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For Once, Points Beat Cash In Credit Card Rewards With New PenFed Platinum

Pentagon Federal Credit Union, which offers some of the best credit cards, has a new rewards card that presents customers with a dilemma: Which is better, cash back or points?

On the surface, choosing the new PenFed Platinum Rewards card over the credit union’s existing cash-back credit card is a no-brainer. The rewards are bigger, and there is a generous sign-up bonus.

Unfortunately, there are some drawbacks that make the choice less than straightforward.

Here’s a look at the credit card details:

APR 9.99% until June 30, 2014, then variable based on the movements of the prime rate; 1.99% on balance transfers for two years.
National Average APR 14.90% (source: CreditCards.com)
Annual Fee None
Rewards Five points per dollar on gas purchases, three points at supermarkets, one point everywhere else. You can earn 25,000 bonus points fairly easily. Points are redeemable for merchandise, travel, gift cards or prepaid cards.
Verdict This is a much better deal than PenFed’s cash-back credit card.

If you hold a PenFed Visa Platinum Cash card, this large credit union is giving you the chance to switch now to its new points-based rewards card.

You get five points per dollar on gasoline purchases, three points per dollar at the supermarket and one point per dollar on everything else.

By contrast, the Visa Platinum Cash card pays 5% cash back on gasoline purchases but just 0.25% on everything else.

Unlike many points-based rewards programs, PenFed makes it easy and transparent to figure out what you’ll earn: Each point is worth a penny, so five points per dollar at the gas pump is the same as getting 5% back.

But there is a catch, one that makes you work a bit harder to redeem your rewards.

Under the existing cash-back card, you don’t have to do anything to get your rewards. Your cash-back reward is credited to your monthly statement.

By contrast, with the new PenFed Platinum Rewards card, you have to redeem the points yourself for merchandise, travel, gift cards or Visa prepaid cards, which can be used like cash anywhere Visa is accepted.

Not exactly the same as cash, but the rewards are much better.

After you sign up, PenFed gives you 5,000 bonus points — worth $50 — the first time you use your card, plus 20,000 points — worth another $200 — if you spend $1,000 within the first three months.

Still, if the automatic monthly statement credit is important to you, you should probably stick to the existing cash rewards card.

For existing cardholders, PenFed says it’s easy to switch. There is no application, and you can continue to use your existing card. All you have to do is go to the credit union’s website and make the switch.

You don’t have to switch cards, but once you do, you can’t switch back.

You also have the option of getting the new card and keeping the old one. However, you can’t combine rewards from both cards.

Both cards have no annual fee and the same low 9.99% APR that is locked in until June 30, 2014, after which it can fluctuate with the prime rate. There’s also a 1.99% rate on balance transfers for two years, provided you make the transfer before April 1, 2012.

You can apply for this new card and receive all the sign-up benefits even if you don’t have PenFed’s cash-back card, but you must be a member of PenFed to be eligible.

Membership is free to active and retired Army, Air Force and Coast Guard personnel and their family members as well as employees of the Department of Homeland Security and other government agencies and military bases. Members of the VFW also qualify, as do employees or volunteers of the American Red Cross.

If you’re not a member of any of these organizations, you can also join if you register with either one of two charities that support the military and their families: the National Military Family Association, which costs $20 to join, or the Voices for America’s Troops, which costs $15.

Compare this deal with the credit card offers in our extensive database.

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