The best cash back credit cards help you save money on the items you buy everyday. With an average interest rate earned in a savings account standing at a pitiful 0.06% in early 2016, earning 2-5% back on your every day spending can seem relatively attractive.
Fortunately, cash back credit cards offer a much more lucrative way to earn money on your money, but in a different way. With cash back cards, you earn a certain percentage of cash back on all purchases you make with the card. And if you’re able to pay your card off and avoid interest, this is “free money” – and yours for the taking. Depending on your card, you can have your balance issued to you via check, deposited in a linked savings account, or use it to purchase gift cards or other items.
My current cash back strategy of choice is to use the Chase Sapphire Preferred® Card to earn 2x points on travel and dining, and pair it with my top cash back pick: the no annual fee Chase Freedom®. With both cards in your wallet, you’ll benefit from the 5X bonus categories and the Chase Sapphire Preferred® Card’s superior perks.
These cards work great together because you can transfer rewards from one card to the other, adding an additional layer of flexibility other card pairings will not possess.
Table of Contents
- 1 Winter is the Perfect Time to Focus on Cash Back
- 2 The Simple Dollar’s Top Picks for 2016
- 3 Managing Your Money with a Credit Card
- 4 The Benefits of Using a Credit Card as a Budgeting Tool
- 5 Money-Saving Tips
- 6 Research the 14 Best Cash Back Credit Cards
- 7 The Truth About Cash Back Cards
Winter is the Perfect Time to Focus on Cash Back
Now is the perfect time to analyze your cash back rewards strategy. Cards that offer quarterly bonus categories just announced their 2016 bonus categories. With the Chase Freedom® card, you’ll earn 5 points per dollar on categories that rotate every quarter in 2016, including gas stations, grocery stores, restaurants, and holiday shopping.
No matter which cash back card you choose, your timing is impeccable. Here are a few strategies that can help you take advantage of exceptional 5X earnings your cash back card:
• Put all of your holiday and winter spending on the card – Use your card for all of your holiday spending to earn anywhere from 1-5% cash back. From home maintenance projects to groceries and Valentine’s Day presents, the extra money you earn can add up quick!
• Use points to pay down your holiday credit balances – If you find yourself with lingering debts from the holidays, you can cash in your points as statement credits to whittle that amount down.
• Start savings for next year’s holidays – If paying for Christmas or holiday gifts was a stretch this year, it’s smart to start building up cash back to use for gifts as quickly as possible. With the right cash back card, you can begin accruing cash back for next year’s holidays right away.
With any of the cash back cards we offer, you’ll be on your way to earning some “fun money” in no time. With that being said, it’s important to figure out which cash back card would work best for your spending habits and cash back goals. Here are a few of our top picks for 2016 and beyond:
The Simple Dollar’s Top Picks for 2016
Here are the 4 best cash back credit cards to own today:
- Chase Freedom®
- BankAmericard Cash Rewards™ Credit Card
- Blue Cash Preferred® Card from American Express
- Discover it® – Double Cash Back your first year
The Chase Freedom® is likely the most popular cash back credit card available today. It offers rotating quarterly cash back categories so you can take advantage of new ways to earn rewards throughout the year.
This is also the most versatile cash back card because rewards are easy to redeem, it’s widely accepted, and there are new 5% cash back categories every three months like gas stations, restaurants, and grocery stores. You get 5% cash back on up to $1,500 in combined purchases.
In addition to all these benefits, you’ll receive exceptional fraud monitoring from Chase (I know from personal experience). I’ve also found Chase customer service to be very dependable, and they were accommodating when I asked for a credit-limit increase when I needed to make some big purchases after moving across the country.
Who Should Get It
Best Way To Use It
- This card works for everyone due to the variety of the rotating categories.
- It’s the perfect second credit card to own, especially for Chase Sapphire Preferred® Card owners.
- Quarterly rewards are capped at $1,500, so the card may be better off for smaller spenders.
- Chase bank clients will find it useful to have all of their accounts in one place.
- This is a great first card for someone just establishing credit.
- Plan your purchases ahead of time by reviewing the rotating categories.
- The Chase Freedom® pairs well with travel credit cards.
- Opt in each quarter to receive your 5% cash back — it’s not automatic. Chase does a good job of sending reminders and they retroactively give you the 5% on your purchases that qualify for that quarter if you opt in late.
BankAmericard Cash Rewards™ Credit Card
If you are a Bank of America or Merrill Lynch customer, then pay attention. This card is new to our list because the BankAmericard Cash Rewards™ credit card is an interesting alternative to pair Chase Freedom® with Chase Sapphire Preferred® Card. While it might not have the same potency as this pairing, it can still get you a straight 2% at grocery stores and 3% on gas purchases on up to a combined $1,500 per quarter, and 1% on every other purchase. The kicker is the 10% to 75% rewards bonus you can get when you redeem your cash rewards into Bank of America checking, savings, or eligible investment accounts.
As a Bank of America® customer, a 10% bonus is credited to your credit card reward earnings every time you redeem your cash back into a Bank of America checking or savings account. If you’re a Bank of America Preferred Rewards client, you could increase that bonus to 25% or more. There are three tiers based on your overall asset balance. So if you have 3-month average combined balances of $20,000 in qualifying Bank of America banking accounts and/or Merrill Edge® and Merrill Lynch® investment accounts you can receive a 25% bonus, $50,000-$100,000 will net you a 50% bonus, and over $100,000 lands a hefty 75% extra!
The icing on the cake is that this card has no annual fee. So if you’re in an area with Bank of America retail banking locations, then the BankAmericard Cash Rewards™ card is a very solid choice. For a great pairing, check out the BankAmericard Travel Rewards® credit card.
Who Should Get It
Best Way To Use It
- Great for Bank of America checking and savings customers
- Big gas and grocery spenders
- People who want to avoid an annual fee
- Sign up for Bank of America checking and savings or Merrill Lynch investment accounts
- Qualify for Preferred Rewards with Bank of America
- Combine this no fee card with the BankAmericard Travel Rewards® card for maximum benefit
Blue Cash Preferred® Card from American Express
After you get past the relatively weak sign-up bonus and the annual fee, the Blue Cash Preferred® Card from American Express is a great long-term cash back card to own, especially if you know you’re going to spend at least $6,000 at U.S. supermarkets.
The major highlight of this card is the whopping 6% cash back at U.S. supermarkets on the first $6,000 (then 1%) spent as well as 3% at U.S. gas stations and select U.S. department stores, making it the one of the more favorite grocery and gas credit cards on the market.
I read a few comments on other sites about the card not dishing out the 6% rewards at every standalone U.S. supermarket. As far as I know, you’re definitely getting 6% at Whole Foods, Trader Joe’s, Safeway, and other major supermarkets. You might not get the 6% at specialty food stores or local grocery stores, but it’s best to ask the American Express reps if you’re unsure.
Who Should Get It
Best Way To Use It
- You should get this card if you have a family because the targeted rewards fit into the purchasing habits of most moms and dads.
- If you eat at home and don’t dine out often, this card is the best choice.
- Those who own the Chase Sapphire Preferred® Card should consider this card because you’re already getting 2x on dining and travel, so you can add higher rewards on groceries and gas with this card.
- Use the card to buy all your gas and groceries.
- Take full advantage of the rewards by making sure you hit the $6,000 cap for the year at U.S. supermarkets.
- You’ll want to pair this card with another rewards card, so you can get 2x rewards once you hit the 6% earning cap for the year.
Discover it® – Double Cash Back your first year
The Discover it® card is one of the best cash back cards and overall rewards credit cards on the market. With 5% cash back on rotating categories, similar to the Chase Freedom®, the rewards are some of the highest you can find anywhere. Discover it® is not accepted everywhere but, when it is, it’s well worth owning due to the high rewards and great benefits.
This is one of the best cash rewards credit cards to have as your second card because of the 5% cash back on rotating categories, the 0% intro APR on purchases and balance transfers for 12 months, and no foreign transaction fees.
Really, the only thing holding the Discover it® back is the fact that Discover is not as widely accepted as Visa or MasterCard. If you have a Visa or MasterCard to offset this concern, the complaint becomes less valid. On the positive side, the Discover it® is one of the rare cash back cards to not charge a foreign transaction fee.
Who Should Get It
Best Way To Use It
- This is good card for people who need a little extra cushion. No annual fee. No overlimit fee. No foreign transaction fee. No late fee on first late payment & paying late won’t raise your APR.*
- Only get this card if you own another rewards credit card that’s a Visa or MasterCard because Discover is not as widely accepted.
- Take advantage of the quarterly 5% cash back rotating categories and plan your purchases accordingly.
- Use the cash back calendar to see the upcoming categories for the year.
- Maximize your rewards by making purchases with the card in the 5% cash back categories, and then use a Visa or MasterCard to pay for any other items not in the 5% category in addition to making purchases after you hit the $1,500 cap.
- You can use this card while traveling because it has no foreign transaction fee.
Managing Your Money with a Credit Card
Although the use of credit is sometimes looked down upon in the world of personal finance, credit cards can actually be a valuable tool if harnessed properly. Not only do certain types of cards let you earn valuable rewards and gain certain consumer protections, but they can help you stay on budget too. The following rules can help you secure the valuable perks credit cards offer without straying from your financial goals:
Rule 1: Always treat credit like cash
When credit is a problem for someone, it is usually because they used it as an excuse to spend more money than they planned. In order to avoid overextending yourself, you should always “treat your credit card like cash.” In other words, never charge more than you would if you were paying with cash in your bank account. Don’t forget that the bill is coming due – whether you like it or not.
Rule 2: Track your credit spending in real-time
Many people get in trouble with credit because they lose track of how much they spend. The card isn’t “real money,” so they learn to disassociate it from the dollars in their bank account. If you want to stay on top of your spending, and stay on budget, you need to keep track of all of your expenses as the month progresses. To do this, sign up for online account management with your credit card company. Then use your log-in and password to check in with your spending at least once per week. Staying on top of your spending this way can benefit you by helping you stay on budget and forcing you to recognize any problem spending areas you may have.
Rule 3: Pay your bill before it is due (or several times per month)
If you set aside a certain amount of money for bills and expenses, and want to stay on track, it can be immeasurably helpful to pay your bill credit card bill a few times a month. At the very least, you should always pay your credit card off at least once before it is due. Letting your account balance grow over the month without paying it off can cause you to disassociate your spending from actual money you have, whereas paying it off a few times per month causes you to part from your dollars and feel the impact right away. And if you truly want to use credit as a tool instead of a crutch, you should feel the pain of paying your bills as often as possible.
Rule 4: Never pay interest
If you want to manage your finances with a credit card, it is essential that you never pay interest on any of your purchases. To accomplish this goal, follow the steps above and pay your bill before it is due – or multiple times per month. Paying interest on your purchases is a sign that you cannot handle credit responsibly at this time. If that’s the case, consider stashing your credit card away in a drawer for the time being. You could always revisit the issue in the future if you feel that your habits have changed for the better.
The Benefits of Using a Credit Card as a Budgeting Tool
While a lot of people tout cash-only budgets, there are a lot of benefits to gain by opting for credit-only instead. Here are a few of the biggest benefits that come with using credit as a budgeting tool:
Insurance and Plenty of Perks
Credit cards offer a slew of consumer protections that other forms of payment simply do not. The specific perks depend on the card you choose, but they can include things like Purchase Protection, Extended Fraud Protection, Trip Cancellation/Trip Interruption Insurance, Free FICO scores, Primary or Secondary Auto Rental Coverage, and more. These coverages are yours free just for choosing a card that offers them.
A Digital Paper Trail
When you use cash for all of your purchases, there are only a few different ways to keep track of your spending; you either have to keep receipts or write all of your purchases down. If that sounds like a hassle to you, consider how easy it would be to track your spending with a credit card. Your online account and paper statements will do the hard work for you by listing all of your expenses in order by date. Some credit cards even go the extra mile and lump all of your spending into general categories for your convenience.
You can go back months or even years of your spending history in the blink of an eye, and many credit cards offer online budgeting tools that track your category spending over time.
When you use cash or debit for all of your spending, you’re really missing out. The truth is, cash-back credit cards can offer a huge rebate on your spending if used responsibly. This often amounts to between 1 and 5% back. If you pay your card off in-full each month and never pay interest, those rewards are truly “free money.” If you use cash instead, you’re simply out of luck.
Safety and Fraud Protection
If cash is stolen out of your purse, you have little recourse other than filing a police report. Meanwhile, protections for debit cards aren’t much better. According to the Federal Trade Commission, your liability for fraudulent debit card purchases is $50 if you report within 2 business days after you learn about the loss or theft, $500 if you report the charges more than 2 business days after you learn about the loss or theft, but less than 60 calendar days after your statement is sent to you, and unlimited if you report the charges after 60 days. In other words, scammers and thieves can drain “all the money taken from your ATM/debit card account, and possibly more; for example, money in accounts linked to your debit account. if you don’t notice the charges within 60 days.”
With a credit card, however, your liability is only limited to $50 maximum at any time, and most credit card issuers even waive that requirement. So if someone gets a hold of your credit card and runs up a bunch of charges, you are completely off the hook. In most cases, your card issuer will just close your account and issue you a new card with a new number.
Money-Saving Tips for Cash Back Cards
Using the right credit cards in the right situations can save you some significant cash. Depending on your situation, there are specific credit cards tailored to your everyday purchases where you can earn rewards in the form of cash back for spending your hard-earned money.
Create a Detailed List of Your Monthly and Yearly Spending
This is the first thing you should do prior to signing up for any credit card. In order to find the best cash back credit card or combination of cards, you have to know where your money is spent. To determine which cash back card is your top choice, create a list of what you buy each month and each year.
The monthly breakdown will help calculate any spending that could potentially happen while using a rotating category cash back card. A list of your yearly spending will help determine if you spend enough to maximize the rewards for a designated category cash back card.
Look for a Rewards Program That Matches Your Spending Habits
Once you have an itemized list of what you spend your money on, use that information to look for a cash back credit card. As I outlined here, there are three top cards worth considering for the majority of people. Look into the Chase Freedom®, Discover it®, and the Blue Cash Preferred® Card from American Express, as those are likely your best options.
Use Your Credit Card Statement to Keep Track of Spending
When you actually have your credit card, you’ll be able to access your monthly statements. This will help ensure your original calculations were correct when you created a list of what you buy each month.
You should also use your statement to review the current status of your cash back categories so you’re aware of how much you’ve spent and how much more you can spend before hitting any caps.
Plan Ahead to Take Advantage of Cash Back Categories
When you select a cash back card, make sure you become familiar with the rewards program of that card. If you go with a rotating category card, it’s smart to plan ahead and make any larger purchases when your 5% category is in effect. For example, you can wait to make any large purchases or holiday purchases until October – December to capitalize on 5% off your online shopping. If you’re looking to make some home improvements, you can plan on buying everything when a home improvement store shows up in the rotating category.
When using any cash back card, you also want to be aware of where your spending is at so you stop once you hit your rewards caps. For example, if you can only earn 6% cash back on groceries up to $6,000, you don’t want to be spending beyond that because everything drops to 1% cash back. At that time, you’ll want to use a different 2% rewards card or higher.
Redeem Your Rewards for Cash, Not Luxury Items
Many cards offer the ability to redeem rewards for things other than cash or statement credit. You can get gift cards from various retailers or restaurants and reward yourself for the money you’ve spent.
However, if you really want to feel see the impact of cash back rewards on your everyday life, I advise you to simply take the cash or statement credit. It’s the best way to actually “save” your rewards versus using them to purchase luxury items or meals out. I’m not saying you have to deprive yourself from such things but, if you’re truly looking to save, this is the best way to do it.
Additionally, you may have the opportunity to use your rewards to get a gift card for something that’s a necessary purchase you would make anyway. In this case, it’s fine to exchange your cash back for a gift card to a place where you shop for necessities frequently. Also, once in a while, the cards will offer higher redemption for certain retailers and you might be able to take advantage if one of your common purchases is there.
Buy Gift Cards to Maximize Remaining Rewards
After three months, the rotating category cash back cards will change categories. In some cases, a time may come where you did not hit the $1,500 spending limit to maximize your 5% cash back category in the quarterly period. Prior to the expiration date of the rotating category, you should assess whether or not there is something within the category you will use in the future.
For example, if the 5% cash back category happens to be restaurants, maybe you didn’t hit the $1,500 rewards cap in the three months. For the sake of this, let’s say you only spent $1,000 at restaurants on the card within the three-month period. However, you know that you’ll be eating out for the rest of the year and likely be spending more than $500. You can go to your favorite place or several restaurants of your choice and buy $500 in gift cards.
This might take some adjustment and planning within your budget, which is why I recommend this as a more advanced technique to save money. Basically, you just saved 5% on your next 50 meals (assuming you pay $10/meal), which isn’t so bad of a deal.
Compensate for Fluctuations in Gas Prices
With a rewards credit card that offers cash back on gas, you’ll be less susceptible to high gas prices than the average consumer. While it may only be a consolation prize, the more gas prices rise, the more rewards you earn on gas purchases.
Using a cash back card that earns you 3% or more on gas like the BankAmericard Cash Rewards™ card will help take the sting away a little when gas prices rise. You may have to pay more out of pocket, but you’re also getting more in return. Again, just be sure you’re always earning more than 1% cash back on your gas purchases. You can always ensure that by combining a cash back card with the Chase Sapphire Preferred® Card.
Research the 14 Best Cash Back Credit Cards
Listed below, you will find a directory of the most popular cash back credit cards available in 2016. This directory was used as a starting point for my research and analysis, which is based on the data derived from each card. The directory is updated weekly to reflect any new changes, to add new cards, and to remove expired cards.
The cash back credit cards directory is a sub-directory of rewards credit cards. This custom directory highlights the most important features for cash back cards specifically and displays all important information about each card. The directory is maintained and updated on a weekly basis to ensure it is always current.
Cash Back Credit Cards Directory
The cash back rewards credit card directory lists every cash back credit card and the vital information for that card. In order to rank and value each of these cards, certain features were weighted accordingly based on overall importance to the prospective cardholder.
Sort, filter, or search for what matters most to find the best cash back credit card for you.
The most heavily weighted (and most important) elements of a cash back credit card are introductory APR, sign-up bonus, ongoing rewards, and benefits. Depending on your situation, you might want to be aware of the ongoing APR as well.
Based on these important features and other data, I developed a Cash Back Card Rating for each card. This rating takes the features that matter most for a cash back card and combines them together to rate each card based on a group of important features. I also included an Overall Rating, which displays the card rating as an overall credit card, comparing it to every other credit card type on the market.
There are a number of factors that went into rating each card and the most important are described below.
To analyze rewards, I assessed each cash back credit card on its ongoing rewards and rewards categories.
Ongoing rewards refers to the actual rate at which you can earn rewards using the cash back card. The very best cash back credit cards will always offer a rate of 3% or higher on select categories. The majority of cash rewards cards have a base rewards rate of 1%, while some reach 1.5% but don’t offer higher incentives for specific categories. It’s important to note that the 1% base is just the starting point for earning rewards and you should always aim to earn more than 1% on any purchase you make.
The top cards, like the Discover it® and Chase Freedom®, offer rotating categories that enable you to earn 5% cash back on a variety of common purchases each quarter. The Blue Cash Preferred® Card from American Express offers 6% cash back on purchases from U.S. supermarkets (up to $6,000, then 1%).
The important thing to note regarding rewards rates for cash back credit cards is that any card with a rewards rate of 5% or higher will certainly have limitations or caps on the amount you can earn within a specific time period. For the 5% rotating category cards, the cap is normally $1,500 per quarter. The Blue Cash Preferred® Card from American Express is capped at $6,000 on purchases from U.S. supermarkets, but has no cap for the 3% at U.S. gas stations.
As a part of the rewards, I also analyzed the rewards categories, which highlight the versatility of each cash back card. This accounts for the various ways you can earn rewards that are greater than 1%. The more ways you can earn greater than 1% in rewards, the better a card will be.
For example, the 5% cash back rewards credit cards that offer rotating categories every three months are versatile and score among the highest cards. These cards offer 5% cash back on things like grocery stores, restaurants, gas stations, home improvement stores, Starbucks, and more. The categories rotate every three months, so you always have something new to capitalize on.
The American Express cash back cards offer higher percentages in designated categories that don’t change, but are very broad. These cards will also score high because you can capitalize by making common purchases, such as groceries, gas, and even clothing at department stores.
There are some additional perks of owning a cash back credit card beyond earning rewards, but this category is not as important as those listed above. Some cash back cards, like the Discover it®, provide cardholders with a free FICO® credit score on monthly statements, which is a nice bonus.
Additional benefits include 24/7 customer service, car rental insurance, and emergency travel assistance. The Discover it® even has no foreign transaction fees, which is normally common among travel cards but not most cash back cards.
As a rule, the sign-up bonuses aren’t as high for cash back credit cards in comparison to the best rewards credit cards or airline credit cards. Cash back credit cards offer a higher rewards percentage as the main selling point instead of a large sign-up bonus.
However, every dollar counts and you can still get a decent sign-up bonus from a cash back card. The largest sign-up bonus you’ll find with the most popular cash back cards will be $100. To collect that bonus, you’ll likely have to spend around $500 in the first three months.
The introductory APR for the best cash back credit cards is usually very generous. Intro APR holds an average importance level when ranking all the top cash back cards simply because some people value the feature a lot while others don’t care.
Many of the cash back credit cards I consider to be the best will have a 0% introductory APR for at least 12 months. Some cash back cards go as high as 14 or even 15 months.
What this means for a prospective cardholder is you can sign up for a new card prior to making a large purchase you know is coming, but choose to pay it off over the course of the next year or so. I always recommend you never carry a balance, but taking advantage of 0% APR deals can be a way to make yourself feel more financially comfortable if you anticipate a large purchase.
Cash back cards have some of the lowest APRs, so you could say these cards are a top choice for people who don’t pay off their balance each month (although no card is good for that). As I mentioned many times, you shouldn’t be getting a credit card if you plan on carrying a balance. But, if you must carry a balance, a cash back card may hurt you the least of any rewards card.
Cash back cards have ongoing APRs that range as low as 10.99% and go beyond 20%. The key determinant of your ongoing APR is your credit score and history. If you have good credit, the APR rate for you will be on the lower end. APR differs from Intro APR because it is the more permanent rate. Once you get beyond the designated time period for any introductory APR offers, the credit card will default to the ongoing APR rate.
APR is not factored into our ratings as a very important category because it nullifies the ability to earn rewards. You won’t be able to capitalize with any rewards credit card if you’re carrying a balance each month and making high payments. Remember, I ranked the best cash back credit cards based on the features that matter for the people who use the cards the right way.
The Truth About Cash Back Cards
The best cash back credit cards have unique structures to their rewards programs. Generally speaking, cash back cards offer the highest rewards percentages of any credit cards for specific or rotating categories. Due to the high rewards earning potential, cash back credit cards also come with caps on the amount you can earn in those categories.
- Cash back credit cards are the best second cards to own.
- Rewards for cash back cards are very high but have caps.
- Be sure to maximize your cash back categories each quarter or year.
- If you want a big sign-up bonus, don’t get a cash back card.
- Never use a cash back card for any 1% cash back purchase.
Case Study: Rotating vs. Designated Categories
This case study will break down the difficult choice between the two popular styles of cash back cards. Some of the top cash back credit cards offer rotating 5% cash back categories while others have designated categories where you earn cash back.
There is no overlying consensus on which type of card is best for everyone. The best cash back card type is the one that offers the most rewards on the purchases you make. The other element that factors into the decision is which other credit cards you already own.
To show these cash back rewards programs in action, this case study will analyze the difference between the two types of cards when both cash back categories are maxed out. It will also detail which cash back card is the best choice for you depending on the type of credit cards you already own.
I’m going to compare the best rotating 5% cash back category card, the Chase Freedom®, and the top designated cash back card, the Blue Cash Preferred® Card from American Express. Using the top cards from each of the two types will help illustrate what your best choice is. First, let’s look at a brief comparison of the rewards programs for these cards.
You earn a $150 bonus after you make $500 in purchases in your first three months from account opening. Also, you’ll enjoy new 5% categories every three months like gas stations, restaurants and grocery stores. You get 5% cash back on up to $1,500 in purchases. If you do the math, that’s 5% cash back on $6,000 in purchases in variable categories over a full year. There is no annual fee and rewards never expire.
Knowing that you can get 5% cash back in categories is great, but you also want to know what those categories actually are prior to committing.
Here is a quick breakdown of the current year’s cash back schedule for the Chase Freedom®:
- January – March 2016: Gas Stations, Local Commuter Transportation
- April – June 2016: Grocery Stores
- July – September 2016: Restaurants and More
- October – December 2016: Holiday Shopping
If you can look at these categories right now and say with certainty that you don’t make many purchases on these items, then this card isn’t worth getting. In my opinion, Chase made some major improvements in 2015 regarding the rotating categories by adding grocery stores.
Blue Cash Preferred® Card from American Express
With the Blue Cash Preferred® Card from American Express, you also get a $150 statement credit, but it takes $1,000 in purchases with your new card in the first three months to get it. The cash back rewards are as follows: 6% at U.S. supermarkets for up to $6,000 per year in purchases, 3% at U.S. gas stations and select U.S. department stores, and 1% on other purchases.
It’s pretty clear this is the card to own if you spend a lot of your money on groceries. It’s also a top card for consistent gas purchases, as there is no cap on the 3% cash back you can earn.
Maximizing Each Cash Back Category
Creating a single fixed scenario to judge these cards is next to impossible. Instead, let’s look at each card at a category level to examine the the return you could get from the rewards program. The table below shows an overview of the best type of cash back card to get for each of the various purchases you might make. Continuing on, you’ll find more details on using these cards for each type of purchase.
|Type of Purchase||Best Cash Back Card Type|
|Groceries||Designated Category Card|
|Gas (less than $6,000/year)||Rotating Category Card|
|Gas (more than $6,000/year)||Designated Category Card|
|Shopping||Rotating Category Card|
|Dining and Entertainment||Rotating Category Card|
|Variety of Purchases||Rotating Category Card|
|Household Purchases||Designated Category Card|
By now, you know the Blue Cash Preferred® Card from American Express is the winner on groceries with 6% cash back at U.S. supermarkets. The Chase Freedom® now has groceries in one 5% cash back category.
Assuming you spend enough to hit the $6,000 cap on the Blue Cash Preferred® Card, you’ll get $360 per year back on that spending. At 1% cash back, that same $6,000 only gets you $60 back. Using a 2x card, you would get $120 cash back.
This is where the battle really heats up. While this head to head comparison is really for Blue Cash Preferred® vs Chase Freedom®, remember that newcomer BankAmericard Cash Rewards™ also earns 3% on gas.
Both the Blue Cash Preferred® Card from American Express and the Chase Freedom® have decent gas rewards. For one quarter of the year, or three months, the Chase Freedom® offers gas stations as a 5% cash back category. The Blue Cash Preferred® Card from American Express offers 3% on gas consistently with no limits, year round.
Since the Chase Freedom® offers cash back on up to $1,500 in combined purchases, let’s assume you max out this category for gas. In a full year, you’ll earn 5% of $1,500, which is $75 cash back.
Obviously, using the Blue Cash Preferred® Card from American Express and spending the same amount will earn you less money. Getting 3% of $1,500 only comes to $45. However, it’s safe to assume you wouldn’t simply buy gas for three months out of the year and then skip out on the other nine months.
For the sake of this comparison, assume your spending remains consistent each quarter at $1,500. Projecting that out over a year shows that you’ve spent $6,000 on gas. With the Blue Cash Preferred® Card from American Express, you earn $180 cash back from gas purchases.
You would never want to do this, but if you continued to use the Chase Freedom® on gas at 1% cash back for the other nine months, you would earn an additional $45. Doing the math brings the rewards total for the year on gas purchases to $120 — ending up as less favorable option than the Blue Cash Preferred® Card from American Express.
Therefore, following my rules of cash back cards, you would never make these remaining purchases on gas with the Chase Freedom®; instead, you would use a 2x card and earn $60 in rewards vs. $30. This methodology vaults the Chase Freedom® slightly ahead of the Blue Cash Preferred® Card using the spending model I outlined here. Of course, if you spend way more on gas over the course of a year, the Blue Cash Preferred® Card will come out ahead.
Both cards offer some solid rewards for those of you who like to shop. The Chase Freedom® – offers much more variety compared to the Blue Cash Preferred® Card from American Express. With the Chase Freedom®, you’ll have the ability to earn 5% cash back gas stations, grocery stores, and restaurants throughout the year in different quarters. The Blue Cash Preferred® Card from American Express offers a consistent 3% at select U.S. department stores.
Food and Entertainment
The Chase Freedom® comes out on top here again simply because the Blue Cash Preferred® Card from American Express doesn’t offer any rewards relating to dining or entertainment.
The Chase Freedom® has cash back categories that include restaurants, Starbucks® stores, and movie theaters. The great thing about earning 5% cash back at these locations is that you can maximize your rewards with one key strategy even if you don’t think you’ll hit your $1,500 cap for the month. All you have to do is buy gift cards from restaurants, movie theaters, or Starbucks® and you can capitalize on your rewards.
Case Study Conclusion
This case study clearly illustrates that all cash back credit cards are not created equal — even when you compare two of the best. If you’re looking to decide between the rotating category cash back card (Discover it® or Chase Freedom®) and the designated cash back category card, the top choice depends on how you can best earn the maximum rewards.
For a variety of purchases, the rotating category cash back cards are the way to go. If you have a set spending budget and you know things like groceries and gas are your main purchases, then you should go with the designated category cash back credit card.
Case Study: Annual Fee vs. No Annual Fee
It’s important to note that only one popular cash back card charges an annual fee. That card is the Blue Cash Preferred® Card from American Express. If you ever encounter another cash back card that charges an annual fee, make sure it is at least comparable to the Blue Cash Preferred® Card from American Express.
However, the question remains whether or not paying the $75 annual fee for the Blue Cash Preferred® Card from American Express is worth it when the Blue Cash Everyday® Card from American Express charges no annual fee. The question will be answered in this brief case study and comparison of the two cards.
Blue Cash Preferred® Card from American Express
Blue Cash Everyday® Card from American Express
Looking at the details of the two cards above, you can see the rewards earning potential for the Blue Cash Preferred® Card from American Express is double the Blue Cash Everyday® Card for buying groceries (6% vs. 3%). The $6,000 spending cap at U.S. supermarkets applies for both cards.
You can earn 3% at U.S. gas stations and select U.S. department stores with the Blue Cash Preferred® Card and 2% with the Blue Cash Everyday® Card. There are no caps for either card on the amount you can earn from gas and department store purchases.
At the surface, it might be tough to tell which card to get given that you have to pay a $75 annual fee for all the extra rewards that come with the Blue Cash Preferred® Card.
Real-Life Spending Scenario
Let’s take a look at a quick comparison between the two cards. I created a hypothetical spending scenario for someone who makes $10,000 in purchases within the two important rewards categories for these cards.
Here’s the spending breakdown we’ll use to analyze the two cards:
- You spend $6,000 on groceries in a year.
- You spend another $4,000 per year on gas and department stores combined.
- Your spending remains consistent over four years (for the purpose of standardization).
- You make no purchases at the standard 1% rate.
The sign-up bonus and annual fee are factored in each year because this is a cumulative measurement of how much you earn in rewards (over a four-year time period). Those amounts carry over, while the rewards earnings compound year after year. (For example, by the fourth year, you’ve still only accumulated the first year’s sign-up bonus).
Blue Cash Preferred® Card from American Express
|1 Year||2 Years||3 Years||4 Years|
Blue Cash Everyday® Card from American Express
|1 Year||2 Years||3 Years||4 Years|
Case Study Conclusion
As you can see, even after factoring in the annual fee, it’s well worth getting the Blue Cash Preferred® Card from American Express. However, this only holds true if you maximize the 6% cash back rewards category by spending at least $6,000 on groceries.
The only reason you’d want to go with the Blue Cash Everyday® Card over the Blue Cash Preferred® Card is if your annual spending in these categories is going to be minimal. In that case, you probably shouldn’t get either card and go with one that matches your spending better.
About this resource:
Created on: December 16, 2015
Updated on: January 19, 2016
Edited by: Sarah Ban
Research by: Mike Jelinek, Montana Thomas