Rewards Credit Cards

In a previous column I wrote about several different types of credit cards.  The type I use most often is a rewards credit card.  These are characterized by their main feature of paying you 1-5% of what you spend as cash, points, airline miles, or some other type of reward.  Their interest rates aren’t usually very competitive, and they even sometimes have annual fees, and they may or may not have attractive initial offers.  There are lots of these on the market, but some are pretty clearly better than others.  Like with checking accounts, sometimes it is worth overcoming the inertia to make some changes to your personal finances, but sometimes there just isn’t enough money there to justify the effort.  If you use a credit card regularly, and DON’T have a rewards card, there’s probably somewhere between $500-2000 a year you’re leaving lying on the ground.  But if you already have a card, it may or may not be worth the additional hassle to change (or worse, use multiple cards.)   In this post, I’ll describe the rewards cards I’ve had, as well as some of the other really good ones out there.

US Bank REI Visa Card

This was the very first rewards card I ever had.  As my oldest credit card, I won’t be cancelling it any time soon, just to keep my credit score up.  I still use it, but mostly just when I go to REI.  It has two main benefits.  First, when you go to REI you can use a credit card and still get your full dividend amount (around 10%) on the item you’re purchasing.  It used to be if you used another credit card you were just out of luck there.  Second, you would get 1% back on everything else you bought on the card.  That money is added onto your REI dividend at the end of the year.  In retrospect, it was a pain to wait that long to get my money, but I liked “having” to spend it on outdoor gear.  It seemed to be more valuable than just cash!  There are other credit cards with similar benefits at a single store.  The Costco American Express “True Earnings” comes to mind.  My family shops at Costco, and it is really the only place we ever use a debit card.  But if I had the Costco American Express card, I could use it at Costco.  It’s actually a pretty good card too.  No annual fee if you’re already a member of Costco, 3% back on gas, 2% back on travel and restaurants, and 1% on everything else.  Yes, it’s American Express, which means there are some places that won’t take it, but you also get the better service that is generally considered to be better with American Express. Unfortunately, the Costco card only gives you a Costco Coupon for the rewards you’ve earned once a year.  Not the most flexible type of rewards.

Chase Freedom Card

The next rewards card I got was the Chase Freedom Card.  I’ve still got it, but haven’t used it in years.  One thing I dislike about Chase is that the deal keeps changing.  I can’t remember what the deal was originally, but I do remember they downgraded it and I quit using the card.  It’s been improved since the downgrade, but they’re into the “rotating categories” thing.  That means that every 3 months you get 5% back on something different.  That’s a pain for me to keep track of.  Plus, you actually have to sign up for that 5% back every quarter.  So it’s your basic 1% card, with 5% for whatever the special of the quarter is.  This quarter it’s gas, airlines, and hotels.  Next quarter it’ll be dining, department stores, movies, and charities.  Sorry, too much effort.  This one stays in the drawer for me.  But if you’re willing to put in the effort to remember which cards give which benefit when, you might want to pick this one up.  They’ve got an intro deal going right now for a free $100 when you put $500 on the card for the first time.  The other thing I didn’t like about this card is that you have to manually redeem the awards.  You can either redeem it $50 at a time, or if you wait for $200 to accumulate, you get an extra $50 reward.  So it is really a 1.25% card, but with a lot of hassle compared to other cards.  I’m just not into hassle as you can tell.  I like things to be automatic.

Pentagon Federal Platinum Visa Rewards Card

This is my favorite rewards card I’ve ever had and for several years it was the only one I used.  They made some changes recently that sent me out shopping again, but I still use it as a gas card.  It is a little bit of a pain to sign up for the card, because you have to join the credit union first.  That mean you have to deposit $5 in a savings account and leave it there for as long as you want to keep the card.  You also have to be eligible to join.  It was easy for me because I was active duty military.  But there is a work-around if you don’t otherwise qualify.  You join Voices for American Troops for a one-time $15 fee and then you’re eligible to join the credit union and get the card.  (The credit union also offers some pretty good mortgages and CDs, so that’s not a bad thing.)  Once you’ve gone through that hassle, everything else about this card is awesome.  You get 5% back on gas all the time.  You used to get 2% on groceries and 1.25% on everything else, but that was recently scaled back to 1% on everything and the special grocery category was eliminated.  But the best part is that the cash back is applied EVERY MONTH to the credit card balance.  Few cards do this.  No fooling around with points or gift cards or having to go online and redeem anything.  No checks to cash, no points or miles sitting around somewhere unredeemed etc.  If they wouldn’t have made those changes I would have never gone looking for the next card.

Fidelity Cash Rewards Visa Card

So now I use the REI card at REI only, the Pentagon Fed card for gas only, and the Fidelity Cash Rewards Visa Card for everything else.  Why?  Because it pays 1.5% for everything.  After you put $15K on the card each year that increases to 2%.  When you’re putting $45 or $50K on a credit card each year the difference between 1% and 2% is about $500.  That was enough for me to make the change.  The Fidelity card is very slick if you already have a Fidelity account, but if not, you’ll need to open one.  The rewards are deposited into it.  I then transfer them to my bank and spend them elsewhere since I don’t actually do any investing at Fidelity.  Fidelity also has the same card available as an American Express.  Again, it’s accepted at fewer locations, but supposedly offers better service AND you get 2% right from the get-go, no $15K barrier to overcome.  The more I think about it the more I probably should have just done the AmEx version.  If someone didn’t take AmEx I could have just pulled out the PenFed card.

Capital One Card

I also have a Capital One Rewards Card.  I actually got it before going on an extended foreign trip because it doesn’t have any foreign exchange fees.  The problem was they gave me a $3K limit on it and refused to raise it.  This was on an attending salary, mind you.  I was in the UK when gas was $12 a gallon.  Needless to say, $3K didn’t go very far.  Very irritating.  They told me they’d contact me when they could raise the credit limit.  Well, it’s been 3 years and I’m still waiting.  All my other cards have limits of $20-40K and all they could offer was $3K?  Really?  They give college students higher credit limits.  It does offer 2% back on gas and groceries.  If it wasn’t such a hassle, perhaps we ought to use this one for groceries, unless it’s “groceries quarter” with the Chase card, but who wants to deal with all that? At least you can set it up for automatic redemption applied to the card.  It’s not a bad card, and may be worth looking at.

There are lots of other good cards out there.  Let’s look at a few I don’t have.

Grandfathered Cards

Sometimes you get a deal from a credit card company that is later withdrawn.  But occasionally, they just stop offering it to new applicants and your terms are grandfathered in.  One good example is the Schwab Card.  It used to offer 2% back on everything.  That’s gone now.  It was similar to the Fidelity American Express Card discussed above.  I believe some people who had the card were grandfathered in, and some weren’t.  It’s a good reason to jump on a deal if you see it (like the Fidelity card).

Rotating Categories Cards

There are a few cards out there like the Chase Freedom card.  I’m not much into trying to remember which card to use (or worse, getting my spouse to remember), nor am I into carrying multiple cards around.  But if you are, there are greater rewards available.  The Discover More card also offers 5% categories, generally changing monthly.  The Citi Dividend World MasterCard is similar, but with a bit more hassle (for instance, I can’t find a list online of what the 5% categories have been this year).  Both avoid an annual fee, and offer 1% on everything else.   Disclaosure:  Unlike the rest of the cards on this page, this blog has an affiliate relationship with the Discover cards, meaning that if you open an account from a link on this page, I get a small commission.

Airline Miles Cards

I’m also not really into airline miles cards.  I’d rather have cold, hard cash.  There are a ton of these out there, both general cards and airline-specific ones.  Capital One has two cards worth looking at, both of which offer rewards that can be used on any airline without blackout dates.  VentureOne Rewards offers 1.25 miles/$1 and no annual fee.  The Venture Rewards offers 2 miles/$1 and a $59 annual fee.  Discover also has two cards- the Miles card offering 1 mile/$1 without an annual fee and the Escape card which offers 2 miles/$1 with a $60 annual fee.  Disclosure: I have an affiliate relationship with Discover cards.  American Express offers a card with a steep fee ($175/year waived for the first year) but that offers 3 miles/$1 spent on airfare, 2 miles/$1 spent on gas and groceries, and 1 mile/$1 spent on everything else. Many other cards with points programs will also allow you to redeem points on airfare.  I’d rather they just credited cash toward my credit card statement than made me jump through all the hoops of a points program.

Many airlines also have associated credit cards.  The general rule is that you get 1 mile/$1 spent and you pay an annual fee for the privilege.  But there’s a few little extras that might make it worth it to you to get one, such as waived fees.  They also usually give you a free flight or enough miles good for one for signing up and making a purchase.  We’ll go through them one by one:

Delta (American Express): $95 annual fee (waived first year), 1 mile/$1 except 2 miles/$1 spent at Delta, 1st bag checked free.

Continental (Mastercard): $95 annual fee (waived first year), 1 mile/$1 except 2 miles/$1 spent at Continental, 1st bag checked free

United (Visa): $95 annual fee (waived first year), 1 mile/$1 except 2 miles/$1 spent at Continental, 1st bag checked free

Southwest (Visa): $69 annual fee, 1 mile/$1 except 2 miles/$1 spent at Southwest.  Change fees waived (if you change your flight.)  Southwest doesn’t have baggage fees.

American (Citi Mastercard): $50 annual fee (waived first year), 1 mile/$1.

Alaska (Bank of America Visa): $75 annual fee, 1 mile/$1 except 3 miles/$1 spent at Alaska.

Hawaiian (Bank of America Visa): $79 annual fee, 1 mile/$1 except 2 miles/$1 spent at Hawaiian.

Spirit Airlines (Bank of America Mastercard): $59 annual fee (waived first year), 2 miles/$1

Virgin Atlantic (Bank of America American Express): $90 annual fee, 1.5 miles/$1, 3 miles/$1 spent at Virgin.

Asiana (Bank of American American Express): $99 annual fee, 2 miles/$1.

If you fly on one airline often, it might be worth looking into these cards.  My father once flew the whole family in on short notice using nothing but Delta miles acquired from the card, saving thousands of dollars.  There are times that miles are worth more than cash, but as a general rule, I prefer cash, especially if the company will just apply it right to the statement.  There are also hotel rewards cards available from Hilton, Ritz-Carlton, and Marriott.  Perhaps if Motel 6 does one I’ll look into it.

Other Cards

American Express has a great card called Blue Cash Everyday with no annual fee which offers 3% back at supermarkets, 2% on gas, and 1% on everything else.  Bank of America offers three cash back cards without an annual fee.  The Cash Rewards card (Visa) with no annual fee which offers 3% on gas, 2% on groceries, and 1% on everything else.  Their Accelerated Cash Rewards card (American Express) offers 1.25% on everything.  They also have a AAA card which offers 2% on gas, grocery, and drug store purchases with 1% on everything else.  Discover offers the Open Road card which pays 2% back on the first $250 a month of restaurant or gas purchases.  (Disclosure: I have an affiliate relationship with Discover Cards.)

Best Overall Card:  Fidelity American Express.  2% cash back on everything, no annual fee, minimal hassle.  If you don’t like American Express, go with the Fidelity Visa.  You’ll leave ~ $75/year on the table compared to the AmEx, but you can use it in more places.

Best Gas Card: Pentagon Federal Platinum Visa: 5% back on gas, no hassle after signing up, no annual fee.  There are gasoline brand-specific credit cards out there, but they generally only offer 5-10 cents off per gallon.  Given current gas prices, PenFed is giving you closer to 20 cents off per gallon.  If PenFed changes their deal, I think the Costco American Express (3%) will be offering the best deal on gas, at least when you can’t get it on a rotating category card.

Best Groceries Card:  Tough category because the rotating cards get in on the act.  For example, the best card from January to March was the Chase Freedom (5%).  The best card in June was Discover More.  The rest of the time it’s the American Express Blue Cash Everyday Card (3%).  It’s all about how much hassle you want to deal with.

Restaurants: Another tough category.  Discover More wins from January to March (5%), and Chase Freedom wins from October to December (5%).  The rest of the time you’re stuck with 2% options like the Discover Open Road card or the Costco American Express.  When you get down to 2%, you probably just want to use your main card.

Best Miles Card: For those who prefer miles to cash, I think its basically a tie between the Capital One Venture Rewards Card (2 miles/$1, $59 annual fee) and the Discover Escape Card (2 miles/$1, $60 annual fee.)  But if you mostly fly one airline, you might want to consider the value of having your baggage fees waived and look into the Delta, Continental, or United cards.

A great site worth looking at that takes your monthly expenditure and recommends a card for you is called Credit Card Tune-up.  Be aware that it doesn’t include the Fidelity cards, which is a huge miss in my book.

Another option, as discussed in a previous column, is to skip the credit cards all together and use The PerkStreet FinancialSM Debit MasterCard®. It offers 2% cash back on all your debit purchases. (Disclosure: I have an affiliate relationship with PerkStreet Financial.)

Remember that this is a very fluid area of personal finance.  Things are always changing. What is the best card now may not be in a few months or a few years.