Smart credit card customers today have a plethora of different specialty offerings to choose from. For those interested in accumulating rewards, it pays to do a little investigation and choose the cards that maximize the types of benefits that best suit your specific goals. Selected judiciously and used wisely, reward-based cards are definitely worth a look.
Christopher A. HopkinsFirst, a cautionary note. These types of charge cards typically charge higher interest rates, so unless you completely pay off your accounts each month, skip the reward cards and concentrate on zero-fee, low interest rate offerings until you have knocked out your balances. In general the interest charges will outweigh the benefits if you carry a balance.
Rewards-oriented credit cards come in three basic flavors: cash-back cards, generic points and miles award accounts, and affinity cards linked to specific partners like airlines and hotels. As the number of options increases, lines between those categories are blurring but this framework provides a starting point for your consideration of the right product for you.
The cash-back card was an innovation of Discover Financial Services in 1986. Since then, many banks have introduced similar products that rebate a certain fraction of your monthly purchases. Several cards are available with no annual fee and a cash back rate of 1.5 percent. If you typically spend $1,500 per month, you would realize a rebate of $270 each year, certainly nothing to sneeze at in a world of ultra-low interest rates. If you don't travel much, or don't tend to patronize the same airlines and hotel brands, this is probably the best option for you. In addition, these institutions often run special promotions with greater cash-back rewards on certain categories of merchandise during the year. And you can choose to get a check or credit your account balance.
Generic reward cards allow you to accumulate points based upon your spending that can be redeemed for travel rewards or merchandise at your option. Note that some banks may award "miles," but these cards all essentially grant a dollar-based award credit that can be redeemed for flights, hotels or other products. Several no-fee options are available, but the highest rewards are offered with an annual fee. If you use the card enough, it may still be preferable to pay the annual fee if the incremental benefit exceeds the charge. Also, with generic offerings there are typically no blackout dates, as you are really just redeeming a cash-equivalent to purchase airfare and lodging. Examples of generic reward cards include AMEX Gold, Chase Sapphire and Capital One Venture (all carry fees).
If you tend to be loyal to a specific airline or hotel brand, an affinity card (or several) might suit you best. Those cards are issued by one of the banks or card companies in association with the loyalty program of a specific travel company: American Airlines AAdvantage Mastercard, for example, or Hilton HHonors American Express. Those options offer bonus rewards when you charge accommodations or flights with the issuing partner, like double mileage on airfares and multiple points for room nights. Furthermore, those cards generally offer additional perks like free checked baggage, priority boarding or elite hotel status. They typically carry fees, but may be worth the added expense. If you travel a lot, those cards can really multiply your program rewards.
Begin your investigation at CreditCards.com, Bankrate.com or NerdWallet.com where you will find helpful comparisons of fees, benefits and terms. If you do not carry a balance and have reasonably good credit, there is likely to be a reward card that will put more money in your pocket or more fun in your travel.
Christopher A. Hopkins, CFA, if a vice president and portfolio manager for Barnett & Co. in Chattanooga.