Citi Beefs Up Credit Card Rewards
By: Brian O'Connell

NEW YORK (MainStreet) -- Banks have been fairly stingy about debit “rewards” cards of late, and some have even started charging users a fee when debit cards are used to make purchases, but the positive side effect may be sweeter credit card rewards deals.

Claiming revenue losses following the implementation of the “Durbin Rule” that limited the fees banks could charge merchants on debit card purchases, many financial institutions have curbed their rewards cards programs.

The Durbin Amendment was included in the Dodd-Frank financial reform bill that was passed in 2010. In it, banks with more than $10 billion in assets can now only charge merchants 21 cents per debit card transaction, down from an average of 44 cents before the Durbin rule.

A 2011 CardHub study estimates that big banks stand to lose up to $14 billion annually on the new debit card interchange fee rules.

Now, Wells Fargo (Stock Quote: WFC), JP Morgan Chase (Stock Quote: JPM), and SunTrust (Stock Quote: STI) are among the top 50 U.S. banks  either limiting or adding extra fees to their debit card reward programs.

In another twist. Bank of America just announced that starting in 2012, it would add a $5 monthly user fee for its network of debit card users.

But card users may be able to make up some ground on the other side of the street – via credit card reward programs.

Citi (Stock Quote: C), for example, will expand its “Thank You” rewards credit card program to offer extra reward points for customers who use the cards to pay their student loans or mortgages.

The consumer finance advocacy web site reports that Citi Thank You card users can accumulate 100 points per $1 of charges that go toward student loans and mortgage payments. The site says that the points are redeemable by a check from Citi (for example, accumulating 2,500 points on student loan and mortgage payments earns you a check for $25).

It’s a significant value-add for Citi and its Thank You credit card. Before, card users could build up points principally on retail purchases – things like gas station fill-ups, supermarket runs, and drug store purchases.

But accumulating points for using a card to pay big bills like student loans or a mortgage – that’s a new wrinkle.

As the Durbin rule kicks in, expect the card rewards pendulum to shift from debit to credit cards. Because banks, one way or another, are going to use the new rules to their advantage.

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