Boost Your Investments With Credit Card Rewards

PHOTO: Credit cards

Credit cards can offer more than just miles and cash back. They can also help boost your future.

There are two major credit cards on the market that allow you to make certain types of investments with rewards, although there have been others in the past. The Upromise World Master Card allows cardholders to deposit their rewards into a 529 college savings plan or high-yield savings account, while Fidelity's investment-rewards cards offer a range of deposit options, including individual retirement accounts, 529 plans and brokerage accounts, to name a few.

It's a trend that has yet to take off. "There are certainly almost countless cash-back cards, miles cards and point-related rewards cards. The number of these investment-type cards, you can really count on one hand, which is sad because they're really good products," says John Ulzheimer, president of consumer education for credit-monitoring site SmartCredit.com.

Still, investment-rewards cards can help boost your savings, especially for younger cardholders who have time to watch their rewards investments grow, but they also come with their own rules and restrictions. Here's how to decide if an investment credit card is right for you.

How they work

Like other rewards cards, investment credit cards convert a certain percentage of each purchase into cash or points. After accumulating a significant amount, cardholders can then deposit those rewards into the investment account linked to the card or opt to receive the rewards as a check they can spend or deposit into an investment account that's not linked to their card. With Fidelity, cardholders also may use points for travel, gift certificates and other merchandise. With Upromise, cardholders can use rewards to pay down student loans taken out through Sallie Mae and can accumulate greater rewards by shopping through the company's online retail partners.

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"I think you need to ask yourself, 'What kind of consumer am I? Am I someone who pays off my balance every month? Am I somebody who does a lot of online shopping?' People who fit both of those criteria will save the most and benefit the most from the card," says Debby Hohler, spokeswoman for Sallie Mae, Upromise's parent company.

There are a few significant differences among investment credit cards and other rewards cards, Ulzheimer says.

"You can fund an investment with thousands of dollars of money that you've earned through a rewards card, and that money can shrink in value. That doesn't normally happen with a rewards card," he says. "If you're not able to be comfortable with that type of an account, then this is not a rewards card for you."

Do the research

Investment card holders also should carefully evaluate the terms and conditions of the credit card as well as the investment products attached to it. That means doing some comparison shopping to make sure that you're getting a product with high performance and low fees.

"The thing that's important is to know, especially when you're in tax-deferred products (such as an IRA or 529 plan), is to understand the products, know where your thresholds are within those products and ensure that you're working with a company that has the ability to help you control and monitor what's going into those accounts," says William McLimans, senior vice president of cash management for Fidelity Investments.

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