We cover the basics of credit card rewards programs.
Rewards credit cards are a great invention: you’re able to receive cash back, earn points and even pay down your mortgage by simply paying for the things you already do on a daily basis. If you use these cards in the way they are intended, they can prove to be very beneficial to your bottom line. I’d like to review the different credit card rewards programs that are available out there and maybe we can start a discussion on which ones are worth checking out.
What Are The Best Credit Card Rewards Programs?
According to Yahoo! Finance, about 40% to 45% of credit cards are linked to rewards programs and a quick search at Bankrate shows us that there are plenty of card issuers with different programs of this sort. Here’s a cursory look at some of them:
Cash Back Rewards
For cash back, there are some recognizable names that deliver reasonable rewards:
Discover More offers a $100 cash back bonus once you sign up and meet some basic spending requirements. The cash back rewards reach 5% for typical spending categories like gas, restaurants and travel. Discover also has other cash back cards, like the Discover Open Road card, which is a popular specialty gas card that rewards you up to 20% for shopping at special retailers through Discover.com, and the Motiva card, which I don’t find as attractive since you only earn up to 1% cash back at best (once you spend over $3,000). Motiva does have what’s called a “pay on time” bonus though. For more thoughts on Discover, check out this post on Discover credit card rewards and the Discover More credit card.
American Express also has a few cards that give you cash back, including the True Earnings card and Blue Cash. For more on these, check out this discussion on American Express rewards and the American Express Blue cash credit card. There’s also Bank of America’s Accelerated Cash Rewards American Express Card which offers you the chance to earn 1.25% cash back on every dollar you spend.
A few more cards are outlined in this post on the cash back cards. For many of these programs, you can get the cash rewards via check or statement credit, or you can opt to deposit the amount to your checking or savings account. You may also want to ask a few questions:
- Can you redeem your rewards in increments?
- Is there a limit to the amount you earn?
- Will you automatically receive cash back or do you have to redeem your rewards?
- When will your rewards expire?
- Does the card have an annual fee?
Points Rewards For “Stuff”
Other than cash, most other programs allow you to earn points which you can redeem for things like merchandise, gift cards, groceries, events, travel perks and so forth. Here are some of the more popular credit cards in this category:
The Citi ThankYou Points network is a familiar one, which is the program linked to Citibank’s cards: the Citi mtvU Platinum Select Visa Card for College Students and the Citi Forward Visa card (which is a personal favorite) are good no annual fee credit cards.
There’s also Capital One with its heavily advertised No Hassle Points Rewards card. Using it, you could earn 1 point per $1 spent on regular purchases, and 5 points per $1 spent at gas stations, major grocery stores, and drugstores. Your points don’t expire and aren’t capped as long as you have the account, but did they drop the $29 annual fee? The rates for this card also jump up significantly after a short 0% APR intro period, so you’ll want to think about this.
Travel Rewards: Miles and More Miles
For frequent travelers, getting rewarded with air miles is just as desirable. Some noteworthy travel credit cards:
Citibank has the Citi PremierPass Elite Level, which earns you double the points on special categories for gas, drugstores, commuter transportation, parking and supermarkets, and regular points for all else. But you also get points for miles flown.
Discover has a couple of travel rewards cards such as Discover Miles and Escape by Discover. The difference I’m seeing is that Escape may be more attractive to more active travelers because the rewards are more generous (you get miles upon miles on every turn: 25,000 bonus miles earned across 25 months and unlimited double miles for all purchases), while Miles offers 12,000 bonus miles earned throughout the year. Also, Escape has a $60 annual charge so you’ll need to travel a lot to make it worth it, while Miles has NO annual fee. Both also serve as balance transfer credit cards (0% APR for 6 months).
American Express also has its airline cards including Platinum Delta SkyMiles and the Delta Reserve credit card. Both have fat annual fees (with the “premiere” Delta Reserve requiring a hefty $450 annual fee per year!), but if you love Delta, you get top treatment with these cards. AmEx also has a card that yields points for hotel and airline use: Starwood Preferred Guest card, but with its annual fee of $65 after the first year, your mileage may vary.
Mortgage Pay Down
I can appreciate a card that can help me pay off my mortgage. Now why aren’t there more of these around? Wells Fargo has the Home Rebate Card but you’d have to have a mortgage with them for you to get rewards. With it, you could earn 1% back on your net purchases to help pay down your mortgage. When your rebate reaches $2500, it’s automatically applied to the principal. The introductory rate can be as low as 0% for 6 months, too. Not all Wells Fargo mortgages are eligible, though, so you’d have to double-check before applying. Unfortunately, not many lenders offer a mortgage pay down card, but it seems like a beneficial product.
College Fund Rewards
Another favorite rewards program of mine is the one by Upromise. If you want to save (or are already saving) for your kids’ college education through a 529 savings program, the Bank of America Upromise World card (it used to be offered through Citi) allows you to earn dollars which are then directly applied to your 529 account.
In general, you’ll need to gauge which rewards programs will provide you the most value and which are going to fit your spending patterns the best. And they’re also only worth applying for if you pay off your balance in full each month, because using rewards cards is generally more expensive than using other cards that may have more attractive rates.
Aside from the cards and programs I’ve mentioned, there are lots of other rewards programs out there. Before you sign up for any of them, do read the fine print and double check the annual percentage rates for purchases and cash advances.
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