Best Credit Cards
Credit cards are popular among banks and consumers. Consumers love the convenience and banks love the money they make from issuing and maintaining a credit card division. As consumers it is valuable to understand how to get the most out of this convenience. It is also important to understand that banks are in the business of making money and if they are not making money on the cards, they would not be issued.
Who Issues Cards
In the US there are several major companies that provide the majority of credit cards issued in the United States. The top credit card companies, based on volume include: American Express, Capital One, Chase, Citibank, and Discover. There are many other banks and service providers that offer credit cards but these are the biggest players in the industry.
Features That Provide Value to Customers
Understanding how you will personally use the card will help you to select a credit card that will provide the highest benefit to you and help you pay the least amount of money to the issuing bank.
Low Interest Rates
If you are going to carry a balance on the card, forego the rewards and find a card with low interest rates. Many low interest rates cards do not offer rewards. Those that do offer rewards will have programs that are not as attractive as rewards programs with higher interest rates. However, paying a higher rate of interest and getting rewards will cost the customer more money in the long run, than focusing on a low rate of interest for any card that you will carry a balance. The bulk of banks’ profits are made with high rates of interest.
For credit cards where the balance will be paid in full each month find a rewards card that offers good benefits. There are three elements to every rewards program.
The first is the number of points that are earned with purchases. Cards often offer a standard rate of acquiring points for every dollar spent. Then they may offer bonus rewards when certain establishments are frequented or in certain categories. Gas and groceries are common bonus categories. This leads to consumers using the card for essentials instead of just emergencies and travel.
The second element to a rewards program is the rate of rewards that is offered. How many points or miles must be acquired in order to obtain a reward? The best place to do an apples to apples comparison is with a gift card because values can be compared across companies in an accurate way. How many points must be accumulated in order to earn a $25 gift certificate? Compare that value across cards and you can measure the quality of the rewards program with regard to redemption value. For example one card may offer 2 points for every $1 purchased but will charge 5,000 points for a $25 gift certificate. Another company may only offer 1 point for every dollar spent but may provide a redemption at 2000 points for a $25 gift certificate. In this example the lower point accumulation is worth more because of the lower redemption levels. There are sometimes lower redemptions per point for higher dollar gift certificates. Note that these point values can change at the discretion of the credit card company.
The third element is what can rewards be used for? Can they buy everyday gift certificates, cash back, and miles for air travel, hotel rooms and so forth? There are dozens of different plans that meet everyone needs. There are cards that accumulate rewards points for charities, universities, airplane tickets, hotel rooms, car rentals. You name it and there is a card that will specialize in rewards for it.
One last note is to ensure you use the rewards. Points often have expiration dates and benefits can only be used during a certain period of time. Many rewards for travel have blackout dates where they cannot be redeemed during times when the hotel or airline is likely to be full. This can impact the value of the rewards. If you accumulate points or miles just to have them expire, the value is completely lost.
When credit cards offer very attractive benefits they often come with an annual fee. For example, nearly every airline card has an annual fee. This includes cards for specific airlines along with cards that allow customer to accumulate miles towards flights on any airline. These fees are often countered with a large sign up bonus, sometimes with as many miles needed for a free airline ticket. Other benefits can include free baggage checks, annual bonus points credited to the account on the anniversary or free or discounted companion tickets. These benefits can be of high enough in value that it negates the annual fee, if you fly at least once per year.
Other companies offer two cards that are very similar. Let’s say one card offers 1 point for every dollar with no annual fee and the second offers 2 points per $1 spent with a $49 annual fee. With these cards it is necessary to determine how much you will spend on the card, what the rewards values are, and then determine if the annual fee is worth the price.
Companies like American Express charge annual fees on all their cards and customers pay it because of the exceptional customer service and the prestige of carrying an American Express Card. Sometimes intangible benefits like access to concierge services may make an annual fee of value to the cardholder.
Selection of a Credit Card
With hundreds of companies offering credit cards and each company offering a full line up of options, it can be overwhelming to select a card that will be most beneficial. The best strategy is to determine how the card will be used and which rewards programs have the best value to the way you live and spend. Then select a card that caters to those needs.