The Deal On Credit Rewards Cards

From billboards to mailboxes, ads for rewards cards — credit cards that allow you to accumulate airline miles or "cash back" when you use the card — are everywhere.

But the suspicious consumer wants to know, is there a catch? On one hand, getting one of these cards seems like a no-brainer. You're going to use a credit card anyway, so why not earn some rewards along the way?

"Smart Money" magazine's Vera Gibbons says there are a couple of things to think about:

The annual fee - Most of these cards come with one, particularly the cards that give you miles. The fees are all over the map, but they can be as high as $100.

"If you're a low-volume user, and you're paying a really high annual fee, that's going to offset the benefits," says Gibbons.

APR - The annual percentage rate on rewards cards can be up to 6 percentage points more than other cards, according to estimates by cardweb.com. Explains Gibbons: "If you carry a balance, and you've got 18 percent APR, then 'so what' if you're getting one percent back?"

However, this doesn't mean you shouldn't use one of these cards. If you routinely put a lot of expenses on your card, you'll obviously be able to collect some rewards. And, there are so many different cards out there that Gibbons says there's bound to be one to fit your budget and spending habits.

Cash Rebate Cards - This is one of the most popular reward card categories. Most of these cards work on a tiered structure, based on how much you spend annually. For instance, spend $5,000 to $10,000 get a 1.5 percent rebate. The rebate increases the more you spend. It's important to note that you can only earn cash back on purchases, not cash advances or balance transfers. Also, most cards have a cap on how much money you can get back.

Gibbons looked at three of the highest-rated cards in this category, as rated by thousands of consumers on www.cardratings.com. The cards were judged on their overall benefits and customer service.

All three of these cards have an introductory 0 percent APR and none have an annual fee.

• Citibank MC (800-950-5114)
  Citibank's Dividend Platinum Select is for someone who charges under $30,000 a year, and doesn't want to deal with the tiered structure. It has a 1 percent flat cash rebate and a non- tiered structure, which sets it apart from the others. With this card, the most you can get back is 1 percent- that's the minimum, and that's the maximum. But you get that 1 percent back - with a cap of $300 per year - on all purchases, not just on select purchases.
• Amex Cash Rebate Card (800-528-4800)
  The American Express Platinum Cash Rebate Card is for the bigger spender. You can get up to 5 percent cash back if you carry a balance for purchases made at select supermarkets and drug stores. At gas stations and home improvement stores, you can get up to 3 percent without carrying a balance.
• Discover Platinum Card (800-347-2683)
  For the standard cash payout, you have to spend at least $3.000 to get the 1 percent rebate, which is within that aforementioned tier structure. But the rebates you earn are worth double their value at select retailers. Cash in your $20 rebate online, for example, and you can get a $40 gift card at Blockbuster, Border's, Staples or any of their other partners. There's no cap, but the credit limit is $50,000. The main downside with this one is that Discover isn't as widely accepted as the other cards.

Typically, each dollar spent on these cards equals one airline mile. Chances are, you will spend more than the $50 or $100 annual fee and thus be able to earn miles. A fact that's NOT widely advertised, Gibbons says, is that you typically have to earn 25,000 points before booking your first free flight.

"If you don't travel a lot and are relying on your credit card to earn the free ticket, you'll have to spend $25,000 to do so!" she explains. "And if it takes you five years to get 25,000 points, that's five years of paying an annual fee. So that "free" airline ticket really cost you $250."

There is also less variety between cards in this category than cards in the cash rebate category. The main thing to consider is which airline you like to fly.

Here are Gibbons' observations about the top-rated cards, again as rated by consumers at cardratings.com.

• Delta SkyMiles - Amex (800-528-4800)
  For this card you get one mile for every dollar spent on general purchases and two miles for every dollar spent at participating gas stations, supermarkets, grocery stores and the U.S. postal service. You can also earn double miles when you use your card to pay your wireless phone bill, so it's easy to accumulate rewards very quickly. It makes that $55 annual fee worth it, they say, when you receive 5,000 bonus miles with your first purchase.
• AAdvantage MC - Citibank (800-950-5114)
  This card works essentially the same way as the Delta card. The APR is about the same – 14 percent, and it has the same general rules and regulations, plus 4,000 bonus miles when you make first purchase. The slightly higher annual fee -- $85 -- is something consumers have complained about online.
• MBNA Platinum Plus MC - MBNA (800-932-2775)
  For those who fly on a lot of different airlines, this is the card to have. The hitch with this one is that you only get one point for every dollar if you carry a balance. The other catch is that miles expire with this one, if not redeemed within certain time frame. But people like this card for two reasons: No annual fee, and you can redeem your miles for air travel on any airline, or even for merchandise (such as car rentals) if that's what you want.

Gibbons notes that American Express is one card that is becoming a favorite. "In a concerted effort to win back some of its lost market share, American Express is handing out more rewards per dollar than anyone else right now," she says. "American Express is more generous than the competition in the frequent flier miles category, where you can get more than a mile per dollar spent (on most airlines), and in the cash back category, particularly if you're a big spender."