Attractive Cash Back Cards Have Loopholes

October 12, 2010, Written By Lynn Oldshue

Christmas cards and colored lights are already on sale at a number of drugstores–the holiday shopping season is about to begin. This year, if you play your reward cards right, you can quickly earn a Christmas cash bonus on your credit card for your holiday shopping.

Banks and issuers are continually tinkering with reward offers to find the right formula that encourages consumers to use their credit card and use it often.

Currently, the popular trend is rotating categories that pay larger cash back bonuses. This started with the Discover More card, then the Chase Freedom and Citi Dividend Platinum Select cards also converted to similar formulas. Each of these issuers offer an attractive 5% back on the spending on designated categories for a specific amount of time. Discover and Chase have also sweetened the pot with $100 spending bonuses for reaching a set spending limit.

Credit card issuers have added additional incentives such as $100 bonus cash to encourage cardholders to use their card. This can be a nice gift for consumers during the holidays when you are spending more and can quickly reach the bonus levels. Some of these cards also offer 0% for six months for purchases, giving time to pay off purchases with no interest.

Here are some areas that consumers need to be aware of when shopping for the best rewards card:

* Rotating categories. On a number of cash back cards, categories are rotated every quarter, which means you may only earn 5% on those grocery or travel purchases during three months of the year, and just 1% the rest of the year. Be alert to what categories have the higher payback. Sometimes the categories won’t apply to your purchasing habits and may not be profitable to you. For example, if you live in a big city, you may not need home improvement products or lawn and garden items, or you may not travel during the January-March time period.

* Bigger bonuses for rotating cards looks good on the promotional page but there is a catch–you must enroll at the beginning of every quarter. If you forget to enroll, you may only get the 1% rebate.

Enrolling every quarter is a gimmick like ‘mail-in’ rebates. Issuers offer these bonuses knowing that many cardholders will forget to enroll.

* Many cards have limits on the amount of cash rebate you can earn with these special 5% rebate offers. The Chase Freedom card has a maximum $75 cash back you can earn each quarter. With the Discover More card, the maximum you can earn on these special offers is $15 a quarter or $60 per year. The Citi Platinum Select card offers a maximum of $300 in rebates per year. The American Express Blue Cash has no limit on the amount of rebate you can earn.

* A number of these cards have tiers or levels that you must spend before the ongoing 1% rebate takes effect. For example, the Discover More card gives only 0.25% cash back for the first $3,000 of regular annual purchases. Once you spend over $3,000, you will begin to receive the 1% cash amount. On the American Express Blue Cash card, the rebate is 1% for everyday purchases, and 0.5% for all other eligible purchases for the first $6,500 of spending. Spend more than $6,500 in a calendar year and you will earn 5% on certain categories and 1.25% on all other purchases.

* Reward cards typically have higher interest rates and are only a good option for those who do not carry a balance. If you carry a balance, look for a card with a lower rate.

* You can lose your cash back bonus. If your account is closed for any reason or if you fail to make the minimum payment due by the payment due date for two consecutive billing periods, your cashback bonus will be forfeited with most issuers.

* Sometimes your purchase may not qualify. In the fine print, issuers may limit what purchases apply. For example, it is not uncommon that purchases at warehouse stores may not apply for the higher rebate. Read the card’s terms and conditions to learn what purchases count toward the increased rebate.

Read the terms and conditions of each credit card. To compare credit cards, make a grid of all the applicable rebates and you can easily compare the offers on one sheet of paper.


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The information contained within this article was accurate as of October 12, 2010. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.