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Rewards Credit Cards: How to Pick One

Jason Steele

Do you deserve a reward for being responsible? If you are paying your credit card’s balance in full every month, the credit card market is set up to offer you valuable rewards for your spending. All you have to do is choose one of the many reward credit cards.

And just like savvy savers choose the best investments based on their rate of return, smart rewards card users will choose the credit cards that offer the best returns for their spending. So how do you find the best reward card? There is no single best card for everyone, rather credit card users need to find the card that will return the best rewards possible for the kind of spending they do.

Here are the key factors to look for:

Value per dollar spent. Over the long term, the most important thing about a rewards card will be how much value it returns for each dollar spent. For example, cash-back reward cards simply return a percentage of spending, while other products offer airline miles, hotel points, or other rewards. Then, it is up to the cardholder to place a value on those rewards in order to determine the value received for each dollar spent. In general, anything more than 2 cents per dollar is considered excellent, 1 to 2 cents is acceptable, and less than 1 cent is poor.

Sign-up bonus.  Another feature common to many reward credit cards is the sign-up bonus . Banks offer new applicants a lump sum of rewards, usually after reaching a minimum spending requirement. In fact, there has been somewhat of a race between banks to offer the most attractive rewards, with some products featuring bonuses in the form of points or miles worth $1,000 or more.

Perks and benefits. Beyond points, miles, and cash back, many reward cards feature such things as travel insurance and purchase protection policies. Rewards credit cards co-branded with airlines and hotels can also offer impressive benefits when traveling, so don’t discount the value of these types of rewards.

Costs and fees. The best reward cards will have an annual fee, but there are still some entry level products that are offered for free. Some cards also have a foreign transaction fee that is added to all purchases made outside the country, but increasingly, many cards no longer have this fee.

New applicants should ensure that any fees paid are justified based on the value of the rewards. What is almost never justified is the higher interest rates normally present on reward cards. Those who carry a balance should always be using a card with the lowest interest rate available, not a rewards card.

A Few Good Credit Cards That Offer Rewards

Citi Platinum Select AAdvantage Visa Signature Card

Citi and American Airlines offer this co-branded rewards card that features airline miles plus plenty of other travel benefits. New cardholders earn 30,000 miles after spending just $1,000 within the first three months of opening their account, as well as earning one mile per dollar spent. Double miles are earned for purchases from American Airlines. Cardholders also receive priority boarding, a 25% discount on in-flight purchases, and their first bag checked for free. There is a $95 annual fee for this card that is waived the first year, and a 3% foreign transaction fee.

Chase Sapphire Preferred

This rewards card is like a Swiss Army Knife for travelers. Cardholders earn two points per dollar spent at restaurants and on travel expenses, and one point per dollar everywhere else. A third point is earned for travel booked through Chase’s Ultimate Rewards site. Once earned, Chase’s Ultimate Rewards points can be transferred to any of eight different airline and hotel programs, or to Amtrak Guest Rewards. Alternatively, points are worth 1.25 cents each when redeemed for travel booked through Chase’s site. The current sign-up bonus if 40,000 points after spending $3,000 within the first three months of opening an account. There is a $95 annual fee for this card that is waived the first year, and there are no foreign transaction fees.

Capital One VentureOne Rewards

Capital One offers this entry-level rewards card that earns 1.25 of their miles per dollar spent on all purchases. Each of their miles is worth one cent as a statement credit towards any travel purchase. There is no annual fee for this card and no foreign transaction fees. Capital One also offers its Venture Rewards card that features double miles on all purchases, but this card has a $59 annual fee that is waived the first year.

We have also picked specific categories of rewards credit cards for luxury shoppers, cards for hotel rewards and cards for airline rewards.

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