To get the best benefits from credit card reward programs, you have to understand how they work. Here are three popular credit cards, how their reward programs work and how much you have to spend on each card to cash in on a reward. None of these cards have an annual fee that will eat into your rewards. (For more information, read Top 5 Ways To Make Your Credit Card Work For You.)

TUTORIAL: Credit Cards

Discover More Card
Discover is known for its 5% Cashback Bonus in spending categories that change quarterly, and vary from year to year. In 2012, these spending categories will be as follows:

January - March: gas stations, museums, movies
April - June: restaurants, movies
July - September: gas, movies, theme parks
October - December: department stores, electronics stores, toy stores

The 5% bonus comes with two important caveats:

  • You must register for each bonus, and you don't start earning bonus Cashback until you register. Registration is available one month in advance of each bonus period.
  • There are maximum amounts of spending to which the 5% bonus applies, and those amounts can change each quarter. You might only earn 5% back on $1,500 in purchases, or 5% back on $300 in purchases. After that, a 1% Cashback reward rate applies.

If you don't normally spend much money in these categories, you won't earn much cash back with this card. Aside from the 5% bonus categories, the Discover More card's reward program is not terribly generous. Your first $3,000 in purchases, excluding purchases in the 5% bonus categories, only earn 0.25% Cashback. All warehouse club purchases also earn only 0.25% Cashback. After you surpass the $3,000 threshold, all purchases earn 1% back, but you could do better with another card that offers 1% back on all purchases with no minimum spending requirement.

This card has a 0% annual percentage rate (APR) on purchases for the first six months. After that, the APR will vary from 10.99 to 19.99% depending on your credit worthiness and the prime rate, unless you incur the penalty APR, which could be as high as 24.99%. If you carry a balance after the first six months, the interest will wipe out your rewards and leave you worse off than when you started. Also, if you miss your minimum payment for two consecutive months, you forfeit your rewards.

The card has no annual fee, so if you always pay your balance in full and on time, it's a good way to earn rewards on purchases that fall into the 5% Cashback Bonus categories.

Reward redemptions for charitable donations and gift cards start at $20. You must earn at least $50 to redeem your Cashback bonus for a statement credit or a direct deposit. However, if you use your Cashback Bonus at, you can redeem any amount, dollar for dollar towards your purchase. So, if you only need $1 to redeem a reward and you can earn up to 5% back on some purchases, you only have to spend $20 to get a usable reward. The card also offers a $150 Cashback Bonus after you spend $1,000 within 90 days of opening your account, which amounts to 15% back. (For related reading, see Credit Card Perks You Never Knew You Had.)

Chase Freedom Card
The Chase Freedom card gives consumers rewards in the form of points. Points can then be redeemed for cash. One point is worth 1 cent.

The Chase Freedom Card offers first-time card members with new accounts a 10,000 point, $100 bonus cash back offer when you spend $500 in the first three months of opening your account. That's 20% back. You'll also earn at least 1% back on the $500 you spend, for another $5 back and a total of $105. If you spent the $500 exclusively in 5% back categories, you could earn $125 for spending $500, or 25% back.

Like the Discover More card, the Chase Freedom card has a 0% introductory APR for the first six months. It also has rotating reward categories and requires quarterly enrollment to earn 5% rewards.

Chase Freedom's 5% back categories for 2012 are as follows:
January - March: gas stations,
April - June: grocery stores, movie theaters
July - September: gas stations, restaurants
October - December: hotels, airlines, Best Buy, Kohl's

Unlike the Discover More card, the Chase Freedom card always caps the 5% back on the first $1,500 you spend in bonus categories each quarter, the cap doesn't change. There is also no threshold spending requirement before you can start earning 1% back on the rest of your purchases.

To redeem your points for cash back, you'll need a minimum of 2,000 points, which can be redeemed for a statement credit, check or direct deposit. To redeem for a gift card, you'll need a minimum of 500 points for a $5 gift card. To get 500 points, you would have to spend $100 in the 5% back categories or $500 on any other purchases. (To learn more, read 10 Reasons To Use Your Credit Card.)

American Express Blue Cash Everyday Card
American Express' Blue Cash Everyday card puts itself in close competition with the Discover More and the Chase Freedom cards by offering above-average cash back percentages and unlimited rewards without requiring quarterly enrollment, minimum spending thresholds or keeping track of rotating bonus categories. The card also offers the same 0% APR for the first six months with a variable rate thereafter.

Blue Cash's reward structure is 3% back on supermarket purchases, 2% back on department store and gas station purchases and 1% on all other purchases. Cash back comes in the form of Reward Dollars that can be redeemed for statement credits, merchandise and gift cards. There is a 25 Reward Dollar minimum for redemption.

The Bottom Line
If you always pay your balance in full and on time and if your card has no annual fee, you might as well earn something back from your spending. To decide which reward card is right for you, look at how your typical spending habits match up with a particular card's reward program and choose the one that will give you the most value.