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How Rewarding Are Your Rewards?

May 27, 2011

Money-Guy 05-27-2011

Wouldn’t it be nice if choosing a credit card were as simple as doing some research, making an informed decision, and never thinking about it again? Unfortunately, changing rates, terms, and rewards mean that you have to stay on your toes in the evolving credit card market if you want to make sure your rewards are actually rewarding your good behavior.

Last week, I personally received a message from Chase regarding some “updated new benefits” to my rewards program. As I read the letter, I quickly realized that the so-called new benefits were actually negative adjustments to my rewards program in disguise. Chase made it seem like I should be excited about the changes when they were actually limiting my rewards, adding maximums, and requiring activation for rotating categories each quarter.

Perhaps Consumer Reports sensed my frustration about my current credit card situation, because they coincidentally released an article in the June 2011 Money Adviser issue, titled Credit Cards That Pay You. Some things to consider:

  • Up-Front Bonuses – Many cards offer cash bonuses just for signing up, typically tied to a certain level of spending. Additionally, many banks and airlines promote “free round-trip tickets” to attract cardholders. Just beware that mileage deals typically come with many restrictions. I typically prefer cash rewards, which allow flexibility to schedule trips at your convenience.
  • Annual Fees For Added Perks – Many rewards cards now offer two versions of the same card: one with an annual fee and more rewards, and one with no fee but less rewards. The idea is that the annual fee will be offset by the added rewards, such as free baggage checking, travel insurance, trip-delay coverage, rental-car insurance, and occasionally no foreign-transaction fees. The annual fee option is only worth it if you can benefit from the additional rewards offered by a specific card.
  • Maximizing Your Rewards – Make sure to read all terms and conditions in order to maximize the rewards you can receive from your card. Many cards use rotating seasonal categories, so make sure you know what items are earning you the most rewards at all times. Also, watch out for spending tiers that only allow rewards “up to” a certain amount.
  • Shrinking Rewards For Gas – Gas cards are not as rewarding as they used to be. Be sure to check the fine print since many cards offer a high percentage back on gas, but only after you’ve spent a certain amount. Up to that amount, you may only be receiving 1 percent cash back on gas.

Additionally, the article included a list of the best rewards cards and some of their greatest features:

  • Amazon.com Rewards Visa: $30 back after first purchase. 3 points per $1 spent on Amazon; 2 points per $1 at gas stations, restaurants, drugstores, office-supply stores; 1 point per $1 elsewhere. Points are unlimited and never expire. Once $25 is earned, it can be spent on Amazon; $50 can be converted to cash.
  • American Express Blue Cash: Until $6,500 in annual spending, 1% cash back at supermarkets, drugstores, and gas stations; 0.5% elsewhere. After $6,500 in spending, rewards bump to 5% and 1.25%, respectively.
  • American Express Blue Sky Preferred: 7,500-point sign-up bonus equal to $100 credit on statement. 2 points per $1 spent on dining, hotels, car rentals; 1 point per $1 elsewhere. $100 per year allowance for checked baggage, in-flight meals, drinks, entertainment, Wi-Fi, and legroom upgrades. $75 annual fee.
  • American Express Costco True Earnings: 3% cash back on gas (1% after $3000 is spent) and dining; 2% on travel; 1% elsewhere. No annual fee with Costco membership.
  • Capital One No Hassle Cash Rewards: 2% cash back on gas and groceries at major supermarkets; 1% on everything else. Rewards never expire and can be redeemed at any time. No balance-transfer fee.
  • Capital One Venture: 2 miles per $1 spent. 10,000 bonus miles after spending $1000 in first 3 months. $59 annual fee waived first year. No foreign-transaction fee. Venture One version has no annual fee; it pays 1.25 miles per $1 spent.
  • Chase Freedom: $100 cash sign-up bonus; 5% cash back in rotating categories like airfare, gas, groceries, and home improvement; 1% on everything else. Cash-back never expires.
  • Fidelity Rewards American Express: 2 points for every $1 spent. Points can be redeemed for merchandise or converted to cash and deposited in a linked brokerage account.
  • PenFed Premium Travel Rewards AmEx: 20,000-point sign-up offer. 5 points per $1 spent on airfare; 3 points per $1 on dining and hotels for one year; 1 point per $1 elsewhere. No foreign-transaction fee. Good balance-transfer offer. $50 annual fee waived for first year.
  • PenFed Visa Platinum Cashback Rewards: 5% cash back on gas. 2% at supermarkets; 1% elsewhere. Good balance-transfer offer.

A couple of notes…
Always make sure your credit is in solid standing before applying for any new cards. Also, be diligent and responsible with paying everything off on a monthly basis.

Pay attention and maximize the rewards and benefits you receive from your credit card. There are some incredible opportunities out there to help you stretch your money as far as possible!

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