Harvesting Rewards
Credit card firms are dangling the carrots in an effort to win over loyal users
Still, if you're diligent about managing your finances, the rewards can be tempting--especially as some cards have started to offer more points or cash back for those who carry a balance. For the right user, they can prove worthwhile.
Reward cards essentially come in three flavors: merchandise/retail, cash- back, and travel. Start by examining your personal preferences. "Some people are motivated by aspiration rewards [such as a vacation to Paris or use of a concierge service]," says David Robertson, publisher of the Nilson Report, a newsletter that tracks industry trends. "Other people would just as well have 20 bucks off at the Gap." So ask yourself: Would you prefer a cash-back award instead of redeeming points for merchandise? Do you travel frequently? Have a favorite store? There's most likely a card that fits your lifestyle.
MERCHANDISE CARDS. Most cards that offer merchandise rewards tally up roughly one cent in gift certificates or product discounts for every dollar you charge. These can be a boon for consumers who are loyal to a certain company but not for consumers who like to shop around. For example, fans of General Motors automobiles might want to consider the GM MasterCard, which gives cardholders a 5 percent rebate on every purchase, but the reward dollars can be used only toward the purchase of a GM vehicle. The same goes for those who hold cards like the SonyCard or the Mercedes- Benz card. But redeeming some rewards can be a trying process. Some programs make customers call in to request a certificate, then wait a few weeks for it to arrive in the mail.
A better choice might be something like Chase's Disney and Starbucks cards. Both offer rewards at the point of sale.
CASH-BACK CARDS. Slow redemption and limited choices on merchandise cards caused Jay Klauminzer to switch to a cash-back card. "You're limited only to what they have," says Klauminzer, 26, a management consultant in Washington, D.C. "It didn't feel very rewarding. With cash, I can use it for whatever I want."
Some cash-back cards offer more if you swipe your card at "everyday stores," like the gas station or the supermarket. Take Chase's PerfectCard, which gives you a flat 1 percent on all purchases but 3 percent if you use the card at a gas station.
How much you spend is another factor. While some cash-back cards offer a flat rate, which might appeal to those who charge small amounts, many have a tiered structure, with cardholders earning more money for spending higher amounts. The Discover Platinum Card promotes a rate of 5 percent with select merchandisers and up to 1 percent cash back on all other purchases. To get the full 1 percent, however, Platinum cardholders must hit an annual spending amount of $3,000. Before reaching that amount, cardholders get 0.25 percent on the first $1,500 and 0.5 percent on the second $1,500. If you spend just $3,000, your reward will be only $11.25.
Tiered cards typically work best for heavier spenders. American Express's Blue Cash Program offers 0.5 percent up to $6,500 and then 1.5 percent up to $50,000. Use the card at supermarkets, drugstores, and gas stations, and you get 1 percent back up to $6,500 and 5 percent up to $50,000.
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