Best Deal in America: Cash Back for Charging

(MoneyWatch)  My credit cards paid me somewhere in the neighborhood of $600 last year. That's enough to fly to Hawaii; take myself out to dinner once a month; or launch a retirement plan. And what did I have to do for it? Let them finance my purchases for 25 days -- for free.

If you're the right kind of customer, there's no better deal in America than a good rewards credit card that will pay you cash back. Sure some people argue that airline rewards are better. They'll allow you to earn free flights. But you generally have to fly on the airline providing the credit card; they determine how many miles you need for each flight and can change the terms of the deal whenever they want; and there are only so many tickets available for each destination at any given time. All too often people using frequent flier awards have to twist themselves into pretzels to get a free ticket.

I, on the other hand, can take the cash I earned by charging and fly on any airline at any time -- or use the money to buy clothes or coffee or graduation gifts or just stick in the bank.

There's one catch. You can't ever carry a balance. If you do, the cash you earn get will be dwarfed by the interest charges you pay.

That said, if you're looking for a cash back program, it pays to shop around. Fortunately, that's easy to do. CreditCards.com has a nice listing of cash-back cards, as does LowCards.com and PlasticRewards.com.

A few things you ought to look for when choosing:

• Are the rewards constant, or do they diminish? Several cards pay high rewards for the first few months and then drop the percentage of cash back rewards offered to 1%.
• Can the rewards you earn be taken away? Citi just informed me that it has changed its card terms and if I don't use my Dividend card for 12 months, the rewards I earned after July 1 could evaporate.
• What's the process for claiming a reward? Some send them automatically once you've earned a set amount; most require you to contact the bank to claim them.

More on MoneyWatch

Worst Deal in America: Buying Airline Miles