Credit card issuers raise rewards for holiday shopping season

A customer signs the credit card pad as he pays for a purchase at Macy's on Black Friday in New York November 26, 2010.

WASHINGTON (Reuters) - Credit card issuers are bumping up their rewards for the holiday shopping season as they seek to lure consumers away from debit cards and competitors. For shoppers with decent credit scores, this can provide the opportunity to pick up extra cash or miles while they do their gift shopping.

"The rewards have become very, very attractive in terms of cash back and travel," said Bill Hardekopf of LowCards.com. "Issuers have stepped up the rewards because it's now more lucrative for the banks for you and me to use our credit cards instead of our debit cards."

Debit card interchange fees - the amount that retailers pay to card issuers when the cards are used - were capped on October 1, 2011, when the Durbin amendment to the Dodd-Frank financial reform legislation took effect.

"Rewards have been generous, in general, because issuers are trying to get back consumers they lost in the recession," said Beverly Blair Harzog, a credit card expert with

Credit.com. "I'm particularly seeing a lot of cash-back bonuses."

For example, both Chase and Citibank have cards that are offering new applicants $200 in cash back after they spend $500 on their cards.

Shoppers with good credit scores who pay their bills in full every month are in the best position to take advantage of the new offers. Those that carry balances are better off paying in cash, or calling up their credit card issuer to wheedle a lower rate on their cards. "If you're running a balance right now, it's not a wise idea to shop with that credit card, because you're only going to dig your hole deeper," Hardekopf said.

Among the seasonal offers are an 11 percent rebate on purchases from the Upromise World MasterCard, issued by Bank of America, and a $200 rebate on the first $500 charged to a new Chase Freedom card or Citi Dividend World MasterCard. It isn't always easy to track down the best offers; issuers will offer different deals to different consumers, said Harzog.

For example, if you go directly to the Citi website, you'll see an offer for $150 back on the first $500 of spending. But if you search on Google for "Citi dividend $200" you'll get to the bigger bonus. (A direct link is here link.reuters.com/mum84s)

Some cards offer 5 percent rebates on a revolving list of categories or merchant types, and will tie those categories to the season, added Harzog. So, for example, the Citi card is offering 5 percent back on purchases at toy stores; other cards are offering rebates on department stores or restaurants. Shoppers who have more than one rewards card should use the card that's going to give them the maximum rebate for each purchase.

There are a couple of caveats: Most cards that have revolving rebates require cardholders to go to the issuer's web site every three months and register for the quarterly rebates. And those 5 percent rebates are typically capped, said Harzog.

BEST CARDS LISTED

The Lowcards.com site will publish its list of best cards for holiday shopping on Wednesday, but gave a preview to Reuters. Here are its choices for best cards for holiday season 2011.

-- Capital One Cash. Offers 1 percent cash back on every day purchases and a 50 percent anniversary bonus on cash earned on purchases in the previous year. It also gives a one-time $100 bonus once you spend $500 in the first three months. No annual fee.

-- Chase Freedom $200 bonus. Get $200 cash back after you spend $500 in your first three months. Earn 5% cash back on dining, department stores, movie theaters, and charitable giving. No annual fee.

-- Discover More. 0 percent APR for 15 months on purchases and balance transfers. Earn 5 percent Cashback Bonus on up to $300 in purchases at department stores, clothing stores and restaurants (1 percent on all other purchases). No annual fee.

-- Chase Sapphire. If you charge large purchases and expenses, you can earn 25,000 bonus points after you spend $5,000 in 3 months.

-- Citi Thank You Preferred. Earn 10,000 bonus ThankYou points after $500 in purchases within the first 3 months, good for a $100 gift card. Earn 5 ThankYou Points for every $1 spent on all purchases at gas stations, supermarkets and drugstores during the first 12 months and 1 point for every $1 spent thereafter. No annual fee.

-- Continental Airlines One PassPlus Card. You can earn 25,000 bonus miles the first time you use this card. This is enough for a round-trip ticket within the United States and Canada. The $95 annual fee is waived the first year.

-- BankAmericard Cash Rewards. Gives a $50 cash rewards bonus after you make at least $100 in purchases within 60 days of account opening.

-- Citi Hilton HHonors Visa Signature card. If you often stay at a Hilton Hotel, your Christmas spending can earn free hotel nights. Receive 40,000 Hilton HHonors bonus points after you spend $1,000 after the first four months of opening the account.

MAKING THE MOST OF THOSE REWARDS

Shoppers with the right cards can take their rewards to the next level if they use all of the right strategies, says Hardekopf. Some cards (such as the Upromise card) have their own shopping portals that combine their rebates with rebates from merchants.

In other cases, you can use your rewards points directly for holiday shopping; American Express awards can be paid directly to Amazon for purchases, for example.

Finally, shoppers may not want to ignore the travel rewards cards, like the Citi Hilton HHonors Visa Signature card or the Continental Airlines One PassPlus Card, both recommended by Lowcards.com. After all this shopping and high math, they may want to take their rewards in the form of a post-holiday trip.

(Editing by Lauren Young and Beth Gladstone)