Some companies might offer better perks and lower fees
(Hackensack, N.J.) Record
POSTED: 01:30 a.m. HST, Nov 17, 2013
Are airline-affinity frequent-flier and other rewards credit cards worth an annual fee?
That's a decision consumers need to ask themselves. While there are lots of free Visa and MasterCards available, many of us continue to pay fees that run as much as $100 a year for a credit card that offers cash rebates, airline tickets or a variety of other benefits.
But what was once a great deal for air passengers may not be nearly as valuable today, and it might be worth shopping around for a better deal.
When introduced more than 25 years ago, rules for airline-affinity cards were pretty straightforward: Pay an annual fee, and for every dollar charged on that card (along with for every mile flown), you receive points that can be cashed in for free flights.
Now, however, there are lots of other options.
Some original plans still exist. I'm a longtime member of American Airlines' AAdvantage program, and its $50 annual fee — which is lower than for several other airline-affiliated cards — has been a small price to pay for free trips to Hawaii, London, the Canadian Rockies and Spain.
I've stuck with it, but I'm not sure if it's still the best deal available. When I look at credit card comparison websites, I find a wide range of options, especially for nonairline rewards cards.
For example, a Capital One VentureOne Visa rewards card, unlike my AAdvantage card, has no annual fee, gives 1.25 miles per dollar on every purchase, has no foreign transaction fee on international purchases and allows you to fly on any airline, any time with no blackout dates.
Many rewards and cash-back cards provide even more points per dollar spent.
Typical is the BankAmericard Cash Rewards card, co-branded with your favorite Major League Baseball team. It refunds 3 percent on gasoline purchases, 2 percent on groceries and 1 percent on everything else up to $1,500 in purchases per quarter.
Multilevel rewards are common among cash-back cards, with 47 percent of those checked by Bankrate.com offering more than 1 percent for certain purchases. In addition to gasoline and groceries, many cards pay more for dining; others have tiers based on total spending.
The problem for consumers is wading through the many offers, including several from each of the major national banks.
Each card comes with different rates and rewards, and you may be forced to accept less favorable terms on one aspect of the card to get the best deal on another part. For example, while the Capital One card mentioned above has no annual fee, the bank has a similar card that carries a $59 fee (after the first year) but gives 2 miles per dollar spent.
Before shopping for specific cards, it's a good idea to take stock of your needs and financial practices:
» If you carry a balance forward from month to month, a rewards card will rarely make sense. They often carry higher rates, and you'll spend more in interest than you'll recoup. Stick with nonrewards cards with the lowest rates and fees.
» When you pay the balance in full, the interest rate doesn't really matter, even if it is fairly high, such as the 15.24 percent my AAdvantage card charges.
» Look for promising introductory bonuses of cash, miles or points, but be aware that the best deals are reserved for people with credit scores of 730 to 740 and up, Consumer Reports warns.
» Promotional offers often waive the annual fee for the first year only, so be on the lookout for charges that kick in without warning after 12 months.
» If the benefits are really exceptional — such as an upfront sign-up bonus, the ability to earn frequent-flier miles on a specific airline or access to exclusive airline lounges — then paying an annual fee can be more than worth the cost, CreditCards.com says.
» How long will it take to cash in? If your spending and travel habits mean it will take years to earn a free flight, you are probably better off with a rewards card with a more immediate payoff.
"Make sure you find the card that offers the best fit for your lifestyle," said Greg McBride, senior financial analyst at Bankrate.com.
"As long as you pay your balance in full every month, a rewards card is a good way to get some of that money back."