20 credit cards that pay you back

By Liz Pulliam Weston

Credit cards aren't nearly as rewarding as they were even a year ago, when I wrote the first version of this column.

Tough times mean card issuers have gotten stingier with rebates, while points and miles are harder to redeem.

What's more, issuers have tightened their underwriting standards. That means you need to have FICO credit scores of at least 660 to qualify for most run-of-the-mill rewards cards. You have to have excellent scores -- 750 or above -- to get the best ones.

But those who qualify and do their research can still find good deals.

To sniff out the most-rewarding cards, I once again asked four industry experts -- Curtis Arnold of CardRatings.com, Bill Hardekopf of LowCard$.com, Justin McHenry of Index Credit Cards and Ben Woolsey of CreditCards.com -- to nominate their favorite plastic in three rewards categories:

• Travel programs. These generally offer the richest returns but only if you get the right card and know how to use it. If you're an infrequent traveler or not looking for upgrades, a different card might be a better fit.

• Savings programs. This category encompasses a variety of cards that help you put aside money in an investment plan, pay down your mortgage or get discounts on major purchases such as cars.

• Cash-back programs. These are a good, simple choice for many, and the best rebate is 2% or more of your purchases.

I also asked the experts to reveal which cards they use for their own spending.

The results:

Travel

Unlike last year, the travel category this year didn't have a clear winner; the experts favored different cards for different reasons. Most liked cards that offered superior flexibility in how you could use your rewards, and all chose cards with richer-than-average rebate rates.

Their top picks:

Starwood Preferred Guest Card from American Express. Last year's winner is still the favorite of LowCard$.com's Hardekopf. Unlike some of the other nominated cards, it has an annual fee -- $45 after the first year -- but gives you the flexibility to dump your points into hotel and airline programs at a good exchange rate. In other words, your points go farther.

• Talk back: Which credit card rewards program do you like best?

"Some cards will say your points are good on any airline, but what they mean is they will go buy you the airline ticket on any airline and they are all now deducting your miles based on what the cost of the ticket was," Hardekopf explained. "With the SPG card, you can transfer your points into miles at the frequent-flier programs of over 30 major airlines."

You earn one "Starpoint" for each dollar spent, and you get 10,000 points for signing up. Every time you convert 20,000 points into airline miles, you get a 5,000-point bonus, which means you're really earning 1.25 miles per dollar on most carriers. If you redeem your points for Starwood hotel rooms (which include the Sheraton, Westin and W chains) the redemption rate typically translates into an enviable 2 to 4 cents per point.Escape by Discover Card. McHenry, of Index Credit Cards, nominated this new card, which offers 2 miles per dollar on all purchases, with rewards used to directly offset travel purchases.

"For every 10,000 miles earned, you get a $100 credit against any travel purchase, without restrictions" on airlines or dates, McHenry said. "In essence, this card is giving you a 2% rebate, with that rebate used to offset travel purchases." The card has a $60 annual fee, which means you need to spend $3,000 or more to justify the card.

Capital One No Hassle Miles. CreditCards.com's Woolsey likes the better-than-average accumulation rate -- 1.25 miles earned for every $1 spent -- and the fact you can use the rewards on any airline with no seat restrictions, blackout dates or mile expiration. Plus, there's no annual fee. If you want to pony up an extra $39 a year, however, you could upgrade to the Capital One No Hassle Miles Ultra card, which offers 2 miles per dollar spent.

Hilton HHonors Surpass Card from American Express. Hotel cards have long offered better rewards than airline cards, and the new Hilton HHonors card has raised the bar, CardRatings.com's Arnold said. The just-launched card offers triple bonus points (9 points per dollar spent) for all purchases at Hilton Family hotels, which include Hilton, Conrad, Embassy Suites, Homewood Suites, Doubletree, Hampton and Waldorf Astoria hotels.

In addition, the card offers double bonus points (6 points per dollar spent) on purchases at supermarkets, drugstores or gas stations and on phone, TV and Internet service, plus bonus points (3 points per dollar spent) on all other purchases. (When translated to free hotel nights, the rebate rate is pretty comparable to Starwood's.)

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Users also get free access to more than 500 airport lounges. If you spend more than $40,000 annually on the card, you get Diamond VIP status, with automatic room upgrades and access to executive floor lounges. The annual fee is hefty, however -- $75 -- so you need to be both a serious spender and a Hilton devotee to make this card work. If both are true, however, it could be a great fit.

Worthy alternatives:

• Miles by Discover Card (1 mile per $1 spent; 12,000 bonus miles; no annual fee).

• Blue Sky from American Express (1 point per $1 spent; no annual fee).

• JetBlue Card from American Express (10,000 Award Dollars/50 TrueBlue Points with first purchase; double Award Dollars for dining, travel and leisure purchases; one Award Dollar per $1 in spending; $40 annual fee).

• Citi PremierPass Elite MasterCard (1 point per $1 spent plus 3 points per mile flown; no annual fee).

• Citi Bronze AAdvantage MasterCard (1 AA mile for every $2 in purchases).

Savings

The winners: Schwab Bank Invest First Visa card, Fidelity Investment Rewards from American Express, Fidelity Retirement Rewards from American Express and Fidelity Investments 529 College Rewards from American Express.

These four cards have a lot in common: Each offers a 2% rebate on all your purchases, with the cash deposited into an investment account at the financial-services company that sponsors the card.

The Schwab card sweeps the rebate into a Schwab One account, while the Fidelity cards deposit the rewards to a brokerage account, a Fidelity individual retirement account or a Fidelity-run college savings plan. There are no limits to the rebates you can earn and no annual fees. Plus, Fidelity allows multiple cards to be linked to the same 529 account, "meaning parents, grandparents and other family members can all use their rewards to fund the same child's education," Index Credit Cards' McHenry said.

An alternative: the NestEggz Visa, which deposits your 1% rebate into the retirement account of your choice.

Continued: Cash back

Cash back

The winner: American Express Blue Cash.

Once again, American Express Blue Cash leads the pack with its 5% rebate on "everyday purchases" at supermarkets, gas stations and drugstores, and its 1.5% rebate everywhere else. Unlike many other cash-back cards, there is no cap on the rebates you can earn. The trick is that you have to spend at least $6,500 annually to get this rate of return; until you hit that magic level, your rebate is 1% on "everyday" purchases and 0.5% on everything else.

Given normal spending patterns, you'd probably have to charge $2,500 a month before the card made more financial sense than its fellow top picks. But for big card users, that could happen.

The bennies are so good that two of the four experts carry Blue Cash from American Express, and a third is considering switching.

"They have not tinkered with their reward structure, and, at last check, my wife and I were getting an overall average rebate percentage of 2%," Arnold said. "Saving 2% off of every purchase we make ain't too shabby in the midst of the tough economy and the credit crunch that we are all experiencing."Hardekopf agreed.

"I have Blue Cash from American Express because I like getting the cold, hard cash back in my hands," he said. The rebate rate "is hard to beat for somebody who pays their balance every month."

Actually, McHenry is currently getting better rewards, but he doesn't expect them to last, and he's considering Blue Cash as one of his alternatives.

"I am still using two cards not currently offered to new customers: an Orchard Bank 2% rebate card and a Chase Rewards card that offers 5% rebates on gas, grocery and drugstore purchases plus 1% back everywhere else," McHenry said. "However, both are expiring this year, and I would be surprised if either one is offered to me under these terms again."

If he does lose his rich rewards, McHenry said, "I will likely go for the Blue Cash card but would also consider the Fidelity 529 card as I have two small children who will no doubt choose the most expensive colleges one day."

As for Woolsey, the card he had used -- a Citi Cash Rewards card -- was compromised in the recent Heartland data breach.

"So I have closed that account," he said, "and am currently considering a Capital One No Hassle Cash Rewards Card, which offers the highest rewards for my spending patterns."

The Capital One No Hassle Cash Rewards Card offers 2% cash back on gas and grocery purchases, 1% on all other purchases, no caps on rebates, no expiration dates on rewards and no annual fee, Woolsey said.

Worthy alternatives:

• Discover More Card (5% to 20% cash back at select online retailers; up to 1% unlimited cash back on all other purchases; increased or double rewards when choosing gift cards as the redemption option; no annual fee).

• Chase Freedom Credit Card (3% cash back on gas, grocery and fast food purchases during the first six months; 1% on thereafter and on all other purchases; no earnings caps or reward expirations; no annual fee).

• Discover Open Road Card (5% cash back on gas and auto maintenance purchases; 5% to 20% cash back on select online purchases; up to 1% cash back on all other purchases; no caps or reward expirations; no annual fee).

The fine print

Before you apply for any of these, though, there are some basics you need to know about rewards cards:

• They're for "deadbeats." "Deadbeat" is the credit card industry's code word for people who pay their balances in full every month. If you carry a balance, you need to bypass rewards cards, which typically have high interest rates, and seek out the lowest-rate card you can find. Once you're in the habit of paying off your balance every month, you can switch to a rewards card.

• The deals change constantly. The better the rewards program, the more likely it is to get watered down over time. Credit card issuers will change how fast you earn rewards and how you're able to redeem them. Airlines will ratchet up how many miles you need for free tickets or upgrades. If you get a rewards card, you should monitor the program for changes; consider signing up for its e-mail newsletter and periodically visiting its Web site. Also, periodically check out the sites run by the experts -- CardRatings.com, LowCard$.com, Index Credit Cards and CreditCards.com -- to see if better deals have emerged.

• Don't lose your rewards. Because the deals are ever-changing, you should redeem your points or miles as quickly as you can. If you really want to save up for a special trip, make sure to opt for a rebate program with no expiration dates.

• Watch your scores. Applying for any new credit account can ding your credit scores, and the damage increases the more cards you add to your wallet. Don't apply for new cards if you're in the market for a major loan such as a mortgage or a car loan. Instead, wait until the loan closes before you get more plastic.

Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated March 20, 2009