Buzz
If you're using a rewards credit card for travel, you're likely waiting for the right time to use those points and miles—perhaps until you feel ready to travel again.
But what about those using a cash-back credit card? How long should you wait before cashing out those earnings?
A reader recently asked about the best timing for this decision:
I've been holding onto my cash-back rewards for some time now, and there's about $1,200 sitting there. I initially thought I’d save it for a major purchase, but I’m not sure what that might be. Is it risky or unwise to leave the money there? I’d like to let it grow more, but I’m starting to worry it might disappear.
This question immediately raised alarms for me. A balance of $1,200 is a significant sum, especially considering that most cash-back cards offer earnings ranging from 1% to 6% of your spending, often with limits on how much you can earn. Even with a signup bonus, this $1,200 could represent years of accumulated rewards.
And keeping it in the credit card account isn’t doing the reader any favors.
“There’s really no reason to leave your cash rewards in your credit card account,” said Dan Miller, founder of the Points With a Crew blog and owner of nearly 40 credit cards. “The only exception might be if you struggle with financial discipline and could easily spend the money. In some cases, it might be worth making the funds a bit harder to access.”
But in this reader's situation, they’ve been responsible enough to accumulate that balance, so it’s safe to assume they have a fair amount of self-control.
A safer place to park that money while you figure out your next move is a savings account. While the APY (annual percentage yield) for high-yield savings accounts may vary, let’s assume you open an account offering 1.5% interest. In one year, that $1,200 will grow to approximately $1,218.
It may not be a massive increase, but it’s more than what you’d earn by leaving the balance in your credit card account.
Additionally, a savings account—or even a standard checking account—will be insured by the FDIC. This means your money is protected in the rare event of a bank failure. Your credit card account, on the other hand, doesn’t offer that level of protection for your rewards. Think of your rewards as a bonus, not as regular income.
The good news is that cash-back rewards can’t lose value the way travel rewards might. Sure, your credit card issuer might lower your cash-back rate for future purchases, but it won’t affect the value of the rewards you’ve already accumulated. On the other hand, if you’re collecting travel points, the flight you were saving for might suddenly cost more than your points can cover.
The only time it might make sense to leave your rewards balance where it is, as Miller and I agreed, is if it’s more valuable to redeem it another way. For instance, you may find that using your balance for travel rewards, statement credits, or cash deposits could yield greater value. Alternatively, if you're saving for a purchase from a retailer partnered with your card issuer, your balance may earn additional benefits when you shop through your card’s portal.
“If it’s just cash rewards, I’d recommend withdrawing it,” Miller said. “You can transfer it to a savings account or emergency fund if you don’t have an immediate use for it.”
