offers yourself by reading your loyalty program’s promotional emails, monitoring award prices online and using travel-booking comparison apps.

If you have cash back, invest your rewards. Redeeming cash-back rewards is a good first step. But if you really want to grow your money, don’t spend it right away or sock it in a savings account with piddling interest rates. Invest it. You might be able to offset the cost of inflation by using your rewards to contribute to an IRA account.