Getting more from a rewards credit card

November 16th, 2008 · 2 Comments

I’ve always been too paranoid to allow utility companies and other billers to automatically deduct their payments from our accounts and / or bill our credit cards.  But recently I’ve decided that it’s a good thing to let them auto-charge a credit card, as long as some conditions are met.   Here is my thought process.

First, I’ve realized that spending time paying bills wasn’t a good use of our time.  I’d rather we spend it growing our income or learning how to improve our investment performance with the money we already have.  It’s not that we were having trouble getting the bills paid, or even that it took an excessive amount of time to do.   It’s just that it wasn’t the best use of our time in my opinion.  So why not let them automatically bill the credit card on the date a payment is due?

Enough pennies can really add up

Enough pennies can really add up

Second, the last time (years ago) I looked into setting up auto-payment, we could only get it setup if we also accepted online bill presentment and used a debit card.   We like to have printed copies of our bills for our archives and we never liked the idea of having to print them ourselves.  Yes, I’m cheap enough that the cost of paper and printer ink annoyed me!  I don’t see the reason to improve the bank’s profits at my own expense.  Anyway, at every biller I looked at recently, they have separated bill presentment from automatic payment and most of them also now allow you to setup auto-payment with a credit card.

These two changes really removed the blockers that previously prevented us from signing up for auto-payment, but it was my reading of other personal finance blogs that pushed us into taking action.  I’ve always known that my paranoia was causing us to leave some money on the table by paying our bills out of our checking account rather than using the float period and rewards of paying by credit card.  But now, thanks to these other blogs, I’ve taken a serious look at the numbers and I’m now thinking it overcomes the risk/reward ratio.

After pulling out our cashflow tracking records (we use a monthly cashflow spreadsheet in addition to Quicken,) I’ve discovered that our regular monthly payments are averaging a shocking $875.00 / month over the last year!  I’m including cell phone, cable TV, ISP, landscaping service, and security system monitoring in addition to water, wastewater, garbage, gas, and electric.  That’s a huge amount of money per year — over $10,516 flowing out of our checking account (reducing this will likely be the topic of future post(s)!)

The way I’ve now figured it, we could be saving ourselves $184 a year by simply paying for all of this via a 1.5% rewards card (Fidelity Investment Rewards) and keeping the monthly float in an online savings account earning 3%.  We’ll earn $157.75 for the year just from the rewards, and something like $2.19 in interest on the float each month (not quite correct because that assumes a full 30-day float on all of the monthly outflow, but it’s small compared to the rewards anyway.)  That $184/year is almost an extra full payment on our second mortgage, though we’ll probably use it as an extra contribution to one of our investment accounts.

The key to this, and the conditions I mentioned earlier, is that we have to use a credit card on which we carry no balance, and we need some discipline to do something useful with the money instead of blow it.   Since the Fidelity Investment Rewards program allows us direct exchange of points for cash in our Fidelity brokerage account (or IRA), it’s easy to convert points directly into investments.  (Though you should be aware of transaction costs when doing this.)  The real discipline comes in keeping the interest on the float from, well, floating away.  We’ll be solving that problem by opening yet another savings account and labeling it so that we only use it for floating these payments.  The interest will accrue until we can combine it with other money to get the investment expense ratio low enough to move it into the market.  (BTW: The Fidelity Investments Reward card has no annual fee.)

I’m convinced we *should* be using a cash rewards card for our regular expenses.  It is in our financial interest to do so.

Tags: Credit Cards · Personal Finance · Rewards Programs

2 responses so far ↓

  1. 1 TJ // 2008.11.16 at 10:00 pm

    Having bills automatically charged to a credit card can also eliminate the occasional late payment-fee. And it’s handy if you travel alot and might not be in town when a bill is due.

    We’ve also found it convenient to have a single statement (the credit card) that shows all of our unstructured expenses for the month.

  2. 2 Extra income from credit card rewards | Geographic Independence // 2009.02.22 at 11:48 am

    […] Which means it also qualifies as GI income.   As I wrote about awhile ago, we’ve purposely switched how we pay recurring utility bills by having them automatically charged to the Fidelity Investments card.  That decision definitely […]

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