Are cash-back cards worth it?

LOS ANGELES (KABC) -- The financial crisis is taking a toll on consumer spending. As we head into the holiday shopping season, it's more important than ever to find credit cards offering the lowest rates and biggest incentives.

Cash-back credit cards have been around for years. You get paid real money for buying everyday items. Some cards payback a bigger percentage of the amount you spend if you use the cards for gas or food items. Others use point systems, redeemable for merchandise or travel rewards.

It sounds like a no-brainer: Use your charge card and get cash back from your credit card company. The more you spend, the more cash you get back. Cash-back cards are offered by banks, oil companies, and merchants.

Bankrate's Greg McBride says it's important to find a card that's tailored to your spending habits.

"They are a lot of credit cards and cash-back cards that give you bonuses for certain categories of services, and very often these are the categories we're spending on a regular basis -- gasoline stations, supermarkets, convenience stores, even home improvement stores," said McBride.

Cash-back cards are not all created equal. Bankrate says American Express offers several rewards cards.

With Blue Cash there's no annual fee and you get back from 1 to 5 percent with everyday purchases such as grocery stores, drugstores and gas. You'll earn 5 percent only after spending $6,500. Other purchases earn 1 half to 1 percent.

There's no annual fee for American Express's One Card the first year; then it goes up to $35. You earn a straight 1 percent for all purchases.

And Costco members get rebates of 1 percent for most purchases, 2 percent back for travel, and 3 percent for gas and restaurants. Every February, you'll get a certificate redeemable for Costco purchases.

Some other top-ranked cash-back cards:

• Citi CashReturns MasterCard pays back up to 6 percent at 400 retailers.
• Discover Open Road Card pays back 5 percent for the first gas and auto maintenance purchases each month.
• Chase PerfectCard MasterCard which offers 3 percent gas rebates, 6 percent for the first 90 days.

That means if you pay, for example, $2.75 per gallon of gas, a 6 percent rebate means you're only paying $2.59 per gallon, a 16-cents-per-gallon saving.

Cash-back and other rewards cards often charge higher annual percentage rates then other cards. So even a card that pays back 5 percent could end up costing you.

"The cardinal rule is that if you're going to get a rewards credit card, you have to pay your balance in full every month. If you carry a balance, even just occasionally, then you're better off looking for a card with the lowest possible interest rate so you can accelerate your debt repayment," said McBride.

The bottom line: Cash-back rewards cards are worth it if you pay off your credit cards balances each month and avoid cards with no annual fees.

Bankrate.com: Cash-back card analysis

Bankrate.com: Top cash-back cards

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