If you'd like daily tips, thoughts, and suggestions on how to grow your net worth, subscribe to Free Money Finance for free by clicking this link.
As most of you know, I like and use the Blue Cash from American Express card. It earned me almost $500 last year, and I'm hoping for more in 2007. I've looked at a ton of other cards in an effort to find one that gives me more cash, but I haven't found any. That's why I've named the Blue Cash from American Express card the best cash-back credit card.
That said, I'm always on the lookout for a better-performing card. Recently, I had a discussion in the comments of my post titled The Best Cash-Back Credit Card. Chris told me that he thought the Chase Freedom Cash Visa card was a better deal. We went back and forth for a bit, then we took our conversation offline. I asked him to do a review of both of the cards under three different spending scenarios and to provide a backup spreadsheet for review. He graciously agreed and what I have below is Chris's take on the American Express Blue Cash card versus the Chase Freedom Cash Visa card. His take:
Overview of the Cards
The American Express Blue Cash card offers a tiered rebate level, based on your year-to-date purchases. For the first $6,500, you earn 1% on purchases at grocery stores, gas stations and drug stores and 0.5% on everything else. Once you've gone past $6,500 for the year, you earn 5% on purchases at grocery stores, gas stations and drug stores and 1.5% on everything else.
The Chase Freedom VISA gives you 3% on purchases at grocery stores, gas stations and drug stores and 1% on everything else. It is not tiered; you earn the full 3%/1% from the first dollar spent. But, while there is no overall maximum on the amount of reward you can earn, there is a maximum of $600 per month which can earn the 3%; purchases over that earn only the 1%. Further, if you allow your reward balance to reach $200 before redeeming, Chase will kick in an extra $50. This means that you are effectively earning 3.75% on grocery/gas/drug purchases (subject to the $600 max) and 1.25% on everything else.
Now, Chase has recently added another option to the Chase Freedom VISA, sometimes called "Dynamic Cash Rewards." This feature allows your 3% earning to change to the three essential categories where you've spent the most each month. The "essential categories" number fifteen, and include gas, grocery and drug stores, as well as telecommunication charges, cable/satellite TV/Internet Service Providers, utility payments, gym/health club memberships, spas/salons, quick service payment/fast food restaurants, video rentals, department stores, dry cleaners, movie theatres, local and suburban commuter passenger transportation (including ferries, bridges, tolls, parking garages, taxis/limos), and pet supply stores/veterinary services.
For the purposes of this comparison, I'm going to make a few assumptions. First of all, I'm assuming your charges are spread out somewhat consistently over the year. Because of the tiered nature of the AmEx card, the timing of charges can affect the amount of your rebate. Even at the same total yearly spending level, if you make a significant portion of your non-g/g/d purchases very early in the year (like taking a large vacation in January), you will increase the rebate you get. If you delay those non-g/g/d purchases until later in the year, or make an inordinately high level of your g/g/d purchases early in the year, you will reduce the rebate you get. Again, for the sake of this comparison, I'm assuming your spending patterns are consistent. For the purposes of the Chase card, I'm assuming grocery, gas and drug will be your essential categories, and that you will allow your rebate, as an ongoing rule, to accumulate to $200 before cashing in.
- For a total spending level of $1,000 per month, of which $450 is grocery, gas and drug, the AmEx Blue Cash would earn $223, while the Chase VISA would earn you $285. Winner: Chase.
- For a total spending level of $2,000 per month, of which $700 is grocery, gas and drug, the AmEx Blue Cash would earn $526, while the Chase VISA would earn you $480. Winner: AmEx.
- For a total spending level of $3,000 per month, of which $850 is grocery, gas and drug, the AmEx Blue Cash would earn $781, while the Chase VISA would earn you $630. Winner: AmEx.
My conclusion is, that at a relatively low level of spending, the Chase VISA may be a better deal for you. But if you spend more than, say $1,700 per month, the AmEx Blue Cash starts to be more advantageous. The higher your spending, the more the AmEx Blue Cash makes sense. Your mileage will, of course, depend on many factors, including the percentage of g/g/d purchases to other purchases, and purchase timing (as described above).
But wait, there's more!
If your spending is at a level where the above would indicate the AmEx Blue Cash would be superior to the Chase VISA, you can bump up your rewards a notch by using a hybrid approach. Taking advantage of the "Dynamic Cash Rewards" option of the Chase Freedom VISA, you could select any three of the other twelve "essential" categories (other than grocery, gas, and drug), and use the Chase VISA for only those charges. Put everything else, including gas, grocery and drug on the AmEx Blue Cash. Doing so will automatically earn you some extra cashback bonus.
For example, in the $2,000/$700 example above, using only the AmEx card would earn you $526. But by peeling off, say $300 in other "essential" categories onto the Chase VISA, you'd forego $66 from the AmEx, but you'd earn $135 on the VISA, for a net gain of $69. At the $3,000/$850 example, if you diverted $600 in essentials to the Chase VISA, you'd drop your AmEx rebate by $112.50, but you'd earn $270 on the Chase VISA, for a net gain of $157.50. Now, remember, I'm assuming you're allowing the Chase rebate to accumulate to $200 before redeeming, so to get the full amount of these savings may take somewhat more than a year to reach the necessary level, as would be the case in the $2000/$700/$300 example.
And actually, carrying the Chase VISA in addition to the AmEx isn't such a bad idea anyway, since there are a few places which don't take AmEx. Using this approach, you've covered most of the bases.
Be careful if you sign up for the Chase VISA, however. Chase apparently still offers the straight g/g/d Chase Freedom card, as well as the Dynamic category one. Make sure you're getting the one which allows the categories to switch automatically, else the hybrid approach will not work.
In short, the strategy which works best for you will depend on your overall spending level, as well as the amount you spend in the various categories. With a little planning, you can maximize your cash back.
A few thoughts on this from me:
1. Thanks again, Chris, for all your work on this.
2. I've attached Chris's spreadsheet at the bottom of this post so you all can download it and see if his analysis is correct. You can also use it to see what you would expect to earn from each of these cards based on your spending habits. (BTW, your results may vary based on your spending habits and total charged. For extra thoughts on this, see The Keys to Getting the Best Reward Credit Card for You.)
3. I use the Amex card as my primary card and the Subaru Platinum MasterCard from Chase as my backup. (I detailed why in What My Second Credit Card Does for Me.) But after seeing this, I'll probably switch to the Chase Freedom Visa card and use the dual strategy Chris recommends above.
4. It's no surprise to me that the Blue Cash from American Express (review here) card wins when you charge a lot on it. After all, the card was named the best reward credit card for "big spenders" by Money magazine.
5. At the highest spending level, the Amex card returns cash rewards of 2.17%! At the second highest it returned 2.19%! A couple thoughts on this: 1) these percentages are WELL ABOVE the "industry standard" 1% cash back and 2) these are also well above the 1.84% I earned last year. I need to do a better job of charging on/managing my card -- I'm leaving money on the table.
6. By combining the two, you earn a rebate of 2.61% on your total purchases -- a level that is simply phenomenal!
7. If any of you out there think you have a card/cards that can return more cash back, let me know. I'd love to let Chris have a crack at it! ;-)