How to Get the Most from Rewards Cards

As most of you know, I'm a user of cash-back rewards credit cards. Currently I'm using the Blue Cash from American Express and Chase Freedom Cash Visa cards in an effort to earn 2.6% cash back, though I am interested in the new Schwab card. I still need to do the analysis to see what is the best option for us, but I know for sure that 1) we'll use a cash back card (or cards) and 2) at the most, we'll use two cards. Yeah, we could earn a bit more, but once the number of cards gets over two, it's simply too much of a card management hassle to get the extra money.

Anyway, this piece on getting the most from rewards cards made a couple points that stood out to me. Here's the first:

Assess your spending. Most cards offer reward bonuses for spending in certain categories, either as a regular feature or a temporary promotion. Choose a card that lines up bonuses in categories where you spend the most.

Exactly! This is one of the keys to selecting the best credit card -- to get a card that gives you the best rewards (highest rate of cash back) where you spend the most money. This is a key issue for us as many cards give top levels of rewards for food, gas, and drugstores. But we only spend about 30% (my guess) of our total charges in these categories, so we need to look for something that gives us big rewards on "normal" purchases (hence my interest in the Schwab card.)

Next, they make this comment:

Skip the stuff. Redeeming points or miles for merchandise is often the worst way to spend rewards. With Bank of America's program, for example, it takes 25,400 points for a blue 8GB iPod Nano. For 25,000 points, you could get $250 cash, enough to buy the player at Apple.com for $149, with $101 and 400 points left over.

Exactly again -- just what I said. I think most of the points programs are simply an attempt to make you think you're getting a good deal when you could most likely earn cash instead and buy the item for much less (whether it's a flight, a hotel room stay, a blender, or whatever.) Besides, cash is much more flexible -- you can use it to buy anything and aren't locked into a predetermined set of choices. And, of course, there are no blackout dates for cash. ;-)

Comments

[David Wynn]

Just a thought for when you review the Schwab card: keep an eye out for brokerage fees. I've heard Schwab's can be prohibitively high unless you have enough invested with them already.

[David Wynn]

Just a thought for when you review the Schwab card: keep an eye out for brokerage fees. I've heard Schwab's can be prohibitively high unless you have enough invested with them already.

[Kevin M]

I just opened a Schwab checking as a backup account so I may have to check this one out also.

We already have the chase card and are thinking of adding this one. We would use the Chase for only 3 categories to get 3% and then Schwab for the rest to earn 2% instead of 1%. We don't spend enough to benefit from the American Express.

Schwab's fees are not that high, and their minimum balances are lower than other brokerage houses. Another benefit is their checking account, which (used to) offer high interest rate with no fees and free checks.

[rwh]

I'm curious about the psychology of using rewards cards. Is there evidence that in the attempt to maximize rewards, people purchase more things with their credit card than they would if they were using cash, in a subconscious effort to increase their rewards?

I try to be vigilant about the psychology of personal money management. That's why I only use my current rewards card (still waiting for the Schwab card) for recurring expenses such as groceries and gas, along with purchases that I'm as close to 100% certain I would make anyway, such as repair bills.

Otherwise, I can't be completely sure the purchase I just made wasn't an impulse buy. And of course, my debit card can lead me to do the same thing.

I'm humble enough to recognize I'm vulnerable to these impulses, even if I tell myself I'm smarter than that.

[Patrick Bateman]

I agree that cash cards are the way to go every time. They allow for more flexibility, more control, and with so many discount sites for airfare and purchases these days, why choose a rewards card? I'm a Chase Freedom guy. I look forward to FMF's AMEX vs. Chase show down!

[Rich]

Good point on the difference between rewards points and actually getting the points. The dollar equivalents on some things are simply ridiculous.

[Harv]

I am lucky to still get the 5% from Chase cash plus card which I heard a few people say that they have been cut back already to 3%
I use that for Gas,Grocery & Drugs.
I also use the Chase Freedom for 3 other categories to get 3% Telecommunications • Cable & Utilities All set to auto pay direct every month.
Also the best I have found for all other purchases is the FNBO card which gives 2% for the first year of the card.(must have savings with them)
All cash back rewards are the best option for me.

[Eric N.]

The only exception for me is Citi's Thank You points. 20,000 points can get me a $400 domestic flight ticket while only redeeming $200 in gift cards. Just do a personal analysis for yourself I say.

rwh - I only use the card for things I would purchase anyway, although I do use it instead of cash on some occasions. Also, if we are somewhere with friends and one person has to pay with the card and the other pays them back, I offer to be the one who pays to get the reward. But I wouldn't do this if I didn't have reliable friends, or as often without the card.

[Julie]

I have been trying to figure this out for our family...any advice would be great. We use our citibank american airlines CC for almost everything to get points since we fly to Australia every year. We fly American/Qantas and have managed to get 3 free flights over the last 4 or so years. Flights are worth about $1450 (or more) each. We usually spend between $1500-$2000 a month on our credit card (though I would like to reduce this) and we pay it off every month. The majority of our purchases are food (grocery and dining out), gas, diapers, toiletries/household items.

Is there a card out there that I could get more than what I am getting in airline rewards? If so, I would just take the cash back and put it in our 'travel savings' and have more flexibility on airlines...though I do love Qantas! Thanks for any advice!