I recently applied for a Fidelity Investment Rewards American Express card (this is a followup post to: What The Best Credit Card Rewards Programs Aren’t Telling You) because of their unlimited 2% cash back rewards program. When reading the fine print, it sounded like the cash rewards could be deposited into a Fidelity account or withdrawn as a check or direct deposit into the account holders choice. My plan was to accumulate the cash back points and redeem them for cash so I could have a choice on what to do with the money.
After completing the application process online, I was a bit worried because the system is designed to notify applicants of immediate approval and I did not get immediate approval. The final message I received was that I would receive a letter in the mail with the outcome of the credit decision. Weird, because I have a stellar credit score. Still, I assumed that someone had to manually review the application because I added my wife as an authorized user.
A week later, I received the cards in the mail with a generous credit limit. I gave the terms and disclosures a once over. This statement about the rewards program caught my eye.
The 2% rewards value applies only to points redeemed for a deposit into an eligible Fidelity account. The redemption value is different if you choose to redeem your points for other rewards.
I went straight to the account management website and created a log on so I could get more information. I browsed the rewards information page and found the cash back redemption structure that was not offered anywhere on the terms and disclosures before sign-up.
Program FAQs
Q: What is the difference between redeeming points for cash into a Fidelity account versus into a checking or savings account?
A: Redeeming points for cash and depositing into a Fidelity account gives Fidelity customers a higher redemption rate for their points than into a Checking or Savings account. Below shows the difference in redemption levels up to 20,000 points between Fidelity rewards as compared to cash rewards directed into a checking or savings account.
| Points Redeemed | Fidelity account | WorldPoints Cash (Checking/Savings) |
|---|---|---|
| 2,500 | – | $12.50 |
| 5,000 | $50 | $25 |
| 7,500 | $75 | $37.50 |
| 10,000 | $100 | $80 |
| 15,000 | $150 | $120 |
| 20,000 | $200 | $160 |
So, if you want to cash out your points as a check or a non-Fidelity account, your points are worth less. The exchange rate for a Fidelity American Express card into a Fidelity account is 1%, which would give you the full 2% cash back. The exchange rate for the points for cash starts at 0.05%, and reaches a maximum of 0.08%. That means that if you don’t deposit the cash back rewards into a Fidelity account, you can only achieve 1% – 1.6% cash back with the card.
Opening A Fidelity Investment Account
Do you have to have a Fidelity account for the Investment Rewards American Express card? To take full advantage of the rewards program, yes.
I suppose one could always open an account and attempt to withdraw the funds immediately, but I don’t know if that’s a feasible option and that seems to be a lot of work just to optimize a cash back credit card. I’ll just be opening a taxable investment account at Fidelity and will set up the automatic transfers from the credit card to the investment account at the 5,000 point threshold.
At first glance of the investment options at Fidelity, they have a decent selection of commission-free ETF’s from iShares and a bunch of low-expense, no transaction fee Fidelity branded mutual funds. I believe that I will opt for the mutual fund option. Even though the minimum initial investment for a Fidelity mutual fund is $2,500, the advantage mutual funds have over ETF’s is that they allow owning partial shares and will re-invest dividends automatically. These two points are important because the mutual fund I select will get periodic investments of $50 from the cash back program and will be held for the long-term.
Other than the initial investment. I don’t plan on adding any of my own cash. I’m very interested to see how the power of compounding and investing can boost the returns from the cash back rewards I receive for my credit card spending.
What do you think of my plan? Do you have any suggestions for a Fidelity mutual fund I can hold for the long-term?
Talk to me, Goose.