Rewards Cards: Playing the Plastic, and Winning!

Karen Chien is a doctoral candidate in Materials Science & Engineering at Northwestern University. She is also excellent at preparing DoFu Delight.

 I've always wondered what made one rewards credit card better than the other. I have one rewards credit card from Chase and another from Bank of America, and the extent of my knowledge was that I could treat myself to some "free money" every time I remembered to swipe that particular card.  This usually happens when I'm trying to buy a plane ticket to Malibu, since I frequently get tired of graduate school life and live fat and happily off of my generous stipend.

Rewards cards now offer cash back, air mileage, and points

First of all, the type of spender you are should influence which card you open:

• Big spenders: These people can benefit from opening cards during promotional periods which provide high amounts of points upon initial purchases (>$1000).
•  Balance-carriers: People who pay minimum monthly payments tend to carry balances. These people benefit from low APR’s as well as 0% intro APR, but would do better with just ONE regular low interest credit card. [Editor's Note: Many of the rewards cards have variable interest rates, which mean they can change at any time. Always read your terms of agreement carefully when opening a new card.]
•  Pay-back people: Savers who tend to pay back cards in full each time  can go for higher bonus levels without as much regard for interest rates, but it is still good to have them in mind in case a sudden financial crisis were to happen and you couldn’t pay your bill on time.
• Categorical spenders (people who like to spend money in a certain category such as travel, retail stores, etc.) could benefit from cards that have annual fees but offer higher rewards for spending within a particular category.  Extra calculations for point to dollar worth can be helpful here.

Upon further investigation, I read long, bullet lists of benefits and rewards from various different websites such as creditcards.org which were informative, yet long-winded.  Since my daily routine involves analyzing all aspects of my life using the scientific method, I compiled the table below, which focuses on dollar redemption upon spending.   

Many of these cards are available with no annual fee.  Of course, credit card companies change their terms of agreement over time, so this is a snapshot of a few of the options available if you are opening the card as of today (August 16, 2011).  You might also want to keep in mind that there may be a rewards cap for those who spend much more than $10,000.

Having good credit does greatly improve your chances of getting the card and having a higher credit line of spending (check your free credit score at CreditKarma.com).  It does pay to shop around for the right card when you're looking to open one!

	Introductory APR deal? Period?	Regular APR	If you spend $500 on basic expenditures (gas, groceries, etc) in 1 month, how much would you get back directly?	If you wanted to make a trip (hotels, rental cars, flights) budgeted at $1000, how much would you get back directly?	In the long run, how much would you get back if you spent $5000 within the first year of having the card?*	In the long run, how much would you get back if you spent $10000 within the first year of having the card?**
Chase Freedom Visa	No	16-23% variable	$200 (bonus) + $25 = $225 (10% bonus at select merchants)	$250	Max $310	Max $360
Chase Freedom Visa (2)	0%, 12 months on balance transfers, 6 months on purchases	~12% variable	$100 (bonus) + $25 = $125 (10% bonus at select merchants)	$150	Max $310	Max $360
Capital One VentureOne Rewards Credit Card	0% on purchases until August 2012	12-20% variable	$6.25 (in travel) + $100 (bonus) = $106.25 (in travel)	>$110 (in travel) (can be greater since there will be additional travel-related discounts in this area)	Max $150 (in travel)	Max $225 (in travel)
Citi ThankYou Preferred Rewards Card	0%, 7 months on balance transfers and purchases	~13-21% variable	$5	$200 bonus for spending greater than $700 + $10 = Max $250	Max $250	Max $300 + anniversary bonus
Citi Dividend World MasterCard	0%, 15 months on balance transfers and purchases	~13-21% variable	$100	$150	Lower limit of $50 (can get more by spending with specific merchants)	Lower limit of $100 (can get more by spending with specific merchants)
Bank of America Cash Rewards	0% for 12 billing cycles	~13-21% variable	Max $15 (cash back): 1% all purchases, 2% groceries, 3% gas) + $50 (bonus) = $65	Lower limit of $10 (can get more by spending with specific merchants)	Lower limit of $50 (can get more by spending with specific merchants)	Lower limit of $100 (can get more by spending with specific merchants)

Information from www.creditcards.com/reward.php.

Check out www.nerdwallet.com for more detailed information.

* This is general spending, not on specific items such as household or travel. Assuming that the benefits stay the same throughout the entire year. 

**This is general spending, not on specific items such as household or travel. Maximum value represents the total you’d get after making maximum purchases from promotional categories.

---