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Want Free Money? Jump Through More Hoops

Dan Caplinger
April 28, 2011

Wouldn't it be great if you could have a single credit card that gave you the best rewards for everything? Unfortunately, that sentiment seems to be a pipe dream, as credit card companies are doing everything they can to carve out narrow niches that give you maximum cash back only on very limited items.

Should you pay for rewards?
In the latest move in the card industry, American Express (NYSE: AXP  ) has made some major changes to its Blue Cash card. Blue Cash, which had no annual fee, has been particularly popular among those who spend a lot on their credit cards, because until now, the card offered a 5% rebate on gas as well as purchases at grocery stores and drug stores -- but only after you had already made at least $6,500 in annual purchases with the card.

With the changes, however, cardholders have a choice of two cards. One card, dubbed Everyday, gives 3% cash back at grocery stores, 2% at gas stations and department stores, and 1% on other purchases. This card comes with no annual fee.

The other card, called Preferred, has a $75 annual fee. But in exchange for the higher cost, the Preferred card gives enhanced rewards. Cardholders get 6% on groceries and 3% at gas stations and department stores, with 1% still applying to other purchases.

A big juggling act
The challenge in trying to manage your credit cards to make the most of available rewards is in navigating all the moving targets. Although American Express appears to be keeping its rewards stable with its new Blue Cash card, many issuers make things a lot more complicated. Citigroup (NYSE: C  ) , Discover Financial (NYSE: DFS  ) , and JPMorgan Chase (NYSE: JPM  ) all have card reward programs that have rotating categories each quarter. So for instance, in one quarter, a card may give you a 5% reward for purchases at grocery stores; but the next, that reward may drop to 1% while another category, such as home improvement store spending, moves up to 5%.

Such programs add enormous complexity -- and hassle. Typically, you have to track your spending, because they usually include limitations on how much you can spend that qualifies for the higher reward amount. Moreover, you often have to enroll for each quarterly program separately -- with no option for automatic enrollment. Forget to sign up,