Much of the advice you read on choosing a credit card concerns finding the one with the lowest rates and fees. If you maintain a steady balance on your cards, those factors are of primary importance. But what if you pay your bills in full each month? Of course you'll want a card that has no annual fee, but the interest rate on balances is a lesser concern since you never incur finance charges. You're free to consider other things when picking a card, namely, what's in it for you.

But this is not a simple question either. Today's reward cards come in many forms, some with complicated formulas for determining the amount and type of payback you'll get. The simplest kind will send you an annual check based on a straight percentage of the amount that you charge in a year. Some cards use a point system--you earn points that are redeemable toward merchandise--and others pay air miles that can be spent on travel.

More recent innovations put the rewards into a designated 529 college savings plan or retirement account, or toward paying down the principal on your mortgage. "Competition is driving more creative rebate programs," says Curtis Arnold, founder of U.S. Citizens for Fair Credit Card Terms, a group in North Little Rock, Ark., that rates credit cards and publishes its findings on its Web site, www.cardratings.com. "Some of the new programs are a little hard to grasp," he adds.

A recent trend is cards that allow consumers to choose how they want to receive their rebates--cash back, air miles, points, or gift certificates. The Chase Freedom Card is one example.


Finding your just reward

The CR Money Lab joined forces with Arnold to select the best cash-back cards (see Reward cards). We screened out cards that charge an annual fee and selected among only those that rated five stars in Cardratings.com scoring, which takes into account how the card's benefits compared with those of similar reward cards; how long the card has existed (higher marks are given to cards with established reward programs); reviews by cardholders; and fees and interest rates.

A note about interest rates: Reward cards tend to charge higher annual percentage rates than other cards. Even those with the lowest APRs charge about 1 percent more than standard cards with the best rates, according to www.bankrate.com, which provides free information on credit cards, bank accounts, and loans. If you carry a balance, the interest you pay can quickly cancel out your cash-back reward. So these cards really make sense only for people who always pay off their accounts in full each month.

You won't need a spreadsheet to find the most rewarding card--just a calculator and a good idea of how much you spend, where you spend it, and even what day of the week you tend to shop. Many cards reserve their most generous cash-back offers for purchases at supermarkets, drugstores, and gas stations. "Zero in on cards that give you the most generous rewards for shopping at your usual spots," advises Greg McBride, a senior analyst at Bankrate.com.

But be sure to check the details. Cards that pay you cash back at the highest rates may have caps and restrictions that would result in a lower annual rebate than, say, a straight 1 percent cash back. "Invariably, if you see a 5 percent card, there will be restrictions or other strings attached," Arnold says.

He points to Discover's Open Road Card as an example. The card pays 5 percent cash back on gas and auto maintenance, but the fine print says that applies only to the first $1,200 you spend in the category. Another example is the Discover More Card, which also pays 5 percent on purchases in certain designated categories, but they change four times a year. And if you shop at warehouse clubs or discount stores like Wal-Mart, you'll get back much less--only 0.25 percent.

But the right card can pay off handsomely. Arnold says he and his wife use American Express's Blue Cash card, which, after you charge $6,500, pays 5 percent back on further purchases the rest of the year in supermarkets, drugstores, and gas stations, and 1.5 percent on everything else, with no limit on the reward amount. Their rebate for 2006 was over $900, Arnold says.


Watch the gotchas

When shopping for a reward card, as with all credit cards, watch the fine print. Like any other credit card, the reward variety comes with the usual late-payment penalties (as high as $39 a month), as well as shrinking grace periods (as short as 20 days) and lofty default rates (30 percent or higher). They also have some other twists, including the fact that you often have to request your rebate to get it. Generally, the credit-card firms do not automatically send you a check or gift certificate or credit your account. You'll find the gotchas on the terms-and-conditions page attached to online and paper applications.

You'll also need to keep up on program switcheroos. Card issuers reserve the right to change the cash-back agreement at any time. Be aware that the deal you sign up for today might evaporate next month. To keep up with sudden changes, you'll need to read all those annoying enclosures that come in the mail with your bill every month.