Credit Card Learning Center

Reward Credit Cards

Reward credit cards are now standard fare, and as many credit card innovations launched to win business, offering rewards has now become a cost of doing business.

Citibank is credited with launching the first reward credit card, the AT&T Universal Card. But rewards were not all it offered; there were no annual fees. That still applies today, along with 0% APR on balance transfers for 12 months, up to 30 minutes in free phone calls, and two free directory assistance enquiries each month. The card gives what the company calls "thank you" points: five per dollar spent at supermarkets, drug stores, gas stations and for certain AT&T consumer products, and one point for all other purchases.

Further inducements include insurance against loss or theft of cell phones and full coverage against unauthorized purchases made with the card.

Cash at year's end
Discover Card, on the theory that cash is king, followed by paying cash at the end of the year based on the total amount charged to their card.

Now, there are cards that offer as much as 5% cash back. You can even earn money toward the purchase of a new car. GM's MasterCard earns 5% toward the purchase of one of their vehicles, up to a maximum of $3,500. There's also 0% APR on transfers for "six billing cycles", after which the rate goes to 10.74%, 14.74%, or 16.74%, depending on creditworthiness.

Low interest rates attract people who carry credit balances month after month on their cards, but reward programs are attractive to those who pay off their balances each month and who are therefore not affected by interest rates.

Spending rewarded
One of the dangers with these cards is that they offer rewards for spending. Spend more and the rewards come faster, and some people may be tempted to spend larger amounts just because of this. This does not encourage good personal financial management.

Some rewards come in the form of points, and these points may be increased for shoppers at partner companies. Some banks put out catalogues of fine gifts, but look for the "dollar" value of these "gifts", and consider if you would buy them if you had to pay for them. In other words, do you really want what's offered?

Other cards offer points toward free hotel stays, airline flights, and – if you look hard enough – almost anything you can imagine.

Look at small print
Look at the small print to see if there are limits to the rewards (as with GM), fees for exceeding your credit limit or for being late with a payment. Also, check out the grace period – the time during which purchases do not accrue interest. Thirty days used to be the norm, but this period now averages 23 days, and some issuers have whittled that down to 20 days. Some even have no grace period at all.

One other thing to watch out for: Some rewards cards carry hefty annual fees. Compare these with cards from the same issuer, and decide whether you really want to pay for the privilege of being rewarded for your spending.

Lowest Fixed APR Rate: 5.50%

Lowest Variable ARR Rate: 8.49%

Total Credit Cards in Database: 102