It's Payback Time Credit-card companies are now clamoring to pay you. Is there a great rebate card out there?
By Megan Johnston

(MONEY Magazine) – If you're like most people, you'll charge about $1,275 on your credit card this holiday season. What if you could get 1% back in cash? Or how about those $200 monthly gas station bills? What if you could pocket $10 every month to put toward your next tank? You'd take it, right? Of course.

Welcome to the fast-growing world of reward credit cards--50% of all credit-card offers this year had some sort of reward component, according to direct-mail tracker Mintel's Comperemedia: miles toward tickets, cash, discounts at retailers; some even help you save for college, just for using your card. Plus, most reward cards--80%--come with no annual fee. "The industry has gotten so competitive that rewards are a key way to attract new customers," says Curtis Arnold, founder of, which teaches consumers about credit cards.

But here's the catch: Reward cards tend to carry a high annual percentage rate (APR). The typical reward-card APR is now about 14%, four points higher than the average credit card's, according to Robert McKinley, founder of, a credit-card database. For that reason, sign up for a reward card only if you plan to pay off the balance each month. Otherwise, says's Greg McBride, "the rewards are dwarfed by the interest costs attached to the card."

Don't sign up for more than two reward cards either. Charging on multiple cards can prevent you from earning substantial rewards--with some cards you need to spend a lot before the full reward kicks in. And experts say that opening more than three credit-card accounts at the same time can damage your credit rating.

To find the best reward cards, we pored over the fine print of hundreds of card contracts. Which ones came out on top? Cash-back cards offer the most enticing award--the better ones pay you 1% or more. But there are plenty of other reward cards worth considering too. Choosing the right one depends on how much you charge each year and what kinds of purchases you make.

CASH BACK There are two types of cash-rebate cards: those offering a flat percentage back (typically 1%, on up to $60,000 in spending a year) and those with a tiered award system, usually from 0.25% to more than 1%, depending on how much you spend.

--If you charge less than $6,500 a year Get a card that pays you back a flat 1% rebate. The Bank One Free Cash Rewards Visa pays you $25 each time you spend $2,500, up to $600 a year.

--If you charge more than $6,500 a year A tiered card may be better for you. The Blue Cash card from American Express rewards customers who charge more than $6,000 on their card, with 3% back on select everyday purchases (gas, groceries, drugstore and home improvement stuff) and 1.5% back on all other charges. Below $6,500, however, it's not as good a deal: The Blue Cash card is tiered, so on the first $2,000 in charges, it pays just 0.5% on everyday purchases and 0.25% on others; on the next $4,000, 1% on everyday purchases, 0.5% on everything else.

Whatever you do, don't get sucked in by deals that offer a higher rebate--up to 5% back, for instance, with the Blue Cash card--if you carry a balance: Interest rates that currently range from 8.9% to 18.99% make reward cards a bad deal if you have a revolving balance--even after factoring in the higher rebate.

POINTS AND MILES Instead of cash, some cards let you earn points toward travel or merchandise. Consider getting a card like this only if you're a frequent customer of a certain airline or hotel chain and can rack up points quickly to trade in for airline tickets or hotel packages.

--HOTELS Repeat Hilton guests should check out American Express' Hilton HHonors Platinum Card. You get three points for every dollar spent on general purchases and five points for every dollar spent at Hilton hotels. It's one of the best deals among hotel cards (and works out to be a substantially higher reward than a typical cash-back card). Charging a $1,000 Hilton stay on your HHonors Platinum card will earn $50 toward a room, for instance; with a typical cash-back card, you would get only $10.

--AIRLINES These cards can carry steep annual fees of $39 to $135. So unless you charge at least $9,000 a year, they don't really pay. For example, the Citi Platinum Select AAdvantage World MasterCard charges $85 annually and gives you one mile per dollar for every charge. But if it takes you three years to earn a free ticket--25,000 miles for a domestic flight--the $255 you shelled out in annual fees could have bought a ticket on a discount airline.

AUTO AND RETAIL Plenty of choices in this category, but only a few stand out.

--GAS Gas cards typically net 3% back on gas charges and 1% on all other purchases--the rebate is credited to your account. The Shell MasterCard from Citi gives more than most: 5% on gas and 1% on all other purchases. If you aren't loyal to a particular station, try Chase's PerfectCard. You'll get a 6% rebate on gas charges and 1% on all other purchases for the first 90 days. Thereafter, the card earns 3% on gas and 1% on all other charges. Both cards carry annual fees--$20 and $19, respectively--that start the second year, but they're waived if you make at least nine gas charges a year.

--A NEW CAR The most flexible--and generous--is Household's GM MasterCard, which earns 5% on all purchases and lets you set aside your rebate for seven years toward a new GM car. There's no maximum on the rebates, but with some popular cars, like the Chevrolet Corvette, you are allowed to apply only $1,000 in rebates.

--GENERAL PURCHASES Earn rebates at Costco with American Express' Costco Cash Rebate card. It offers 0.25% on the first $2,000 in charges on all purchases, 0.5% on the next $3,000 and 1.5% on charges of more than $5,000 a year.

INVESTMENT Chase's Stockback MasterCard earns a flat 1% back on all purchases and as much as an additional 10% back at select merchants like Sony Music Direct. The rebate can be redeemed for cash or invested in a Merrill Lynch mutual fund. Saving for your kid's college tuition? MBNA's Fidelity Investments 529 College Rewards card earns 2% on all purchases--other 529 rebate cards offer only 1%--and invests it in your Fidelity 529 account. Finally, a little help when it comes to college savings.