June 20, 2008

Credit card rewards #2 - cash back rewards cards

Today I'll compare credit cards that give you cash back for purchases. If I recall right the first card to do this was Discover with their 1% back on purchases. Nowadays it seems every major credit card issuer has a card with 1% rewards or better.

A reminder from yesterday: It is only worth looking at credit card rebates if you pay off the balance of the credit card every month. If you carry a balance on your card then you should instead be focusing on reducing your credit card debt and avoid additional credit card use. Now on to the cards...

CreditCardFlyers site compares cards here. Its a nice site with a calculator that will estimate your rewards for each card type. But I should note I ran into a couple details where the site was out of date or where the calculator made a math error. So I'd double check everything there with the credit card vendor sites themselves.


Captial One

Capital One has a 'card lab' that lets you filter for their cards that would best meet your personal needs. For me the best option they have appears to be one that gives 2 miles or 2 points per dollar spent. Their miles program might work. Their miles rewards are as follows:

Miles Free Ticket
15,000 Saver (tickets up to $150)
35,000 Standard (tickets from $150.01 to $350)
60,000 Super (tickets from $350.01 to $600)
100x the ticket price Unlimited (tickets more than $600)


So I could potentially spend $7500 and get a $150 plane ticket. That would be a 2% return. On average though you're going to hit the midpoint of expenses so rather than maximizing the reward with a $350 ticket you're more likely to spend something midway between $150 and $350 or about $250. So that would be like spending $17500 and getting 35,000 miles to cash in for a $250 ticket. This equates to a 1.4% return. If you're looking at more expensive tickets then the rate is 100 x the ticket price in rewards. So if I spend $700 on a ticket it would cost 70,000 rewards and I'd have to spend $35,000 on the card to hit that. That would get you a 2% return but you'd have to spend a lot to hit that level.

Discover

The Discover Open Road card offers 5% on gas and auto maintenance for the first $1200. Plus they give "up to 1%" on other purchases. If you're unfamiliar with Discover the "up to" is an important detail. What they do is give 0.25% for the first $1,500, 0.50% on the next $1,500 and then you only hit the 1% level for purchases over $3,000.

Citibank

There are several cashback credit card options at Citibank. Their Dividend cards normally give 2% back on supermarkets, drugstores, gas stations & utilities and 1% on all other purchases. Plus they have promotional deals which vary per card where you can get 3-5% back on supermarkets, drug, gas & utility for the first 6-12 months. They limit you to $300 rewards a year.

Chase

The popular Chase Freedom card gives you 3% back on the purchases in the top 3 categories that you spend the most in each month plus 1% on other purchases. But there is a limit of $12 rebate per month for the 3% rate.

The BP card from Chase offers 5% on gas at BP gas stations and 2% on restaurant, airfare, car rental and lodging as well as 1% on everything else. There's no limit on the rewards.

American Express

The Blue Cash card from American Express offers up to 5% back. For the first $6500 you spend you get 0.5% on grocery, drug and gas purchases and 1% on other items, then after $6500 you get 5% on grocery, drug and gas and 1.5% on everything else. There is no limit on the cash back. This one is only a good idea if you spend over $6500 a year on your credit card.

If you are a Costco member then there is also the True Earnings card from Amex and Costco. This card is a combination of Costco membership and Amex card. The rewards are 3% on gas, 3% on restaurants, 2% on travel and 1% on everything else. Again its unlimited rewards.

Comparing customer service

Personally I think that the quality of service from the bank is also a very important aspect to consider. J.D. Power has ratings of customer satisfaction for major credit card companies.

American Express and Discover had very high ratings. Chase, Citibank, Wamu, US Bank and Wells Fargo came in average. Bank of America, Capital One and HSBC were rated below average.

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