Most of the best rewards credit cards come with a welcome offer, a way to push your card earnings higher. You can typically earn one by spending a certain amount on your new card within a specific timeframe.
While the bonus could help grow your savings or help fund your next vacation, it can quickly lead to overspending if the spending requirement exceeds your planned expenses. The extra spending can cut into the value you get from the rewards -- especially if you can't pay the bill in full and on time to avoid interest.
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I've earned two welcome bonuses in my time, one from the Wells Fargo Active Cash® Card and the other from the Chase Sapphire Preferred® Card. The first I earned by paying my taxes with the card and the other by putting all of my travel spending on the card when I took a trip to Spain a few months ago.
In either case, the bonus provided a nice boost to my earnings. I used the Active Cash bonus to pay off some of my taxes, and I'm still holding on to the Sapphire Preferred's bonus for my next trip.
How do credit card bonuses work?
Credit card welcome bonuses or welcome offers were created to incentivize you to apply for and spend with your new credit card.
Once you spend a certain amount on your card, you'll get a bonus added to your account. Welcome bonus spending requirements vary depending on the card and how large the bonus is. The bonus may be paid out in the form of rewards points with multiple redemption options, miles or direct cash back.
Although bonuses are intended to get you to spend, don't spend in ways you normally wouldn't for the sake of a bonus. If you need to spend outside your means to reach it, it's no longer a bonus, especially if you can't pay off the full balance and rack up interest charges. Try to reach the welcome bonus through normal spending to bolster your finances without taking away from them.
✅Pros:
- Boost your rewards with a one-time bonus
- Use the bonus to save money on your next trip or large purchase
❌Cons:
- Could lead to overspending in order to earn the bonus
- You'll likely need to pay an annual fee to access the best welcome offers
How to find the best credit card welcome bonus for you
Choosing the best credit card welcome bonus comes down to a handful of different factors -- how high the spending requirement is, how you're able to redeem it and whether you need to pay an annual fee to get it.
Check the spending requirement
One of the most important aspects of a welcome bonus is how much you need to spend in order to qualify for it. You'll want to make sure you can reach the spending threshold without overspending or making purchases you normally wouldn't have. While welcome bonuses are meant to incentivize you to spend more on your card, any spending you do outside of your normal budget will offset the value you get from the bonus.
What type of rewards are you looking for?
What you can do with the bonus after you've earned it will depend on the type of rewards your card earns. Some cash-back credit cards will pay out their bonuses as direct cash back or statement credits to lower your account balance.
Some rewards cards may offer the bonus as points, however, which gives you a bit more flexibility when you redeem. Points can typically be redeemed for statement credits, cash deposited directly into your bank account, redeemed for gift cards, used with specific merchants at checkout, used for merchandise through the issuer's shopping portal or used to book travel through an issuer's travel portal.
Generally, you can redeem points for cash back or statement credits at a standard 1 point to 1 cent ratio. Gift card, pay with points and travel or merchandise portal redemptions may have different values depending on the specifics of your redemption.
Travel credit cards will likely earn their bonus as points or miles, which can then be redeemed for airfare, hotel stays, rental cars through the issuer's travel portal (if there is one) or transferred to the issuer's hotel or airline partners to be used for airfare or hotel stays. Transferring points is often the most lucrative redemption method, but the cards with the best transfer partners tend to be dedicated travel credit cards with an annual fee.
For credit cards tied to a specific hotel or airline, you'll typically earn your bonus in the form of points or miles on the company's own rewards program, offering less flexibility than transferable points from a credit card issuer like Chase or Capital One.
Does the card charge an annual fee?
Cards that offer the most lucrative welcome bonuses also tend to carry an annual fee. These cards, many of them premium travel cards, typically come with benefits that make the annual fee worthwhile -- including special promotions, travel insurance and free airport lounge access.
As long as you can meet the spending threshold naturally and use the card's benefits, an annual-fee card can be a good pick, especially if the value of a card's welcome bonus is greater than the fee. But after you've collected the bonus, whether you should keep the card past the second year -- when there's still a fee but no more bonus -- depends on how much you value the card's features and ongoing rewards. Otherwise, consider downgrading to a no-annual-fee card.
Check the credit card issuer's rules
Before you apply for a card, make sure you can qualify for the welcome bonus. Some issuers, including Chase, American Express, Citi and Bank of America have special rules around opening cards and earning welcome bonuses.
American Express has a "once per lifetime per person per card" rule on welcome bonuses. That means you can't earn a welcome bonus on a card if you've previously earned a bonus on the same card, even if you've closed your card and are applying for it again.
Chase has a 5/24 rule, which means it likely won't approve you for any cards if you've applied for five credit cards -- no matter the issuer -- within 24 months.
Is your card for personal use or business?
Whether you're using a business credit card or personal credit card will also play a role. Business cards can offer more lucrative sign-up bonuses, but they tend to also have higher spending thresholds than personal cards.
You must have a business to apply for a business credit card, but that doesn't necessarily mean a full-fledged brick-and-mortar business -- side hustlers and freelancers can also qualify.
What the experts say about credit card welcome bonuses
A welcome bonus can help you earn more rewards in a shorter time frame. But there are some risks and factors worth considering.
"Every welcome bonus is going to have different spending requirements," said Gerri Detweiler, a credit card expert. And you'll have to look at your spending to see if you'll be able to meet the requirements comfortably, she added.
One way to avoid overspending is to time opening the card with an upcoming expense.
"If you can just time opening a card right before you are going to have a big expense, that can help you get a lot of extra points just by conducting life and business as usual," said Julia Menez, a credit card points strategy coach. Some expenses that might fit the bill include a tuition payment, down payment on a car or roof repair. Just make sure you have the money to pay your bill off in full before charging the expense. Chasing a welcome bonus with a higher spending requirement can lead to overspending, high credit utilization and debt, if not mindful.
And there's also a bad time to consider earning a welcome bonus. If you're applying for a mortgage or auto loan in the next few months, you may want to rethink opening a new card, especially to open a welcome bonus, said Beverly Harzog, a credit card expert and author.
If you run up a high balance -- even if you pay it off in full -- to earn a welcome bonus, you might be denied a loan, or approved at a higher rate. "You want to wait a couple of months for your credit score to settle down after you have a high balance on there," Harzog added.
When does applying for a credit card with a welcome bonus make sense?
While welcome bonuses are enticing, you shouldn't strive to earn one if it leads to overspending. Typically, you need to spend a certain amount during a set period of time to earn a welcome bonus -- though occasionally a credit card might offer an instant bonus when you're approved for the card. If you can't comfortably meet this spending requirement, look for a card with a lower requirement. Otherwise, the interest you accrue is likely to eat into the bonus value.
You also shouldn't apply for a credit card just to earn the welcome bonus. You'll want to research the card's other features and costs to ensure it fits nicely into your typical spending habits. Otherwise, you might find yourself paying a steep annual fee for a card that doesn't complement your lifestyle.
How to calculate the value of a welcome bonus
1. Calculate the reward value
You'll need to do some math to calculate how much money the welcome bonus is worth.
Points and miles: Determine the approximate monetary value per point and divide it by the number of points you'll earn. For example, if one point is worth $0.01 and your welcome bonus offers 80,000 points, it has an $800 value. However, most points are worth more when booking travel, especially with travel partners. So, if the same bonus is worth 1.25 cents per point, the 80,000-point bonus will be worth $1,000.
Cash back: Cash-back welcome bonuses are straightforward compared with points and miles. You won't need to do much more math if you spend $1,000 to earn a $200 welcome bonus. But if you're earning a flat 2% on each purchase, you'll multiply 0.02 by the dollar amount. For instance, if you spend $200 and earn 2% cash back, you'll earn $4 in cashback rewards.
You'll do the same for tiered and rotating cash-back rewards.
2. Determine the return on your spending
Next, you'll divide the cash value of the bonus, even if you're earning points or miles. For example, if you are earning a $200 welcome bonus for spending $500, you'll earn a little less than half of your money back. However, if you have to spend $4,000 to earn a welcome bonus valued at $800, you'll only earn 20% of your spending back. You may be OK with this if it saves you money on a trip you're booking, but it's best to do the math to compare the value of your rewards first.
3. Look at your personal spending and goals
Some welcome bonuses can be lucrative, but it depends on your goals. For example, a welcome bonus that offers good savings on travel can be good if you plan to redeem the rewards toward flights or hotels. But if you'd rather redeem the rewards for a statement credit or deposit into your account, the points may not be worth as much to you.
When thinking about the card and welcome bonus, make sure the redemption options match how you like to spend money -- whether it's earning cash back for everyday spending or miles to save on flights.
How to apply and receive your bonus
Once you've narrowed down the credit card you want, it's time to apply. Here's what you should expect.
- Apply securely. Go to the issuer's official website using a secure connection to protect your data.
- Complete the application. You'll need your name, Social Security number, physical address, income, and monthly rent or mortgage payment, among other information.
- Wait for the issuer's decision. Some issuers may approve you instantly, while others may take a few days to review your application and require additional information.
After you're approved, you'll receive your new card's terms and conditions, including your interest rate and credit limit. The credit card issuer will also share the perks and welcome bonus details.
The clock for earning your welcome bonus starts the day you're approved for the card for most issuers -- not when you receive the card in the mail. You may start making purchases before your card arrives using a virtual card number to work toward the welcome bonus.
You may earn the bonus by spending a minimum monthly amount or making one large purchase that meets the requirement. For instance, if you want to earn a $200 welcome bonus, the card issuer may require you to spend $1,000 within three months. That's at least $333 in spending each month.
FAQs
Should I sign up for multiple credit cards to take advantage of welcome bonuses?
This is a risky and time-consuming gambit that could adversely affect your credit. Though a welcome bonus is worth considering, we recommend taking a comprehensive look at the overall value of a credit card and choosing one that fits your spending habits and financial situation.
When do credit card welcome bonuses go up?
Credit card welcome bonus can go up or down at the credit card issuer's discretion. If the issuer wants to promote a certain card, they may offer a limited-time bonus. Or the bonus on a credit card may go down if a special offer has expired.
Are credit card welcome bonuses taxable?
In most cases, the IRS doesn't consider credit card rewards as taxable income. If you had to make purchases to reach a welcome bonus, it won't be taxed.
However, if you earn a credit card bonus without spending money -- such as a referral bonus when your friend signs up for the card -- it may be taxable. Always check with a tax professional if you have questions about taxes.
What is considered a 'good' welcome bonus?
In our view, a good welcome bonus is one that doesn't require you to contort your existing spending habits and offers a return that's higher than the card's annual fee. Many rewards credit cards offer a welcome bonus of $200, so anything higher than that is noteworthy.
We also prefer cards with bonuses that feature other perks or multiple rewards tiers, increasing the usefulness of the card beyond the bonus.
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