Rewards Credit Card With Bonus Categories That Rotate

October 14, 2014
Rotating Rewards Cards

Three of the most popular cash back reward credit cards have nearly the same terms. The Chase Freedom, Discover it, and Citi Dividend Platinum Select all feature 5% cash back for spending on featured retailers and categories of merchants that change each quarter. 1% cash back is earned on all other purchases, and there are no annual fees for these cards.

There are several advantages to having one of these reward cards. First, cardholders receive the strong 5% rewards on some of their purchases, which can allow their average rate of return to go well above 1%. In addition, these cards have no annual fees, so they appeal to cardholders of modest means who don't want to pay to use a credit card. Finally, each of these cards come with valuable features beyond rewards. Chase Freedom cardholders have access to the Blueprint program, which allows them to avoid interest by paying some charges in full, while carrying a balance on others. Discover it cardholders automatically have their first late payment charge waived, have no penalty interest rate, and enjoy 100% US based customer service. Dividend Platinum Select cardholders have access to Citi's Price Rewind service, which automatically refunds cardholders when their eligible purchases experience a significant price drop within 60 days of purchase.

At the same time, there are some disadvantages to these cards. Each of them has a limit to the amount of spending that can be eligible for the 5% cash back. The Chase Freedom and Discover it cards limit cardholders eligible spending to the first $1,500 spent each quarter, while the Citi Dividend Platinum Select offers a more flexible cap on eligible bonuses, limiting cardholders to 5% cash back on their first $6,000 of eligible spending each calendar year. So in all cases, cardholders can receive a maximum of $300 bonus cash back a year, although the 1% cash back returns are unlimited.

Another downside of these cards is that customers must remember to login and activate their bonus categories one each quarter. The banks require activation in order to ensure that cardholders are actively using the card and thinking about their rewards. Thankfully, the deadline for doing so is late in the quarter, and the bonus rewards can be earned retroactively to the beginning of the quarter.

Cardholders also have to remember which stores and merchant categories are eligible for the bonus at any particular time. This contrasts sharply with most reward credit cards that feature the same rates of return on all purchases throughout the year.

Despite the prolonged popularity of these cards, it does seem like their reign might be coming to an end. In recent months Citi has quietly withdrawn new applications for its Citi Dividend Platinum Select card, although existing cardholders are unaffected. This move coincided with the release of its new Double Cash card which boasts 2% cash back on all purchases. In fact, it has been marketed as having "No Caps and No Category Restrictions." Citi even goes so far as to say "Unlike many other cards, Citi Double Cash has no restricting categories to keep track of or enroll in." This appears to be a direct shot at Chase Freedom and Discover it, not to mention its own Dividend Platinum Select.

In addition, Discover also released a new version of the "it" card called "it Chrome." Unlike the standard Discover it, the Chrome version has no rotating bonus spending categories, just 2% cash back at gas stations and on dining (up to $1,000 in combined purchases each quarter), and 1% cash back on all other purchases.

Reward credit card users seem caught up in the merry go round of rotating quarterly spending bonuses, but it seems like that ride may not last forever.

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