Are gas-rebate credit cards a good deal?

By Kiplinger's Personal Finance Magazine

With today's high gas prices, gas-rebate credit cards are becoming increasingly popular. And chances are, you've been tempted. Should you sign up?

Scott Strumello, who works for a financial-services consulting firm in Westbury, N.Y., says: "Not without understanding that there's a difference between what's featured on the outside of the envelope -- frequently an introductory offer -- and what's in the fine print."

Introductory vs. reality

With Chase's PerfectCard MasterCard, for example, you get a 6% rebate on all gas purchases, but only for the first 90 days that the account is open. Thereafter, the gas rebate drops to 3%. Citibank's Dividend Platinum Select offers 5% cash back on gas (and on drugstore, convenience store, supermarket and utility purchases) for six months, but then it drops to 2%. Still, the card is an "editor's pick" at CardRatings.com.

A few other potential problems:

They hold the cards

Remember: Issuers can change their terms and conditions with little notice. A perfect example is MBNA's AAA credit card. The card was once extremely popular -- you got a 5% rebate on all of your gas purchases. Then the issuer realized that consumers were using it only for gas, says Curtis Arnold, president of CardRatings.com, and the plan was scaled back dramatically.

• Talk back: Been tempted by a "free gas" deal?

"All of a sudden, consumers got a letter in the mail," Arnold says. "Instead of getting that 5% rebate on gas, most customers now get only 2% if all they do is use the card for gasoline." If terms are changed on your card, ask the issuer if it will offer you any enticing alternatives.

Not all gas stations qualify for a full rebate

Given the high cost of gasoline, filling up at a wholesale club may sound appealing. Not so fast. If you use your American Express Blue Cash card to pay for gas at a warehouse club, for instance, you'll get a paltry 1.5%. And that's after you spend $6,500 that year.

"Typically, to get the full rebate, which is generally 5%, you have to go to a standalone station," explains Arnold -- that is, a place whose primary function is selling gas.

Your savings may go up in smoke

Interest rates on unpaid balances of gas-rebate cards can be more than 20%.

"Accruing debt and then paying interest to save a few dollars at the pump doesn't make any sense," says Robert Manning, author of "Credit Card Nation: The Consequences of America's Addiction to Credit."

If you carry a balance -- as 60% of all cardholders do -- carry it on a low-interest-rate card.

Your rebates may be held hostage

Some issuers don't automatically put the money into your account or issue you a check. Instead, you have to request it.

Moreover, your rebate may disappear if you don't act within six or 12 months.

You can buck the system

No gas-rebate card will save you 20 to 30 cents per gallon -- unless you get creative.

At CardRatings.com, one savvy consumer says the Speedway/SuperAmerica, where he buys gas, sells a $50 gift card for $48. When he buys or reloads a gift card, he pays with a Citi Dividend Platinum Select credit card, with its 5% rebate on gas-station purchases. On $3-a-gallon gas, that's an 8.8% discount, or 26 cents per gallon.

This article was reported and written by Vera Gibbons for Kiplinger's Personal Finance Magazine.

Updated Dec. 21, 2007