Last Updated Feb 24, 2011 10:22 AM EST
This article was updated on Feb. 23, 2011
One year ago Tuesday, the Credit Card Accountability Responsibility and Disclosure (CARD) Act took effect, causing much handwringing among pundits that consumers would be cut off from credit. Your mailbox probably tells a different story. Now that the economy is improving and card companies have tightened their credit standards to keep away the deadbeats, card marketing is back with a vengeance. In the third quarter of 2010, card companies sent out 1.2 billion credit card mailings, more than three times than the number they sent in 2009, according to Mintel Comperemedia, a Chicago company that provides direct marketing research. Eighty percent of those offers were for some kind of rewards cards.
The message to consumers: We want you back.
“It’s a sign of how competitive the industry has become once again,” says Peter Garuccio, a spokesperson for the American Bankers Association. “Everyone is competing for the same wallets.”
That’s quite a turnabout in just a year. This time last February, new credit card customers were about as popular as Obamacare at a Sarah Palin rally. Interest rates and penalty fees were going up, while credit limits were going down. A number of analysts predicted credit rewards programs would end up on the endangered species list. Today, however, card companies are sweetening rewards programs and making it easier than it has been in years to transfer balances and “the rewards offers are better than pre-recession,” says Odysseas Papadimitriou, CEO and founder of CardHub.com. “Thanks to the CARD Act, consumers can now make educated decisions about what they want to purchase and count on their interest staying the same as long as they don’t miss a payment and there aren’t any changes in the prime rate. They could not do that before.”
To find out which of the new and improved cards are most worth your while, MoneyWatch consulted the experts at LowCards.com, CardRatings.com and BillShrink.com. Here are the best cards in six different categories:
1. Best Low Rate Card
- First Tennessee Platinum Premier Visa (intro rate of 3.9 percent; 800-354-4417)
The interest banks pay on your savings account may be at record lows, but average interest rates on credit cards are at near highs. What’s more, fixed rate cards have virtually disappeared. Most low rate cards are now variable and have rates that rise or fall with the prime rate. The First Tennessee Platinum Premier Visa currently has the lowest interest rate on the market, with a fixed introductory rate of 3.9 percent for six months followed by an APR of between 5.15 and 13.15 percent, depending on your credit score. There’s no annual fee and cardholders are automatically enrolled in First Tennessee’s cash back rewards program, which credits cash directly to your statement for shopping with participating merchants. Unfortunately, despite some confusion over whether the card was still available to national customers (it was until late 2010), Kim Cherry, First Tennessee’s executive vice president in charge of communications, told MoneyWatch that the card is now only available to residents of Tennessee and surrounding communities where the bank has branches. Two good alternatives that are available nationally are the Simmons Visa Platinum (7.25 percent variable; 800-272-2102), which also includes free travel insurance, and the Visa Classic from Iberia Bank (7.25, 10.25, or 13.25 percent variable based on credit score; 800-217-7715). As with the First Tennessee card, though, both these cards are difficult to get, so only the most credit worthy need apply.
2. Best Balance Transfer Card
- Discover More (11.99% to 20.99% variable; 800-347-2683)
Zero percent balance transfer rates are back! During the credit crunch, teaser rates — the introductory rates credit card companies dangle to entice you to switch providers — were running 3.99 to 4.99 percent and were sometimes only good for three months. The Card Act requires credit card companies to maintain those rates for at least 6 months, and some companies, like Discover, are extending these offers even longer. The Discover More card features a fixed 0 percent introductory rate for 12 months with no balance transfer fee and no annual fee. After that, the APR ranges from 11.99 to 20.99 percent, depending on your credit score. Plus, you qualify to participate in Discover’s cash back rewards program. “You can go out 18 months on other cards with a zero percent rate, but you’ll have to pay a 3 to 5 percent balance transfer fee,” says Curtis Arnold, founder of Cardratings.com.
3. Best Cash Back Rewards Card
- Fidelity Investment Rewards American Express (13.99 percent variable; 866-598-4971)
“Reward card users are loyal, they have money, and they pay their bills,” says Schwark Satyavolu, co-founder of BillShrink.com. “So the card companies are going to do whatever they can to keep them happy.” The best cash back rewards today come from the Fidelity Investment Rewards American Express card, which pays you 2 percent back on all purchases with no limits on how much you can make in a year. And unlike many AmEx cards, the Fidelity card has no annual fee. The catch: You need a Fidelity investment account to receive the cash rewards, but they can be withdrawn for any use. “There are other cards that give you 1 percent back on your everyday purchases and 5 percent back on things like drug store purchases, but they also tend to have limits on how much you can earn,” says Schwark Satyavolu, co-founder of BillShrink.com. “Having an unlimited earning capacity is the most important thing.”
4. Best Airline Miles Reward Card
- The Capital One Venture Rewards (11.9 to 19.9 percent variable; 800-410-0020)
While cash is king, there are still plenty of road warriors trying to bulk up on airline miles. For them, our experts unanimously agreed that the Capital One Venture Rewards card is the best air mile deal flying. “I’m not a big fan of travel rewards, but I will say that this is the simplest and best program out there” says Curtis Arnold. The card awards two miles for every dollar you spend on the card, and new cardholders earn a one-time bonus of 10,000 miles if they spend $1,000 in the first 3 months. To redeem your rewards, miles are converted into cash at the rate of 1 cent per mile, or $250 for every 25,000 miles; that cash is then applied to the purchase of an airline ticket. Miles never expire, and since Capital One is converting them to cash, they can be used on any airline at any time, with no blackout dates. The catch: With a $59 annual fee, this card is best for people who will really make use of travel rewards. If paying for that privilege doesn’t make as much sense for you, the Capital One VentureOne Rewards card (11.9 to 19.9 percent variable APR; 800-410-0020) comes with no annual fee and awards 1.25 miles for every dollar spent. Both cards are designed for consumers with excellent credit.
5. Best Card to Help Manage your Money
- Blueprint from Chase (800-432-3117)
Credit card companies obviously help you spend money, but can they also help you manage it? That’s the premise behind an emerging category of cards with features that reward consumers for good financial behavior. Just this month, TD Bank introduced the Payment Plus Visa, which gives you a credit for a portion of your interest when you pay off part of your outstanding balance. Similarly, the Citi mtvU Platinum Select Visa rewards college students for maintaining a high GPA and gives 5 percent cash back for textbook purchases. “These kinds of programs are the new face of credit cards; if you use them wisely, they can be beneficial,” says Arnold. But he advises consumers to read the fine print: TD Bank’s Payment Plus card carries a 21.24 percent interest rate and the rate on Citi’s MTV card varies from 13.99 up to 21.99 percent, rates that can quickly wipe out any savings you get from the other features the cards offer.
Our favorite in this new category is Blueprint from Chase. It’s actually not a card per se, but a program that is available on Chase’s Slate, Sapphire, Freedom, and Ink Visa and MasterCard credit cards. The program allows you to avoid paying interest on categories you choose as long you pay those charges off in full every month, even if you carry a balance on other purchases. So if you make a large purchase, like a refrigerator, you can pay interest on that item but avoid also running up fees on everyday purchases you make every month like on gas and eating out. Blueprint will also help you do the math to figure out how much to pay each month if you want to pay off a debt in a certain period of time.
6. Best Overall Cards
- Chase Freedom (intro rate of 0 percent for six months, then 11.99 to 22.99 percent variable; 800-940-8031)
- The PenFed Visa Platinum (intro rate of 2.99 percent for 12 months, then 13.99 percent fixed; 800-247-5626)
What is the single best card on the market? None of our experts would name a winner. “When it comes to credit cards, there’s always a caveat because there are so many different rewards programs,” says Bill Hardekopf, CEO of LowCards.com. “But if I could only carry one, I would carry the best cash back card because my wife and I pay off our entire balance each month, so using the credit card actually makes us money.” Hardekopf’s favorites are a toss up between two cards, both mentioned by our other experts.
The Chase Freedom card earns an unlimited 1 percent back on all purchases and 5 percent back in rotating categories, such as gas, groceries, travel, and home improvements. You can earn an additional 10 percent back when you shop online with select merchants. The sweetener: Spend $799 in the first three months you hold the card, and Chase will give you $100.
The PenFed Visa Platinum also pays generous rewards, including 5 percent back on gas purchases, 2 percent back on supermarket purchases, and 1 percent back on everything else, on up to $50,000 a year in purchases. The catch: You must be a member of the PenFed credit union. While this credit union traditionally served members of the military, employees of defense-related contractors, and their families, qualifying to join today can be as simple as donating blood to the American Red Cross or paying $20 to join the National Military Family Support Association, an association that supports our troops and their families.
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