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The one thing that all reward credit card users love is the idea of earning bonus rewards. An extra point or two per dollar is nice, but what we really want is to earn as much as five points per dollar spent on our purchases. Sadly, there are no cards that offer 5x rewards on all purchases, just the occasional card that offers 5x rewards on narrow categories of transactions such as restaurants or office supply stores. At the same time, there is plenty of competition between credit cards that offer 5x rewards on spending categories that change each quarter. These cards include the Chase Freedom, Citi’s Dividend Platinum Select, and Discover’s More card.

But do these ever-changing bonus rewards programs make sense for most cardholders? Let’s take a look at the arguments for and against these cards, and then we’ll see who these types of products are best for.

The Benefits of Credit Cards with Revolving Bonus Categories

The nice thing about all three of these credit cards that feature rotating categories of bonus spending is that cardholders can earn extra points throughout the year with no annual fees. With the Chase and Discover cards, bonus points can be earned on up to $1,500 of qualified spending each quarter, and $6,000 per year with the Citi card. Fully utilized, these bonuses would equal 24,000 additional points (beyond the single point normally earned per dollar spent), worth $240. This is a substantial reward, especially as these cards have no annual fee.

The Arguments Against These Products

The potential to earn additional rewards is a simple motivation for the cardholder, but consider what the card issuer’s incentive is to offer these rewards. From the bank’s perspective, rewards exist to promote loyalty and to encourage spending. And when card holders are presented with rotating categories of spending bonuses, it is inevitable that many will increase their spending to earn these rewards. And therein lays the problem for customers; even with 5% cash back, cardholders are still losing 95% of their money when they make an unnecessary purchase in order to earn a reward.

If that wasn’t bad enough, cardholders must jump through several other hoops just to have a chance of earning these rewards. First, each of these products requires cardholders to register for the bonus categories of spending each quarter. The only rationale for this requirement appears to be denying rewards to those who fail to do so. In addition, receiving a bonus is dependent upon the proper application of merchant codes to a transaction. For example, department stores are often a feature bonus category, and discount stores are typically ineligible. But what is a department store? Does Sears qualify? How about Target or K-Mart? Ultimately, cardholders may only know which purchases earn a bonus when they receive their statement.

Finally, put the $240 potential bonus into perspective. At the moment, there are many credit card sign up bonuses worth far more. For example, the Sapphire Preferred card from Chase offers 40,000 Ultimate Rewards points worth $400 in cash back or $500 in travel, twice the maximum value of any of these cards. Other examples include cards with enough miles to travel to Europe round-trip, worth at least $1,000.

Conclusions

Credit cards with rotating bonus spending categories can be a good deal, but only to cardholders who can remember to register for these promotions and resist the temptation to spend more money to earn bonus points. On the other hand, those who carefully select competing cards can easily earn more rewards though sign-up bonuses and spending in perennial bonus categories. By understanding the advantages and disadvantages of these popular cards, consumers can choose the product that best meets their needs.

[Credit Cards: Research and compare rewards credit cards at Credit.com.]

Image: Andres Rueda, via Flickr

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