Recently two readers emailed me about cash back credit cards. Their questions prompted me to put this guide together to help readers better understand, compare, and choose a cash rewards credit card. First let’s look at the emails.
From a reader named Pop:
You have a great post on a strategy to use cash back cards and my question is whether the Amex Preferred Card that gives 6 percent on groceries, provides that cash back on groceries purchased in wholesale clubs like BJ’s. Similarly, whether the PenFed gas card provides 5 percent cash back on BJ’s fuel, as almost 50 percent of our purchases on groceries and fuel is in wholesale clubs.
From a reader named Tim:
Have you had a chance to review the Citi double cash credit card? I am thinking about applying for one but thought I would see if you have any comments before proceeding.
In response to these emails, we are going to cover two things in this article (and podcast) related to cash back credit cards. The first is a guide to the types of cash rewards available so when you’re analyzing a card, you’ll have a frame of reference to evaluate your options. Then we’ll look specifically at the card Tim mentioned, the Citi Double Cash credit card.
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Cash Back Credit Card Guide
1% is the standard reward amount in the industry
One percent is the standard reward amount in the industry. That’s true regardless of whether the card’s rewards come in the form of cash, points or miles. You can find a lot of one percent reward cards including cash back that don’t have any requirements, catches, limitations or caps. It’s just one percent back on all purchases.
Cards that offer more than one percent almost always add some kind of condition or limitation. Sometimes the conditions or limitations are quite minimal and wouldn’t be much of a bother for you at all. You’d be happy to embrace them in exchange for the increased rewards. The key, however, is that when you see cards offering more than one percent, it’s important to focus on the terms and conditions of the offer.
With that, let’s look at some of the more common reward programs that offer more than one percent.
5% Rotating Category Cards
There are a number of cards that pay 5 percent cash back, but only on certain categories of purchases. These 5% categories, moreover, change quarter to quarter. Every three months there will be a new set of 5% categories of purchases that will earn you the higher cash back.
There are a couple of important details to keep in mind with these types of cash back offers. First, you have to sign up for the 5% rewards each quarter. This drives me crazy. For whatever reason, you must log in into your credit card account and opt-in to the new categories. If you fail to do this, you won’t earn the 5%.
Second, there spending caps placed on the 5% reward. For example, if you have 5 percent cash back on Home Depot in one quarter, you can’t go in and drop $25,000 on a new kitchen and get 5 percent cash back. From what I’ve seen, the spending cap is usually $1,500. And that places a big limit on the benefit of these 5 percent deals.
For purchases that fall outside of the 5 percent rotating categories, these cards typically pay the standard one percent cash back.
Interestingly, I think the credit card companies recognize that folks are getting tired of signing up for these quarterly deals. Discover came out with the Discover it® Chrome, which moves away from these rotating categories. The Citi Double Cash card also moved away from the rotating categories that were found on the Citi Dividend Platinum Select card. So I think there is some recognition by some of the big card issuers that consumers aren’t huge fans of these rotating categories. But again, it’s out there if you want to take advantage of it. Five percent is pretty sweet.
Select Category Cards
Some cards offer above average rewards on select categories. Unlike the 5 percent rotating categories, these don’t rotate. They are permanent. For example, you might earn 2 percent on purchases at a gas station or 3 percent on purchases at a grocery store year-round. The categories of purchases that credit cards most often include for higher payouts are groceries, gas, department stores and travel. Those aren’t an exclusive list, but tend to be the categories that I see pop up the most frequently with these types of cash back cards.
Sometimes, but not always, the card will limit the spending amount that can qualify for these higher payouts. Spending caps are usually on an annual basis. They are also typically higher than the $1,500 limits I see on the 5 percent rotating category cards. But you will see spending caps on some of these cards, so it’s important to check the terms and conditions of these cards before you make a decision. Purchases outside of the select categories typically pay 1% cash back.
Now to some examples. The first is the one that Pop mentioned, the Blue Cash Preferred® Card from American Express. It pays 6 percent at supermarkets, and 3 percent at gas stations and U.S. department stores. It is a very rich card for those categories of purchases. There are, however, spending caps. For supermarkets spending is limited to $6,000 a year. After that the card pays 1%.
Notice they the card does not pay 6 percent on groceries. The 6% applies to purchases at U.S. supermarkets. The card also doesn’t pay 3 percent on gas, but rather 3 percent at gas stations. That’s significant, and returns us to Pop’s question in his email.
To answer his email, I dug into the terms and conditions of the American Express Blue Cash Preferred. Sure enough, those rewards do not apply to groceries and gas purchases at the wholesale stores like BJ’s or Costco. Here’s the language from the card’s terms and conditions:
You will earn a reward of 6% on the first $6,000 of eligible purchases in an annual reward year at supermarkets located in the U.S. (superstores and warehouse clubs are not considered supermarkets); 3% on eligible purchases of gasoline at gas stations located in the U.S. (superstores, supermarkets and warehouse clubs that sell gasoline are not considered gas stations); for the first 6 months, 5% cash back on eligible travel purchases (up to $200 back); and 1% on all other eligible purchases.
Interestingly, I tried to find the answer to his question about the PenFed gas card that pays 5 percent cash back on gas. I couldn’t find anything on its website, however, that answered the question as to whether or not it provides that 5 percent at places like BJ’s and Costco or other warehouses that have gas stations. So if that is a card you are considering, I would suggest you give PenFed a call. But that’s something to definitely keep in mind. You have to make sure you know with these categories where you can use the card to get the higher reward and where you can’t. Excluding warehouses and those type of large retailers is not uncommon.
The other card I had mentioned, (and the one that I carry) is the True Earnings card. It pays 3 percent at gas stations, 2 percent at restaurants and travel, and 1% on everything else.
Cards with Promotions
A lot of these cards will also come with promotions for new card holders. The promotions take a couple of different forms. One type of promotion is a higher rewards payout for a limited time. Wells Fargo has a card that offers higher payouts on certain purchases for the first six months. Generally, I don’t find these types of promotions to be very enticing.
More interesting are the cards that offer significant cash, miles or points promotions on top of excellent ongoing rewards. These types of deals are common for airlines miles cards. It’s one of the reasons I got the United and the Southwest cards.
You can see a list of credit card promotions here.
Best Single Card Cash Back Offers
Finally, some cards offer enhanced rewards on all purchases. There are no special categories of purchases, rotating or otherwise. If you like the convenience of just one card, the best cards offer rewards ranging from about 1.5 percent to 2.2 percent. These are cards where they’re going to pay that out on every single purchase you make. There are some gotchas, however, that you must be aware of.
For example, one of the common conditions is that in order to get that increased reward, you have to use the reward to pay for travel. That’s how The Capital One® Venture® Rewards Credit Card works. You get two miles for every purchase. When you go to use the miles though to pay for charges on your statement, they are worth one penny each if you use them for travel. If you use the miles for anything else, it is half a penny (effectively making it a 1% rewards card).
Another good card is the Fidelity American Express card. It’s a 2 percent card. You earn 2 percent cash back on all purchases. But again, the catch there is you have to have a Fidelity account and the rewards get paid into that account. If you’ve have a Fidelity account it’s no big deal. It’s a great card and one worth considering, but you do need to understand that limitation.
A card that pays higher than average rewards with no limitations is the Capital One® Quicksilver® Cash Rewards Credit Card. It pays 1.5 percent. And that brings us to the card Tim mentioned in his email–the Citi Double Cash Card.
Review of the Citi Double Cash Card
Let’s get right to the point. the Citi Double Cash card is probably one of the best cash back credit cards out there today. It’s a card that can pay up to 2% cash back on every purchase, but with an interesting twist. Here’s how it works.
When you make a purchase, you’ll earn one percent. Then when you pay your bill, you earn another one percent on the amount paid. You don’t have to pay the card in full, so long as you make the minimum payment. And if you pay the card in full every month, that 1% will apply to the entire payment. It’s an ingenious idea. Citi rewards its customers with 1% + 1%, and encourages them to pay their credit card bill on time.
In addition to the cash back rewards, the card offers zero percent on both balance transfers. The introductory rate lasts for 18 months. The regular APR as of today ranges from 14.74% – 24.74% variable depending on your credit worthiness. And the card does not charge an annual fee. In short, this is one of the top ten rewards cards available today.