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All Contents © 2019The Kiplinger Washington Editors
By Lisa Gerstner, Contributing Editor
| From Kiplinger's Personal Finance, July 2015
The selection of great rewards cards is so ripe, choosing the right one for you can be tricky. Do you spend a lot on groceries? Gas? Do you eat out frequently or regularly fly across the country or overseas? You can find cards that reward those patterns. Also consider how much work you want to put into tracking your earnings. Would you like to play the game by, say, signing up for 5% rewards on rotating categories each quarter and carefully planning purchases? Or would you rather avoid the hassle and settle for a flat 2% back on everything? If you carry a balance, you probably shouldn’t use a rewards card at all: They tend to charge higher interest rates, and your earnings will likely be outweighed by interest charges.
We’ve sorted through the cards and picked the ones that offer stellar deals in a variety of categories. To give you an idea of how much you might earn, we used average spending patterns from the Bureau of Labor Statistics Consumer Expenditure Survey to calculate a typical annual rebate, based on $22,000 in annual purchases (estimated rebates don’t include sign-up bonuses, and they don’t reflect the annual fee if it is waived the first year). For many of the best offers, you’ll need a credit score of about 750 or higher.
Interest rate: 0% for 15 months, then 12.99% to 22.99%
Annual fee: None
Typical annual rebate: $440
This newcomer is the best offer yet for cash-back rewards that are easy to earn and redeem on all your spending: 1% when you make a purchase, plus another 1% when you pay the bill, for a total of 2% on every purchase. Once you have at least $25 in cash back, you can get a check, statement credit, gift card or credit to your Citibank bank account. Your cash-back balance expires if you don’t make any purchases for a year. Even if you prefer to use cards with higher earnings in certain categories, consider keeping this one in your pocket for all your other spending.
Interest rate: 0% for 15 months, then 13.99% to 22.99%
Sign-up bonus: Spend $500 in the first three months and get $100 back; add an authorized user and make a purchase in the first three months for an additional $25
Typical annual rebate: $330
Each quarter, you can activate 5% cash back on up to $1,500 spent in a designated category. For 2015, the offerings line up nicely with seasonal spending. In July through September, for example, gas purchases earn 5%; during the holiday shopping season, Amazon.com spending gets top rewards. And all year, purchases outside the 5% category earn 1%. Get your cash back as a statement credit or bank deposit, or redeem it for gift cards, travel and other rewards.
Interest rate: 15.99% or 19.99%
Annual fee: $89 (waived the first year)
Sign-up bonus: 40,000 miles if you spend $3,000 in the first 90 days
Typical annual rebate: 48,400 miles, or $484 in statement credits for travel purchases
For travelers who want straightforward rewards -- earning miles you can redeem for a fixed value on any kind of travel purchase—this card is a winner. You get two miles per dollar on all spending, and you can trade in miles at a rate of 1 cent per mile for statement credits on travel purchases, including airline tickets, hotel stays, cruises, car rentals, trains and taxis. Plus, you get a 10% bonus on miles you redeem for travel statement credits, making the effective rewards rate about 2.2% as long as you stick to travel rebates. (You can get nontravel rebates as well, including cash back in the form of a statement credit or gift cards, but miles are worth only a half-penny apiece.) The card has no foreign-transaction fee, and unlike many other U.S. cards that have microchip technology, you can verify transactions with a PIN (as required for some purchases abroad) instead of a signature.
Interest rate: 15.99%
Annual fee: $95 (waived the first year)
Sign-up bonus: 40,000 points if you spend $4,000 in the first three months; 5,000 additional points if you add an authorized user and make a purchase within three months
Typical annual rebate: 29,661 points, or $371 in value for travel bookings
You can transfer points you earn with this card at a 1:1 ratio directly to participating frequent traveler programs, including Southwest Airlines Rapid Rewards, United MileagePlus, Amtrak Guest Rewards, Hyatt Gold Passport and Marriott Rewards. And your prospects for points are pretty good: two points per dollar on travel and restaurant purchases and one point on everything else. If you’d rather not transfer points, the best deal is to redeem them for travel purchases through Chase’s Ultimate Rewards shopping portal at a 20% discount, meaning 40,000 points would get you a $500 plane ticket rather than the standard $400 value. Or redeem 100 points per dollar in value for cash. There’s no foreign-transaction fee.
Interest rate: 0% for 12 months, then 10.99% to 22.99%
Typical annual rebate: 33,000 miles, or $330 in travel statement credits
Travelers who would rather skip the annual fee have an appealing alternative in Discover’s new card. Earn 1.5 miles per dollar on spending. At the end of the first year, Discover will double the miles you’ve earned -- meaning the effective rate of rewards earned in year one is three miles per dollar. And if you don’t spend as much as expected on travel, no worries: You can trade in miles in any amount for cash back to your bank account or for statement credits on travel purchases, all with a value of a penny per mile. You’ll get up to $30 refunded yearly for in-flight Wi-Fi purchases that you make with the card. Plus, cardholders have the ability to freeze and unfreeze the account online or through a mobile app anytime -- say, because of a lost card. There’s no foreign-transaction fee, and you can request a card with a microchip.
Interest rate: 13.99%
Savers can send 2% of every purchase directly to a Fidelity brokerage, retirement or 529 college-savings account or to a Cash Management checking account. Every $2,500 you spend on the card equals a $50 cash-back deposit; put all the rewards in one account or divvy them up among up to five accounts. You can trade points for travel, gift certificates and cash, but the redemption value varies. Points expire after five years.
Interest rate: 0% for 15 months, then 12.99% to 21.99%
Annual fee: $75
Sign-up bonus: Spend $1,000 in the first three months and get $150 back
Typical annual rebate: $413
The big attraction of this card is a 6% payback on supermarket purchases of up to $6,000 a year (1% thereafter). But its 3% cash back on gas and department store spending and 1% on all other spending make this card a solid all-around pick. (Note that grocery purchases from warehouse clubs and superstores, such as Walmart and Target, don’t count for top rewards, nor do gas purchases from superstores, supermarkets or warehouse clubs.) You can redeem earnings in $25 increments as statement credits.
Interest rate: 9.99% to 17.99%
Typical annual rebate: 40,290 points, or $341 in prepaid debit card value
This card became a little less rewarding when PenFed diluted the value of points. You can still exchange points for a Visa prepaid debit card, but now it takes 118 points instead of 100 for every dollar of value. Nonetheless, the potential payback on gas purchases, with earnings of five points per dollar, is strong. Plus, supermarket purchases earn three points, and all other purchases earn one point. (Points expire after five years.) You can also redeem points for merchandise, travel and gift cards. You must belong to Pentagon Federal Credit Union to use the card; anyone can join by becoming a member of Voices for America’s Troops (one-time dues of $14) or the National Military Family Association (one-time dues of $15). There’s no foreign-transaction fee. The card also has microchip technology, and you can verify transactions with a PIN instead of a signature.
If you have a qualifying account with PenFed -- including a checking account with at least a $250 monthly direct deposit, money market savings account, certificate of deposit, or certain types of loans -- you’re eligible to earn 5% cash back on gas purchases with no annual fee on the PenFed Platinum Cash Rewards Visa Plus (interest rate: 9.99% to 17.99%), a better value than you get with the Visa Signature’s return on points. But other purchases earn no rewards.
Interest rate: 14.24% to 22.24%
Sign-up bonus: Amazon gift card worth up to $50
Typical annual rebate: 30,832 points, or $308 in Amazon.com purchases
Retail cards that are cobranded with a logo from a major network, such as Visa or MasterCard, may be used just like any other credit card. The Amazon credit card earns a respectable three points on Amazon purchases; two points at gas stations, restaurants, drugstores and office supply stores; and one point on everything else. Points are worth a penny each when you redeem them for Amazon purchases, or you can trade points at the same value for cash back. The value of points for travel, gift cards, merchandise and other rewards varies.
These cards don’t pay rewards, but they could save you a bundle if you carry a balance or are prone to incurring fees.
Low interest. The interest rate on the Lake Michigan Credit Union Prime Platinum card was recently as low as 6.25% for cardholders with the strongest credit profiles, and there’s no annual fee. You can join LMCU by donating at least $5 to the ALS Association.
Balance transfers. As long as you make the transfer within 60 days of opening the account, the Chase Slate card (no annual fee) charges no balance-transfer fee. Plus, you’ll pay no interest on the balance or on new purchases for 15 months. After that, the rate is 12.99% to 22.99%, depending on your credit profile.
Minimal fees. The PenFed Promise Visa card (7.99% to 16.99%; no annual fee) is as no-fuss (and forgiving) as they come: no fees for foreign transactions, balance transfers, cash advances, late payments or surpassing your credit limit, and no interest-rate penalty if you make a late payment. You must be a member of Pentagon Federal Credit Union to use the card.