Rewards cards coming with biggest bonuses ever

NEW YORK — Credit card issuers are offering some of their biggest sign-on bonuses ever.

As the competition to attract customers intensifies, banks are promising an extra helping of rewards when new customers spend a set amount in the first three months. The Chase Freedom card, for example, is offering $100 cash back for customers who spend $500 in their first three months. British Airways is offering 50,000 miles — the equivalent of two domestic flights — when customers spend $2,500. The Citi ThankYou Premier card offers $250 in gift cards after customers spend $1,500.

“These are some of the biggest incentives we’ve ever seen,” said Andrew Davidson of Mintel Comperemedia, which tracks card offers.

The generous deals come as banks step up their courtship of customers with good to excellent credit records. These cardholders are especially prized in uncertain economic times because they tend to spend big yet pose little risk of default.

So if you’re looking for a card ahead of the holiday shopping season, it’s worth checking those offers in your mailbox.

Here’s how to weigh your options:

Rewards

As tempting as it is to simply cash in on the most generous sign-on bonus, you want to be sure you’re getting a card that works best for you over the long haul. For many, that means finding the card with the richest rewards.

The good news is that rewards programs have become so commonplace that card issuers are trying to distinguish themselves by offering new or faster ways to rack up miles or points. But this has also made comparison shopping a bit trickier.

Take the most popular type of rewards card, the cash back card. A common rewards rate for many cards is 1 percent back for every $1 spent. But many card issuers now tout accelerated rewards on select spending categories.

As a point of reference, a study by Bankrate.com earlier this year found that more than a quarter of the cash back cards on the market offered higher payouts for spending at certain places, such as at gas stations or supermarkets. But the caps on those accelerated rewards can vary significantly, so be sure you understand exactly how much you’ll be able to earn when comparing cards.

For example, the Chase Freedom and Discover More cards both give 5 percent cash back on select categories that rotate every three months.

The Chase card caps its accelerated rewards in each three-month period to $1,500 in purchases, which translates to $75 cash back.

Discover’s caps, by contrast, ranged from $300 and $800 in purchases this year, depending on the categories. That translates to a maximum of $15 to $40 cash back every three months. Even with the lower cap, however, you may prefer the card’s schedule of accelerated rewards categories.

In other cases, there may be a spending threshold you have to meet before you start earning the advertised rewards rate. For example, cards may give back just 0.25 percent cash back until you spend at least $3,000.

Another key term to watch is the amount of time you have to redeem your rewards; about half of cash back cards impose an expiration date, according to the Bankrate.com study. Another 31 percent give cardholders five years to redeem rewards. In some cases, card issuers may also erase or withhold rewards when customers are late on a payment.

So in addition to having a clear sense of how much you could earn with a card, be realistic about your own spending and payment habits.

Fees and terms

The majority of rewards cards don’t charge an annual fee. The exceptions are airline loyalty cards or rewards cards marketed to frequent travelers, which offer perks that customers may feel are worth paying for.

For $125 a year, for example, the Citi ThankYou Premier card offers an array of benefits designed to appeal to globe-trotters. The benefits include an accelerated 1.2 points for each dollar spent in certain categories year round and one complimentary domestic airline ticket for a companion each year. The card also waives the foreign transaction fee, which is usually 3 percent of any purchase made overseas.

But as dazzling as the bells and whistles on a card may sound, be realistic on how many of them you’ll end up using. Otherwise, you might be better off with a reward card that doesn’t charge a fee.

The other types of cards that come with annual fees are co-branded airline or hotel rewards cards. The competition in this space has been heating up as well, with airline card issuers such as British Airways Visa Signature card offering sign-on bonuses of as much as 50,000 miles and Continental Airlines OnePass offering 40,000 miles, according to CardHub.com.

Card issuers are also beefing up on the ongoing perks they offer, whether it’s a free checked bag, priority boarding or access to lounges.

“In the airline space, it’s really becoming the battle of the benefits,” said Davidson of Mintel.

Despite the growing number of perks, keep in mind that a rewards card may not be a good idea if you tend to carry a balance. This is because the interest rates on these cards range from about 15 percent to 22 percent, according to CardHub.com.

The higher rates could eat into any rewards — or sign-on bonuses — you plan to cash in on.