Compare credit card rewards programs
By Sandra Block
Will rewards programs help you stretch your tattered dollars during these tough economic times?
Perhaps. But while the idea of earning money each time you shop is appealing, many rewards programs offered by retailers and credit card issuers have complex rules and limits on how much you can earn. High interest rates and annual fees could wipe out your savings. And you might be tempted to spend more. "Lots of studies have shown that people who use reward cards tend to spend more" than those who don't, says Amanda Walker, senior project editor at Consumer Reports.
That doesn't mean you can't save money with rewards programs. Curtis Arnold, founder of www.CardRatings.com, says he and his wife earned more than $1,000 last year by using cash-back credit cards. Arnold isn't a typical user. He uses the cards for most purchases of more than $5, pays the cards off every month and, with five children, spends an unusually high amount for groceries.
Still, figuring out how to take advantage of rewards programs isn't rocket science, Arnold says. Just follow some basic guidelines:
Rewards cards typically carry higher rates than other cards. Some of the most generous rewards cards charge rates of nearly 20 percent, according to Consumer Reports. If you carry a balance, even occasionally, forget about rewards programs and look for a card with a low interest rate. Otherwise, you'll end up paying more in interest than you'll earn in rewards, says Bill Hardekopf, CEO of www.LowCards.com.
Make sure you pay your bills on time, too. Some cards will scrap rewards you haven't used or stop adding to them if your payment is late.
Depending on how much you spend and the amount of your rewards, you could end up ahead, even with an annual fee. But as competition has grown, it has become easier than ever to find a rewards card with no annual fee. Only four of the 30 rewards cards analyzed by Bankrate.com charge annual fees. (You can find the survey at www.bankrate.com/credit cardrewards.)
Some cards increase the size of your cash-back rebates after you've spent a certain amount. For example, the American Express Blue Cash card says it offers "up to 5 percent cash back" on groceries, drugstore items and gas ("everyday purchases"), and up to 1.5 percent cash back on other purchases. Those generous rewards don't kick in, though, until after you've spent more than $6,500 a year. Below that, the rebates are limited to 1 percent for everyday purchases and 0.5 percent for everything else.
If you charge more than $1,000 a month, tiered rewards programs can pay off, Arnold says. Otherwise, you're probably better off with a card that pays a flat rate for all your purchases, no matter how much (or little) you spend.
In selecting a card, also consider where you spend your money. Some rewards cards don't count purchases at warehouse stores, such as Costco, according to Bankrate.com.
Many retailers reward you with points that can be redeemed for travel, merchandise, gift cards or even donations to charities, according to Consumer Reports. But you could end up with lots of points for stuff you don't need, or find out, after the fact, about restrictions on using your points, Hardekopf says.
"Cash is good for everything, whether you're buying tires or books or NASCAR merchandise," he says. In addition, cash-back cards tend to offer more generous rewards than points cards, according to Consumer Reports.
A cash-back card may also be a better choice than an airline rewards card. Cards that reward users with airline miles are more likely to charge an annual fee than other rewards cards, Hardekopf says. In addition, rising fuel costs have forced airlines to cut back on flights. That's reduced the number of seats available to consumers looking to redeem their airline rewards miles.
Airline rewards cards may still pay off for consumers who travel frequently on the same airline, Arnold says. But for most consumers, airline rewards programs have "too much red tape," he says. "I'm a big believer in keeping it simple, and cash-back is simple."
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