Are Credit Cards With Revolving Rewards Really Worth It?
You’ve probably seen these eye-catching cards out there, on television commercials or in your mailbox. You know, credit card companies offering ridiculously high cash back rewards – as much as 5 or 6%! – on the things you buy most: gas, groceries, and even Amazon.com purchases.
Of course, there’s a catch. You’re not getting 5% rewards on these purchases all the time. No, these are quarterly, rotating groups, and you’ll only get one or two chances a year to boost your cash back in each category.
So, are these types of cards really worthwhile?
If you’re looking at a rotating cash back card, such as the Chase Freedom or Discover it, you probably know that the categories are fairly basic. And luckily, they typically correspond with the times of year you’d want those categories the most.
For example, Discover it is currently offering 5% back on home improvement stores and wholesale clubs. This is perfect for my family, as we have spent the last two months of spring remodeling our deck, planting a new garden, and hosting a family barbeque. Where did the majority of our money go for each of these? You guessed it: Home Depot, Costco, and Lowe’s.
If I had used my typical, everyday cash back card (which offers 2% on every purchase, no matter the category), I would have missed out on an extra 3% back. That adds up!
I don’t know about you, but I also buy most of my Christmas gifts online, with Amazon purchases making up the bulk of my orders. The Discover it card will be rewarding me nicely come the holiday season, with their 4th quarter category including Amazon (“& more,” whatever that means).
Chase Freedom also plans to capitalize on summer and holiday spending with their Q3 and Q4 categories. Unfortunately, Chase hasn’t specifically defined the second half of the year yet. However, years past have included airlines and wholesale clubs for Q3, and Amazon and department stores for Q4.
So, while you won’t be getting the maximum 5% cash back on these categories year-round, you are able to maximize on those categories that you are likely to be using during certain times of the year. Plan your shopping around the quarterly stores and you’ll squeeze the most out of your cash back.
The Alternative: Use a Standard Cash Back Card
Of course, your other option is to use a credit card with a set cash back percentage across the board. That way, you’ll get the same back no matter what you buy, and you don’t have to worry about rotating categories. The upside to this is that there’s no extra work required of you. Spend, pay your bill, and rack up the rewards. Easy!
There is a downside, of course. You never have the opportunity to ramp up your cash back beyond the 1 or 2% you’re getting every day. If your shopping habits already coincide with the rotating categories of those other cards, you’re potentially leaving a lot of cash on the table.
Find a Happy Medium By Doing Both!
One way to maximize your cash back throughout the year is to get a revolving category card and a set-percentage cash back card. That way, you have the best of both worlds.
Keep a note in your wallet with the categories for each quarter, so you know when to use which card. Spend, spend, spend until you reach your limit on that 5% cash back (more about limits in a second), then switch to the set-percentage card.
This concept also works well if you have a other cash back cards that offer higher percentages for certain categories year-round. For instance, the Blue Cash Everyday Card from American Express gives you 3% every day on groceries and 2% on gas, but only 1% on everything else. So, use that card for gas and groceries, then pull out a card like the Citi Double Cash (which gives you 2% on every purchase) for all other buys.
But Pay Attention
If you decide to sign up for a quarterly credit card, there are just a few things you should keep in mind.
You need to sign up each quarter. If you want to get your 5% cash back on those rotating categories, you’ll need to opt in first. Beginning a month or so before the start of the new quarter, you will have the option to log in to your credit card account and sign up for the bonus category. If you don’t sign up – or forget and sign up late – you’ll miss out on rewards!
Rewards are limited. Depending on how much you typically spend, this may or may not be an issue for you. However, it’s important to note that these quarterly categories are limited, usually around $1,500 in total purchases. This means that this December, you can spend as much as $1,500 on your Discover it card at Amazon.com (earning an impressive $75 back). Once you hit $1,501, though, your rewards percentage will slide back down to 1%, along with the rest of your purchases.
Which Should You Choose?
So, is the hassle of rotating categories worth it, versus a set-percentage card? Well, it depends on how much you’re spending.
Your best bet is to keep two cards in your wallet, and switch off based on what you’re buying. Keep a note handy so you know which plastic to pull out at the grocery store, and which is optimized for the gas pump. If you get a rotating category card, be sure to set calendar alerts so you can opt-in each quarter. Then, keep track of where you are in your spending for that category. Once you hit the $1,500 threshold, switch to the card that earns you more on an everyday basis.
Maximizing your cash back rewards can be easy, as long as you know where (and how) to spend!