Vaccinated and flush with cash, many Americans are ready to spend to make up for lost time. And credit card companies are dangling big-time sign-up bonuses and rewards to seize that pent-up demand.
“We’re going to see an extremely competitive time in the coming six months to a year as people get back to spending on credit cards,” Matt Schulz, chief credit analyst at LendingTree, told Yahoo Money. “There's been this discussion of a giant explosion of spending after the pandemic and reopening, and lenders want to get a piece of that.”
Last week, Chase upped its sign-on bonus to 100,000 points on its Sapphire Preferred card, after increasing incentives last month for its co-branded cards with Southwest and IHG. This week, Wells Fargo introduced a new card with unlimited 2% cash rewards and no annual fee — plus a small bonus — while Citi on Thursday came out with a new no-fee card of its own with 5% cash back on up to $500 a month in spending. Both American Express and Capital One have also bumped up their rewards or bonuses recently.
The rewards arms race comes as vaccinations ramp up, the economy reopens, and many Americans are well-positioned to spend.
The savings rate during the pandemic has been historically high, with government support and limited spending options bolstering Americans’ coffers. At the same time, consumers have paid down their credit card debt in record fashion, improving their balance sheet. Household wealth has also hit a new high.
“A lot of people are in way better financial shape today than they expected to be a year ago and people may have more cash in their pockets,” Schulz said. “They may feel more secure about their jobs and that gives them the confidence to spend and that gives lenders the confidence to lend more.”
Last year, credit card companies didn’t know how to react to the unprecedented economic landscape that saw 20.5 million jobs lost in April 2020 alone.
Many issuers slashed credit lines or closed card accounts altogether to reduce their exposure to defaults. They originated 25% fewer accounts versus 2019, while the credit limits of those new accounts were 37% lower year-over-year, according to Equifax.
“Credit card issuers were very cautious in 2020. We didn’t see many newsworthy card launches,” said Ted Rossman, senior industry analyst at CreditCards.com, in an email. “As we approach the midpoint of 2021, we’re seeing more signs of recovery, including heightened marketing spending, increased consumer card usage, and elevated sign-up bonuses.”
Borrowers still should remain savvy and understand what is required to get these sign-up incentives. Typically, a card holder must spend a minimum amount in a specific timeframe to get awarded the bonus, and these thresholds can vary widely from card to card.
Spending to just get a bonus is one good way to start digging back into credit card debt, an outcome that Schulz expects to happen as the year and spending enthusiasm wear on. In fact, four in 10 U.S. adults said that they're willing to take on debt to “treat themselves,” according to a recent CreditCards.com poll.
“People will go overboard and credit card debt will definitely rise,” Schulz said, “in part because that's what Americans do.”