Harvesting Rewards
Credit card firms are dangling the carrots in an effort to win over loyal users
With the Citibank Dividend Platinum Select, it's not about how much you spend but where you spend it. The card offers a flat 1 percent on all purchases but 5 percent back at drugstores, supermarkets, and gas stations. Spend $4,000 annually, and get $40 to $200 back. But the total annual reward is capped at $300. Chase's PerfectCard is another option for moderate to heavy spenders: The annual reward amount isn't capped, so those who spend more than $30,000 can get anywhere from $300 to $900.
TRAVEL CARDS. While travel programs may seem like dinosaurs compared with the newer breed of rewards cards, they still offer the most bang for the buck. Travel reward cards are best for individuals who are "frequent travelers" or "frequent buyers," says Tim Winship, publisher of FrequentFlier.com. Frequent fliers should consider signing up for cards affiliated with an airline frequent-flier program. Almost every airline now offers such a card, from the big carriers like American and Delta to discounters like Southwest and JetBlue.
The best advantage of this kind of card is that the miles you earn by charging on your card can be combined with the miles you earn when you fly. "Don't get distracted by all the bells and whistles," says Winship. "The idea is to be very focused on a single program."
In other words, be like Al Liu, 31. The Milwaukee resident, who works for a specialty coffee company, recently signed up for a Northwest card because the airline was making a bigger push in his hometown. Liu, who travels overseas a few times a year on work and vacation, found the partnerships between Northwest and foreign carriers like Malaysia Airlines and Copa Airlines to be appealing; he used his Northwest miles to travel on Malaysia Airlines for one leg of a trip to Malaysia.
There is one snag to using an airline card: an annual fee. Though fees have dropped in the past few years, many cards still charge users anywhere from $25 to $125. Also keep in mind that it typically takes 25,000 miles to redeem a free ticket. "You may end up shooting yourself in the foot," says Curtis Arnold, founder of CardRatings.com. If it takes three years for you to rack up enough points on a card with an annual fee of $80, it would cost you the amount you charged on the card plus an extra $240 in fees. "I could go to a discount airline and get a ticket for less than that price range," says Arnold.
BANK CARDS. A new crop of cards offers a mile for every dollar spent and allows cardholders to redeem the miles on a number of carriers. These bank cards often come with a low or no annual fee, making them a wise choice for someone who spends but doesn't travel much. Some, like Capital One's No Hassle Miles, also lower the number of miles required to earn a free flight (the No Hassle Miles sets the bar at 8,000 points). But you would still have to spend around $8,000 to get that free flight. "You have to fit the mold," says Randy Petersen, editor of InsideFlyer magazine. "If you are a single guy eating . . . TV dinners all the time, then this is not going to work for you."
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