Sunday, January 20, 2008

Making Reward Credit Cards Work for You

I’ve been burned in the past by credit cards that offer a great deal initially only to scale back rewards or raise interest rate so that the products become less attractive. Fortunately, I don’t carry a balance and I pay my statement in full each month, so the later issue doesn’t affect me (note: if you carry a credit card balance you should worry about the interest rate you are being charged and not the 1-3% you are getting in cash back). However, I am admittedly a “reward whore” and try to reap as much cash back bonus from my credit cards that I can.

So the goal is three fold, 1) to get the greatest amount of rewards possible, 2) do so only holding a few cards and, 3) try to pick cards that won’t drop their rewards six months down the road. I attempt to hold only two credit cards at a time and not open and close accounts if I can avoid it (due to the adverse consequences it has on a credit report and the hassles associated with it).

Here are the cards that my wife and I currently hold and some others that I think are worthy additions if you are reconsidering the cards in your wallet or in the market for a new one. We try to have one card that we use for gas and one for other purchases, but there are other good cards out there that give rewards for gas, groceries and pharmacy purchases (Citi started this trend with their Dividend card and have since slashed rewards).


My current favorite is thea BP gas card that offers 5% cash back on purchases at BP locations nationwide. There is no cap to the amount of rewards you earn yearly, which is good considering the price of gas these days. If you don’t have many BP’s in your area do a Google search for the most popular station followed by credit card. In my experience most of the major companies offer similar products so it’s worth a look.


Since the majority of reward cards offer either a) a higher cash back percentage on certain types of purchases or b) a lower cash back percentage that applies to all types of purchases – if you are looking to maximize your cash back its good to get a card that will give you more than 1% back without a cap on all other purchases.

If you have a brokerage account with them, or are looking to open one in the future the Fidelity Visa card if my current favorite. While the reward rate isn’t the highest that’s offered, I like the 1.5% cash back on all purchases with no ceiling. Every time that you accumulate 5,000 reward points (the equivalent of charging $5,000), you receive a $75 credit for your Fidelity brokerage account. (* Note: Fidelity also has a Visa card offering 2% cash back with no limit into a 529 plan for those of you who are looking to save for a child's college education).


Credit card issuers are fighting tooth and nail over new clients so there are new products popping up every day. Some good resources to start your research are and Here are some other cards that might be good fits if you are searching for a new one.

Chase Freedom Visa: This card gives you $50 when you make your first purchase. Additionally, you receive 3% cash back in your top three spending categories (ie: grocery, gas, etc.) which re-adjusts each month. All purchases that are not in your top three spending categories earn 1% cash back. An added bonus for this card is that you receive an extra $50 each time you earn $200 in rewards. (* Note: that the fine print for this card says that you can’t receive 3% cash back on warehouse and discount club purchases).

Blue Cash American Express: This card gives you up to 5% cash back on “everyday purchases” (including gas, groceries, and pharmacy purchases) as well as up to 1.5% cash back on other purchases with unlimited cash back rewards. However, this card is probably only particularly attractive if you charge a large volume on your credit card. [* for each calendar year, from $0-$6,500 you receive 1% cash back for “everyday purchases” and .5% on all other purchases, over $6,500 you receive 5% cash back on “everyday purchases” and 1.5% cash back on all other purchases).

The Nest American Express: This card is another that is potentially attractive if you charge a substantial amount on your credit cards. You receive 5,000 reward points when you make your first purchase (equal to $50). Then you receive 1 point for each dollar charged on the card (1%). If you charge $15,000 in a calendar year then you earn an extra 10,000 points (equal to $100 cash back), on top of the 1% you normally ear. The card is targeted toward newlyweds and couples who need a hand so new sign-ups also receive a binder and materials to help you plan a budget.

So do you have a favorite card that has stood the test of time? Let us know.

Image: szlea @ Flickr