Photo: Tom Barrett

The credit card market is, basically, a rewards market. With the exception of beginner cards for building or rebuilding credit, each card tries to knock the others off of the podium with its best rewards program. These rewards come in various forms—cash back, points and miles—but they all do the same thing: give something back for spending money with that credit card. Though they're similar in effect, they're very different in whom they benefit. Choosing the right card means understanding your own spending habits and what rewards will benefit you the most.


Miles and points cards operate in the same way. You'll accumulate a balance of miles or points at a certain rate that you'll eventually redeem for rewards. And while true cash back cards automatically apply your cash back as statement credit, some actually behave like a points card. If a card offers 1 point for every $100 spent, that point is worth $1 and it will stay in your account until you accumulate enough to redeem them.

The main difference between points cards and miles cards is in the rewards offered. Points cards tend to be more flexible because a miles card is typically sponsored by one airline. A United Airlines Explorer card will earn United rewards: flight discounts, free upgrades, free bags, etc. A Chase Ultimate Rewards card, on the other hand, offers 1¢ per dollar spent to use on shopping sites like Amazon.

Here, it is important to understand your spending habits. Many points cards let you redeem points on specific rewards, or partner websites. Meanwhile, some cash back cards, even those that are basically points cards, give higher cash back value for certain categories, such as restaurants or gas. What you buy and what you want to receive for your points or miles will signal which card is best.

If you travel frequently, the rewards of a miles card will probably justify being locked into one airline. If you're paying off student loans, Citi ThankYou Points offers rebates to help. If you love to try new restaurants, the Uber Visa card will give 4% back on dining purchases. One surprising study showed that hotel-affiliated rewards cards actually offered better rewards rates than airline cards or cash back programs, even when used on everyday purchases. The average rewards rate for hotel cards was 2.5%, higher than many other points- or miles-earning cards.

The other important factor to consider is the sign-up bonus that might be offered by one card and not another. For example, the Uber Visa card earns a $100 bonus after you spend $500 in the first 3 months. The Citi ThankYou card earns 15,000 points after $1,000 spent in 3 months. The Chase Sapphire Preferred card gives you 50,000 bonus points when you spend $4,000 in 3 months. This card's points can become miles—50,000 points becomes $625 towards airfare. It also offers double the points earned for travel purchases and dining, so it's a good example of how cards can cross over into other categories regardless of whether they earn "points" or "miles."

While shopping for a card with high rewards, be careful of annual fees. After the first year, the Chase Sapphire Preferred card charges $95 per year. Depending on the amount you spend, this fee (and the similar fees on other cards) could start to cancel out some of the rewards you earn. The Uber Visa card, on the other hand, has no annual fee. Read the details of any credit card agreement carefully because an annual fee might start (or increase) only after the first year.

The credit card market is full of great rewards through various partnerships with airlines, hotels, websites and other companies. Though it takes time and patience to sort through the fine print of dozens of cards, your work will pay off for years, whether it's in cash back, points or miles.

Tom Twardzik is a personal finance writer for Paypath. He also covers music, film, TV and gaming for Popdust, social issues and current events for The Liberty Project and travel for The Journiest. Read more on his page and follow him on Twitter

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The Federal Reserve sets the guardrails for the federal funds rate, and through that helps control the money supply for the nation.

When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.

A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.

One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.

The Federal Reserve The Federal Reserve


The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.

This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.

The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.

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