Friday, April 20, 2007

Best Cash Back Credit Cards

Credit cards are generally considered "bad debt" because the interest rates they charge are so high. However, if you pay them off each month (and therefore pay no interest) they can deliver some great perks free. My personal favorite perk is cash back because it is 100% flexible; you are not locked in to any one airline or store like most rewards cards.

Without further adieu here is a list of my favorite cash back credit cards as well as some details about them:

First Place: American Express Blue Cash

  • No Annual Fee
  • When you spend from $1-$6500 1.0% cash back on everyday purchases (gas, grocery, drugstore) and 0.5% cash back on everything else.
  • When you spend $6500+ 5.0% cash back on everyday purchases (see above) and 1.5% cash back on everything else.
  • Cash is credited to your account once per year.
  • No limit to how much you can earn.

Second Place: Chase Freedom Cash Visa

  • No Annual Fee.
  • Earn 1% cash back on all purchases.Earn an additional 2% cash back on purchases at Gas Stations, Grocery Stores, and Quick Service Restaurants on the first $600 per billing cycle. After $600 you just earn 1% on the purchases from there.
  • If you save $50 you can redeem for $50. If you save $200 you can redeem for $250.
  • No limit on how much you can earn.

Third Place: Discover More Card

  • No Annual Fee
  • $0-$1500 0.25% cash back on all purchases
  • $1500-$3000 0.5% cash back on all purchases
  • $3000+ 1.0% cash back on all purchases
  • You can sometimes increase your award significantly by redeeming for retailer gift certificates. For example, right now you can double your rewards at Carnival Cruise Lines, Hyatt Hotels, Sharper Image, and more. There are nearly 70 partners that will increase your reward if you redeem with them. See the full list here.
  • In 4 different categories per year you get 5% cash back typically up to $500 or $1000 in purchases ($25-$50 rebate). Past categories include restaurants one quarter, airfare another, online shopping another.
  • Redeem your award anytime you have $20 in rewards.
  • No limit to how much you can earn.

To see how these compare I am going to assume you spend $1500 per month on your credit card. Of that $500 is for gas and/or groceries. I will also assume that once per year you spend $500 on the Discover 5% cash back items. The rebate curves are below:

As you can see if you spend much less than $1500 per month then the Chase Visa is your best bet. If you spend much more than $1500 then the American Express Blue Cash becomes the better card. At around $1500 per month you roughly break even (Am Ex is better outright, but Chase is $15 ahead when you include the $250 they will give you for $200 in rewards credit). Note that Discover is far behind, but if you use some of their double reward options they can catch up fast.

Happy shopping!

1 comment:

Platinum Stud said...

Great graph, really puts everything into perspective. It'd be nice if credit card companies included something similar.

One thing - the point about the Chase Freedom losing the 3% bonus after $600 a month no longer exists, I believe.