If one of my credit cards accrues cash back that is redeemable towards statement balances, is there any reason not to immediately use this cash back each time I go to pay the card? Is there a benefit to delaying its use so that it stacks to a higher value before utilizing it? Outside of things related to my cash availability (ie if I am tight on cash one month, having a larger cash back accrual might be helpful to reduce my cash burn). Is there any purely financial/ROI based reason not to immediately put the cash back towards the statements?
Some cards offer bonuses for redeeming your cash back balance as gift cards for certain partner vendors. For example, Discover offers a 5% bonus for Apple gift cards, 20% for Chipotle gift cards, and a whole slew of others. Often, those can only be redeemed in fixed amounts, so if you wanted to take advantage of those offers, you might have to wait until you accumulate enough credits. If your card doesn't offer such an option, or if you don't want to use any of the ones they do offer, then there is no reason that I can see to delay redeeming the rewards to pay your balance.
No, from a "purely financial/ROI based reason", there is no advantage to waiting, if the following conditions are true:
- You will redeem the accrued amount as cash or statement credit sometime in the future. (In other words you won't be converting it to, or directly purchasing, something else of potentially greater value.)
- You are the only one that pays the bill.
Other answers have pointed out examples of where #1 may not be true. Examples include where you convert your cashback into points that may have more value, or discounts when you use your cashback to buy specific things. One note about this, my credit card "allows" me to convert my 2% cashback into "Points" if I wish, but so far for every item I could get with those points that I spot checked, I could take the cash and purchase the same item and come out ahead. Of course that isn't universally true though, but it does explain why my bank keeps pushing me to convert to points.
I don't believe #2 has been covered yet in another answer. If someone else pays some or all of the bill, but only you receive the cash back, there would be a(n unfair) benefit to you by taking the cash back in the form of check, or direct deposit into your personal bank account. Surely there are couples or families in this situation, but this actually comes up most often with business credit cards. The owners of the business might be able to get the cash back delivered to them personally, whereas the company is the one paying the bill. This means the company is taking the full deduction for the amount spent, and if cashback was applied as a statement credit, the company would either have to declare that money as income, or reduce the amount of the expenses by that amount. By shifting that money to the personal owners, it's typical for the owners to not declare it as income, and many CC companies don't report it either. Technically this is tax fraud, however, the IRS has pretty much all but said they will turn a blind eye to it, because trying to audit business related airline miles and hotel points accrued which are then used for non-business purposes would be impossible. Cash back specifically could be easily tracked if CC companies had to report 1099-Misc, but then people would just switch to a point system like miles that can't be tracked, so the IRS has pretty much thrown up their hands, for now.
Side note: this doesn't fall under the category of a "purely financial/ROI based reason", but a lot of money management is psychological so perhaps it's worth mentioning:
Letting your cash-back accrue over time, is a form of "forced savings", similarly to purposefully overpaying your taxes in order to get a larger tax refund at the end of the year.
For those that are consistent over-spenders, this is extremely beneficial, and for others this is merely a nice mental win. I'm pretty sure I recall a top member on this site mentioned putting a child through (a year of?) college on just credit card points! I'd call that a nice mental win...
The most common reason is if you want to save those points to transfer to an airline's award miles. Many credit cards offer a 25% bonus or more to convert their rewards points to miles on their partnered airlines, so depending on your specific card and travel plans it may be worth it to wait for your next trip before cashing in.
My Discover credit card's cashback is tied to my Amazon account. Every once in a while, Amazon has a promotion saying something like "Use your Discover cashback, and get $10 off your order." So I make sure to always leave some cashback in my Discover account. Then when Amazon gives me that promotion, I will apply just $1 (maybe even $0.01 would work, but I haven't tried that) from my Discover cashback to my order, and I get an instant $10 discount!
It all depends on how points are earned, and how they are redeemed.
I used to have a card that you earned points. You could turn points into money. The catch was that the rate wasn't constant. So lets say you earned 500 points each month. Turning in small batches each month converted into mush less money then if you took the whole 6000 points at the end of the year. In my case I determined that I made the most money if I waited about 18 months to maximize the money.
I had one card that would give you money directly to the bank account as long as the bank account was at their bank. You could also do a statement credit, or wait 2 to 4 weeks for a paper check. Statement credit made the most sense.
I had one card that would do statement credit except that it would take 4 to 6 weeks. The problem was if you were paying the bill online, the statement credit would apply to the next billing cycle or even the one after that. I felt doing that every month would make it hard to track them.
Over time those offers got better. I find that once they get to a couple hundred dollars in value, I just transfer the money to my checking account if that is the option, or apply it to my balance if the transfer to checking option doesn't exist.
If there there isn't a difference in money then the reason to pick a method is how easy is the method, and the psychology. It is possible that one method could lead to overspending, or make you feel you are wasting the benefit. You have to determine what works for you.
As another answer mentioned shared accounts can make this complex regarding a fair split. I can't comment on the business and tax aspect of the business card. I have rarely had a business card, but I am more than happy to let my business travel cycle through my personal card so I earn the points/dollars.
Is there a benefit to delaying its use so that it stacks to a higher value before utilizing it?
It depends on:
- what perks -- besides cash back -- that your card offers, and
- your buying habits.
My purchasing habits are such that monthly cash back is the best thing for me to do. Other people's purchasing habits are different, so the perks might dictate a different course of action.
Outside of things related to my cash availability (ie if I am tight on cash one month, having a larger cash back accrual might be helpful to reduce my cash burn). Is there any purely financial/ROI based reason not to immediately put the cash back towards the statements?
Money is fungible, so it does not matter whether you apply it towards your card balance or put it back in your checking account.
Depending on the cash back rewards terms, there can be a reason.
The example I'm thinking of is the Citi Double Cash card (which I have). With this card you earn 1% cash back on all purchases, and you then earn an additional 1% cash back on the same amount when you pay the bill, for a total of 2% cash back.
Crucially, the card allows you to apply your cash back benefit to your bill, but if you do, you don't earn the second 1% on the amount of the bill you pay with cash back.
So let's say you make $1000 of purchases with the card. You accrue $10 of cash back. If you pay the bill out of pocket you give Citi $1000 and earn another $10 in cash back, so your cash back total is $20. But if you apply the first $10 cash back to your bill, you pay only $990 out of pocket towards your bill and earn an additional 1% only on that, which is $9.90, so in total you earned $19.90 cash back ($10 of which you already spent on your bill). So by applying the cash back to the bill you forfeited 1% of 1%, or 0.01%.
I've always been puzzled by this policy as it means Citi is paying me an extra 0.01% for the privilege of sending me a check rather than just applying my cash back amount to my bill. It surely costs them more money to process the disbursement than to just apply the amount to the bill, yet they incentivize the former by offering you an additional 0.01% if you make them do more work. I gladly take this deal!