You have to love reward cards for their ability to refund a small but significant reward from all of your spending. Unfortunately, there are some situations where your reward is not worth the expense.

Annual Fees

Annual fees can soak up enough of your reward that it just isn’t worth it for people who are spending lower amounts on a particular card. Let’s say you find a great card that gives you two cents of value for each dollar spent, but has a $60 annual fee. If you were to spend $1,000 a month on that card, you would obtain $240 in value a year, yet the $60 annual fee would negate one quarter of your reward. If you spend $500 a month on that card, now you are really only getting $60 reward value per year, a mere one percent value for every dollar spent.

International Transaction Fees

All Visa and MasterCard programs come with a one percent international exchange fee, however most banks who issue the cards tack on an additional one or two percent to each transaction. Frankly, the whole thing smacks of greed run amok, and the bank’s failure to disclose the fees has resulted in a class action lawsuit.

What is the point of earning a one percent cash back reward, and then being socked with a two percent “exchange fee”? On the other hand, people traveling on business who are being reimbursed by their company for their purchases exchange fees shouldn’t care, but everyone paying out of pocket is getting taken.

Fortunately, a leading reward card issuer, Capitol One, stands almost alone in not charging any foreign transaction fees beyond Visa and Mastercard’s required one percent.

Interest Rates

The hard truth is that anyone who thinks they are earning “rewards” while paying interest on an outstanding balance is deceiving themselves. It cannot be stressed enough that reward cards should only be used by those who pay off their balances in full every month. The reason is simple, interest fees will almost always add up to an amount far greater than your reward. People who carry a balance should be shopping for a card with the lowest interest rate, not the highest “reward”.

If it helps you to control your spending, you can think of credit card rewards as a gift to yourself that you have earned by not spending more than you can afford to pay off each month.