Confusion Over Credit Card Fees, Rewards Costs Americans Money

Credit card terms are simple, at least in theory: Fees are bad and rewards are good. It’s the details that confuse many Americans, according to a national survey conducted for NerdWallet.

Our online survey of 2,042 Americans 18 and older, conducted by Harris Poll, found that many people either don’t understand credit card fees and rewards or don’t consider them when choosing a card. This means they may be paying more than necessary to use their cards and earning less than they could through rewards when they make purchases.

Fees for cash advances, late payments, overdrafts and foreign transactions — all of which vary by card issuer — can chip away at Americans’ bank accounts. At the same time, our survey found that some cardholders do not fully understand how to earn and redeem rewards.

Key takeaways

Many Americans who have a credit card don’t consider fees when applying for a card. Nearly half of the respondents (41%) said they don’t consider potentially costly foreign transaction fees and cash advance fees when applying for a card, and nearly one-third reported being confused by credit card fees.

About one-third of American cardholders don’t fully understand how to earn credit card rewards. And although 73% of respondents said they value rewards, 19% didn’t fully understand the dollar value of the rewards they earn. Our analysis showed the value of those rewards can range from less than a penny to nearly 3 cents per mile or point.

Most Americans would get more value from a general purpose, 3% cash-back card than a gas card issued by a national station chain. Our analysis showed that gas prices would need to fall to $1.20 per gallon or lower for the typical gas card rewards to top a general purpose card that offers 3% cash back on gas purchases.

Fees and rewards puzzle cardholders

Nearly one-third of the cardholders surveyed said they don’t understand how to earn rewards on their credit cards, and 30% are confused by credit card fees. The survey showed that although most cardholders (87%) take any annual fee into consideration when applying for a credit card, 41% said they don’t consider foreign transaction fees and cash advance fees.

Foreign transaction, cash advance fees can be costly

NerdWallet analyzed these fees for various card types and calculated their net cost. For example, among the co-branded airline cards from the five biggest issuers, we found that foreign transaction fees range from 0% to 3% of purchases. Spend $2,000 in Paris, for example, and a 2% foreign transaction fee will pluck $40 from your wallet. “If you’re going to travel abroad soon, find a card with no foreign transaction fee,” says NerdWallet’s credit cards expert Sean McQuay.

We researched airline cards, general travel cards, hotel cards and cash-back cards from the five largest issuers, store cards for the 35 largest retailers, and gas cards for the five largest gasoline providers in the U.S. Among all these card types, we found average annual percentage rates of 25.8% for cash advances, compared with average APRs of 19.97% for purchases.

“The big problem with pulling a cash advance from a credit card is the interest begins accruing immediately, unlike normal purchases when you have until the end of the month,” McQuay says. On top of the APR, consumers typically pay a one-time cash advance fee of around 4.5% of the total borrowed.

the value of points and miles can vary widely

According to the survey, most cardholders (73%) consider rewards to be one of the most important factors when choosing a credit card, but nearly one-third said they don’t fully grasp how to earn rewards, and nearly one-fifth don’t know the dollar value of the rewards earned. “Comparing rewards programs is surprisingly tricky,” McQuay says. “Each is essentially its own currency, so one point from one bank doesn’t equal one point at another.”

Rewards units can be points, miles or dollars, depending on the card type, and the value of points or miles can vary, even within a given card type. Take airline cards: We found that the points or miles that you earn can be worth almost 3 cents each or less than a penny, depending on the card. The value of the same point or mile can vary widely, too, depending on how a consumer chooses to redeem it. For example, an issuer may offer a flight to Berlin in October for fewer miles or points than the same flight in June.

To help demystify card rewards, we calculated the average reward values of several card types. We based the average dollar values of points and miles on the dollar values of redemption products and the number of points required to get those products.

The table below shows the average monetary worth of rewards among the types of credit cards we analyzed.

Credit card rewards and fees

Card type	Average rewards per dollar spent	Average sign-up bonus	Average foreign transaction fee
Airline	$0.0241	$386	0.71%
Cash back	$0.0236	$101	2.88%
Gas	$0.0438	$0	3.00%
Hotel	$0.0321	$486	0.93%
Store	$0.0224	$20	2.93%
Travel (general)	$0.0182	$433	0%

Gas cards are a poor option for most people

Gas cards are among the poorest values, we found. Although the number of consumers using gas cards is declining, 10% of Americans surveyed reported carrying at least one of these cards. Our analysis of cards issued by the five largest gasoline providers in the U.S. suggests those cardholders would get more value from a general purpose credit card that offers 3% cash back on gas purchases.

The average gas card offers rewards that equate to 4 cents per gallon, our analysis shows. General purpose cash-back cards reward you with a percentage of the price you pay for gas, as opposed to a fixed rebate on each gallon of gas, so cash-back rewards increase as the price of gas increases.

Gas prices and rewards

Price per gallon of gas	Average gas card rewards rate per gallon	3% cash-back rewards rate per gallon	2% cash-back rewards rate per gallon
$1.00	$0.04	$0.03	$0.02
$1.20	$0.04	$0.03	$0.02
$1.50	$0.04	$0.05	$0.03
$2.00	$0.04	$0.06	$0.04
$2.50	$0.04	$0.08	$0.05
$3.00	$0.04	$0.09	$0.06

Take a look at these rates in the real world. The average driver used 583 gallons in 2013, according to a 2015 University of Michigan study. For that year, a gas card offering 4 cents per gallon in rewards would have yielded just over $23. At $3.62 per gallon, the average cost in 2013, a general purpose, 3% cash-back card would have netted the cardholder more than $63.

APRs are higher than for other card types

Gas cards carry high APRs if you don’t pay in full each month. The average APR of the eight gas cards we examined was 26.7%. The average cash-back credit card had an APR of 18.9%, and the average travel credit card had an APR of 18.1%, according to our analysis. If you do get a gas card, this high APR ought to be motivation to pay your balance in full each month.

when does A gas card make sense?

A general purpose card that offers 3% cash back on gas gives you better rewards, but there are other factors to consider when deciding among card types, including annual fees. Most of the seven cash-back cards we analyzed had no annual fee, but none of the gas cards did.

With a cash-back card, you can earn rewards on groceries as well as gas, although there may be caps on how much in purchases each month or quarter is eligible. The rewards on gas cards often are limited to fuel purchases, and those cards that do allow you to pay for nonfuel purchases typically offer minimal or nonexistent rewards for them.

A 3% cash-back card typically requires applicants to have good or excellent credit, while gas cards generally are more lenient on credit scores. If you don’t qualify for a cash-back card, a gas card may be a good choice, given it will still provide returns on fuel.

Methodology

This survey was conducted online in the United States by Harris Poll on behalf of NerdWallet on April 19-21, 2016. Of the 2,042 Americans 18 and older who were surveyed, 1,617 have credit cards and 1,383 have rewards credit cards. This survey is not based on a probability sample, and therefore no estimate of theoretical sampling error can be calculated.

In order to determine the average sign-up bonus, rewards rate, APRs and fees for credit cards by category, we looked at data on cards from the largest five issuers of general travel, airline, hotel, and cash-back credit cards; store cards from the 35 largest retailers with credit cards; and gas cards from the five largest gasoline providers in the U.S. The average gas rewards rate per dollar is based on the average gas price per gallon in the U.S. at the time of calculation, $2.00.

For full study data, click here. For complete survey methodology, including weighting variables, contact Courtney Miller: courtney.miller@nerdwallet.com.

Courtney Miller is a data analyst at NerdWallet, a personal finance website. Email: courtney.miller@nerdwallet.com. Laura McMullen is a staff writer at NerdWallet. Email: lmcmullen@nerdwallet.com. Twitter: @lauraemcmullen.