December 11, 2008


My inspiration for a tip this week came from an advertisement I saw for a new credit card offering some interesting reward incentives (see Fidelity card below) ... it got me thinking about credit card reward programs in general. The credit cards mentioned represent MY favorite reward card programs. Picking the "best" CC programs is sort of like picking the best cities in the country to live - there will always be room for differences of opinion [there are almost that many to choose from as well!].

The primary criteria I used to guide my decision-making process:
- No annual fee
- Permanent, not "introductory" rewards (i.e., 2X benefits for 6 months)
- Preference given to programs that credit the rewards regularly
- Straightforward program - uncomplicated (i.e., not tier-based, etc.)

BEFORE considering a reward-based credit card, you should be aware...
- Aware of your tendencies; it is easy to spend more when using plastic
- Cash back rewards tend to offer healthier benefits than points do
- CNN Money article on 'the risks of the rewards'
- Interest rates on reward cards tend to be higher than other cards
- Only worth considering if you pay your balance in full monthly
- Scrutinize carefully any offer that is 'up to' some % or amount
- Selection should meet your needs based upon projected card use
- Tools can help you analyze offers based on your spending habits
- Ultimately, ensure the benefits outweigh any associated costs
- USE ACCUMULATED REWARDS! 41% rarely/never use their rewards

Depending on your circumstances, American Express has a couple of potentially strong reward cards. AmEx Clear offers a card with absolutely no fees (no annual fee, late fees, overlimit fees, cash advance fees, or balance transfer fees). I may question the value of a card if you commonly get hit with fees, but if you do and plan to continue using credit, this may be a smart solution. They also provide a free credit score annually. The AmEx Blue doesn't meet my simplicity rule (offers 5% back on some items after the first $6,500 spent each year; 1% on those purchases up to that point -- 1.5% and .5% respectively on "other" items). But, it can be a viable option for those that use their credit card to make most of their purchases.

Capital One is perhaps the most polarizing credit card company on the planet. People with poor credit hate them; most with good credit love them. Here are some of the benefits I like [although not a "traditional" reward card, the rewards are definitely tangible]:
Competitive rates (I got 4.9% F a few years ago; 7.9% is advertised)
No transaction fees on international purchases
Cash advance rate = purchase rate
No fee to transfer balances

This historically has been one of the more popular reward cards (definitely Chase's most popular card); in the past month and a half, they've updated the card. I wouldn't recommend the "new" card by any stretch; if you have the old card with the prior terms, you're ok to keep it.

3% benefit for gas purchases
3% benefit for restaurant purchases
2% benefit for travel purchases
1% benefit for everything else
No limits on rewards
* Need to be Costco member & the benefit is only credited annually

5% benefit for gas purchases (any gas, not specific station)
5% benefit for auto maintenance purchases
5% benefit up to $100/billing period -- $1200/year
1% benefit on other purchases
* With a gas reward card, my preference is a card that provides the same maximum benefit regardless of where the gas is purchased. AAA (membership not required) offers a gas rewards card through Bank of America that provides a 5% benefit on all gas purchases as well.

2% benefit ($50 Fidelity IRA investment for each $2500 in purchases)
2% benefit for 529 college saving plan option is also available
No limits on rewards
* Rewards can be rolled over to the next calendar year if your IRA contribution has been maxed out.

The card our household uses for most purchases is a Countrywide credit card (no longer available). It provides a 2% principal balance credit to our mortgage ($50 applied to our principal for every $2500 in purchases). I mention it to point out that new products are being created constantly that link cards to desirable rewards (i.e., the new Fidelity IRA card). I understand Wells Fargo has a similar mortgage-linked card (although the reward is smaller - 1%).