Plastic's Pickup Line

"I think the rewards program is one of the biggest smoke-and-mirrors for consumers," said Robert D. Manning, a Rochester Institute of Technology professor and author of "Credit Card Nation," which takes a critical look at the credit card industry. "There are so many games to earn points and get rewards, consumers don't understand the value. Simplicity is the best deal, and getting cash back is the very best," Manning said.

Many times, it costs more to earn a product, whether it's an airline ticket or a DVD player, than to buy it directly. Consider the MP3 player that American Express Rewards offers as a reward for 26,000 points, Manning said. In effect, the music player costs the consumer more than $300, Manning said -- at least $40 for the annual fee for the card, plus the $260 the consumer could have obtained from another reward program that offered 1 percent cash back on purchases. Yet, the consumer could have purchased that exact product online for about $119, Manning said.

Beth Lacey, American Express senior vice president and general manager of strategic alliances, said the activity level of the company's reward cards suggests they are a good deal. "Of course we will continue to innovate to accommodate the needs of our customers," she added.

And, of course, there's more than rewards to consider when selecting a card. If you don't pay off your credit card every month or are often late with a payment or owe more than your credit limit, you need to also weigh a card's interest rate and fees, for as anyone who has had a credit card knows by now, fees have been steadily climbing. Most issuers charge $39 if a payment is late, up from an average $32.61 a year ago and $27.10 in 2000, according to Cardweb.com, a Web site that tracks the credit card industry.

Meanwhile, over-the-limit fees are now more than $30, up from an average $26 in 2000. And many issuers are now imposing this fee when a customer's balance goes over the limit at any time during the month; it used to be charged only if the closing balance for the month were over the maximum.

Greg McBride, senior financial analyst for Bankrate Inc., whose Web site Bankrate.com aggregates financial rate information, said credit card issuers are turning to reward programs because four of 10 Americans pay off their card balances every month. Not only do these customers not care about interest rate promotions, but the banks also need to find another way to earn money from these customers because they don't pay interest.

Reward card customers, McBride said, tend to be more loyal -- and even more important, they use their cards more than regular cardholders. That, in turn, gives issuers an additional source of revenue from merchants who have to pay a processing fee for each transaction. These fees, which are about 2 percent of each transaction, vary among credit card issuers as well as among merchants. But increasingly, banks are charging merchants more money to process transactions rung up on the highest premium reward cards -- a sore point among many retailers who say they have to either eat those costs themselves or pass them on to consumers.

Credit card issuers, however, say that because these premium reward cardholders tend to spend more in the first place, the retailers end up earning more than they have to pay in higher fees.

MBNA says its reward cardholders charge twice as much as its regular cardholders, while American Express says its reward customers charge more than four times as much.

As American Express spokeswoman Desiree Fish said, "We make our money by encouraging consumers to spend with us, be loyal to us -- and we do that by rewards promotions."