Earning rewards with credit cards is great. Getting rewarded for your daily expenses helps make purchases cheaper, as long as you don’t have a balance on your card and are forced to pay high interest rates.
Because I know how valuable credit card rewards can be, I charge for just about every purchase I can, which means I earn a lot of rewards every month. And I have managed to more than double the value of these rewards with a simple gesture. Here is what I did.
How to Make the Most of Credit Card Rewards
To get the most out of my credit card rewards, I signed up for a cash back credit card that deposits the money directly into my investment account. This means that for every dollar I spend, a small deposit is made to a brokerage account that I can use to buy investments.
I also wanted a safe and easy way to grow cash, so I invested in S&P 500 index funds, which are funds that track the performance of 500 of the largest US companies. Index funds have low fees and no research is required.
Over time, the S&P 500 has consistently produced an average annual return of around 10%. Now that doesn’t mean I earn 10% on my money every year. Some years my investments underperform that expectation, and other years they outperform. But that does mean that in the long run that’s about what I can expect from my deposited Cash Back.
Since the money I invest comes from cash back rewards, this does not reduce my net income in any way. It is therefore very easy to leave the account alone and let the invested funds grow. And by doing this, I have more than doubled the value of my Cash Back Rewards over time. In fact, some of the rewards I invested ten years ago are worth more than double the amount they were valued at when they were deposited into my account.
Since I regularly invest money each month when I receive my cash back rewards, I also benefit from the fact that I can sometimes buy my S&P 500 shares at a reduced price when the market is going down. And because my cash back is split among so many large US companies, the risk of losing my rewards is minimal.
Try to invest your rewards
Now this approach works for me as I don’t need to use my credit card rewards for other things like vacation funding (I have a separate savings account for this). And I love the fact that every time I spend, I’m doing a little bit to increase my net worth.
If you don’t rely on your cash back for other purposes, consider getting a card that allows you to deposit that money into a brokerage account so that you can turn your rewards into a large sum over time as well. .