Credit card issuers are ramping up efforts to entice you to choose — and use — their cards. Direct-mail offers doubled in the second quarter of this year compared with the same period a year earlier, to about 988 million, according to Mintel, a market-research company. More than 80% of the offers were for rewards programs, and many of the perks are juicy — double miles, 5% cash back, even contributions to your individual retirement account.But not all rewards cards are worthy of a place in your wallet. To get the benefits, you may be required to charge a certain amount. Plus, the number of points you can rack up may be capped, and the window to use your points may be narrow. An increasing number of rewards cards charge annual fees — although they’re often waived for the first year.
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Used strategically, rewards cards can pay off handsomely. Scott Bilker, the founder of the credit card advice website DebtSmart, says he received an offer for a 10% cash-back card from Citibank a few years ago. At the time, Bilker was remodeling his kitchen. Once he confirmed the offer, he signed up, charged his new kitchen cabinets and saved $1,000.
But if you tend to carry over a balance on your credit cards, you probably shouldn’t sign up for a rewards program in the first place, because rewards cards usually charge hefty interest rates. Whatever you earned in perks would likely be eaten up by interest payments. Of course, different lifestyles and shopping habits call for different cards. If you’re a frequent traveler, you can earn air miles and perks from a travel rewards card that more than offset an annual fee. If you don’t travel enough to use miles, a cash-back card may be a better choice. And if you have a long drive to work, a gas card could be a winner.
Among the hundreds of choices, Kiplinger found standouts in four rewards categories: travel, cash back, retail/gas and so-called hybrid cards, which let you customize your card’s features or benefits. Banks are beefing up rewards programs for debit cards as well, although they usually aren’t as generous as the credit card programs.
Travel
For travel rewards cards, the possibilities are virtually endless. If you want to be able to transfer miles to more than a dozen frequent-flier programs and are willing to pay off your balance each month, the American Express Premier Rewards Gold charge card fits the bill. Each dollar you spend on airline tickets earns you three points, and a dollar spent on gas or groceries gets you two points. For other purchases, you earn one point per dollar. (One point translates to one mile in airline frequent-flier programs.)
With this card, you don’t have to worry about a limit on your points; nor will they expire. You’ll pay a $175 annual fee, but it’s waived the first year. Because it’s a charge card, not a credit card, you may not roll over a balance to the next month.
We also like the PenFed Premium Travel Rewards American Express credit card for those who are eligible to join Pentagon Federal Credit Union. The card, which earns you five points per dollar spent on airline tickets, three points on hotels and dining, and one point on other purchases, has an annual fee of just $50 (waived the first year). To qualify for the card, you must be a member of the PenFed Credit Union, which costs $20, but you can use your points on any airline. Caveat: You’ll need to use your rewards quickly; they expire after five years. You can carry a balance at a variable interest rate of 13.24%.
Among rewards cards without annual fees, the Simmons First Visa Platinum Travel Rewards card, with a 9.25% variable rate, gives you one point for every dollar you spend. It takes 22,000 points to qualify for an airline ticket (worth up to $325 to go anywhere within the 48 contiguous states). You can also use your points for hotel stays, restaurants and car rentals. You have three years to use points before they expire.
When you use the Capital One Venture Rewards card, you not only earn two miles per dollar spent but you pay no foreign-currency-conversion fee if you use the card abroad. You get 10,000 bonus miles if you spend $1,000 in the first three months you use the card. The interest rate is a reasonable 13.9% variable rate, and the $59 fee is waived for the first year. You can redeem your miles for flights on any airline, hotel stays and merchandise, to make charitable donations or to get a credit on your statement.
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Trying to lure new clients banks offer different rewards for their credit cards. But don’t forget that under attractive offers can conceal different pitfalls.