Here’s How I Make the Most of My Credit Card Rewards

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Some credit cards offer you the chance to cash back or other perks. Read on to learn how I use mine to grow my net worth. 

I earn a lot of credit card rewards. That’s because I charge almost every single thing I buy on my cards.

It would be easy to use those rewards to get free trips or to buy fun stuff. But while that may sound like fun, it’s not the approach I take. Instead, I’ve devised a system that really allows me to make the most of the rewards I get from my credit card spending.

Doing this with my credit cards just makes financial sense

In order to get the most value from my credit card rewards, I’ve signed up for a cash back card that allows me to have my rewards money deposited right into my brokerage account. I then invest the money that I earn in credit card rewards. I invest the money in an S&P 500 index fund that tracks the performance of the S&P 500, which is a financial index made up of 500 of the largest companies in the United States.

The S&P 500 has pretty consistently produced average annual returns of about 10% (before inflation) over the long term. This means for every $100 in credit card rewards that I have deposited into my brokerage account and that I invest, I will likely end up with an extra $259.37 at the end of a decade.

This can really add up, especially since I spend a ton on my credit cards so I can easily earn more than $100 in monthly cash back rewards. Investing $100 a month over a decade would allow my balance to grow to close to $20,000. And that’s all from my credit card rewards, not counting any other money I put in.

There’s nothing else I could do with my credit card rewards that would provide me with this much value over time. To be able to take advantage of essentially “free” money I get from spending I would do anyway and turn it into a brokerage account balance worth tens of thousands of dollars seems like an easy call to me.

What should you do with your credit card rewards?

If you have a cash back credit card, you may want to consider choosing to invest the money just as I am doing. Some cards allow you to have the cash back deposited directly into a brokerage account like mine does. If yours doesn’t permit this, you could have the money deposited into your bank account. Or you could get a check or a statement credit and then transfer that amount over to your investment funds.

If you don’t have a cash back card but you have some other type of rewards card, like a travel credit card, you could transfer over the amount of money you save on airline tickets or hotels to your investment account when you use your rewards to fund your vacation.

By investing your credit card rewards, you can turn a great rewards card into an engine for building wealth. Give it a try and you may just be amazed at what credit card rewards can do for you.

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