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Every year credit card consumers miss out on an extra $240 that could be put towards retirement savings by not directing cash rewards from credit cards to retirement accounts. This is according to a new study done by Fidelity.

Missed Opportunity

Only 9% of cardholders elect to invest their cash rewards into retirement or college savings account. But 50% of consumers use their cash rewards for short-term purchases – like everyday spending. And 45% of consumers apply their rewards to paying off existing credit card balances.

“While using cash rewards cards can be a great way to help manage daily expenses and near-term financial priorities, these cardholders may be missing an opportunity to boost their savings for the long term,” said William McLimans from Fidelity.

$240 a Year

Since 2008, Fidelity credit card holders that charge $1,000 a month were able to earn $240 a year in cash back that can be directly put into an IRA or brokerage account hosted on Fidelity’s platform. Factoring in compound interest over a 20 year period, that $240 can grow to $10,729, thus making it a pretty worthwhile investment. In comparison, the straight cash rewards expire in 5 yard if they aren’t used, or if the consumer hasn’t amassed enough to actually transfer those rewards.

CARD Act of 2009

“From quarterly sign-up requirements to expiration dates and devaluation, these restrictions are a hold-over from the credit card market’s pre-CARD Act opacity,” says Alina Comoreanu, research analyst at CardHub.

The Credit Card Accountability and Responsibility and Disclosure (CARD) Act of 2009 was passed in May 2009 as a movement to reform legislation regarding credit cards. One third of $48 billion rewards dispensed via loyalty rewards are never redeemed because of forgetfulness and hidden restrictions.

“If cardholders do not want their points automatically deposited into their Fidelity account, they can choose to accrue points continuously and redeem them at any time they choose once they have reached the 5,000 point ($50) minimum,” McLimans said.

Smart Credit Card Spending

$60 billion in credit card transactions are expected this year, that’s a lot of opportunity for cash back rewards.  “We just need to get our spending under control and use our access to credit responsibly,” says CardHub’s John Kiernan.  How do you do this?

It’s important to select credit cards that have the best offered cash back reward programs.

According to a recent CardHub study that took a look at earning restrictions, redemption restrictions and expiration dates across the industry,  Capital One credit cards scored highest in all categories.

Source:, How to Turn Credit Card Debt Into Retirement Savings One Purchase at a Time, January 12, 2015

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