Are You Earning Less Than 2% in Credit Card Rewards? It Might Be Time to Switch.

The following is a guest post from Nerd Wallet.

Not too long ago, it wasn’t unusual for a credit cardholder to earn 3-5% in rewards on card purchases.  But lately, banks have started to get stingy.  Credit losses from the recession plus new regulations have eaten into their profit margins, so they’ve been raising fees, raising interest rates, and cutting back rewards programs.  Nowadays it’s generally accepted that a 1% reward rate is the industry standard. 

But just because it’s the “standard” doesn’t mean that you have to settle.  There are at least nine different cards out there that could earn you 2% on your purchases, and there are many more that could end up earning you at least that from bonus categories if you play your cards right.

How Come I’ve Never Heard of These Before?

The main reason is because a lot of these cards are loss leaders for their issuers, so they aren’t well advertised.  The auto cards are a good example of this, because the car manufacturers view them as a marketing expense to convince you to buy one of their cars.

The other reason you probably haven’t heard of them is because credit card sites have no incentive to tell you about them.  The online credit card search world lives on affiliate fees, where card issuers pay them whenever you sign up for a new card.  Most of these cards don’t pay these fees, so no one bothers to pitch them to you.

Great, So Which Cards Will Pay Me 2%?

• Brokerage Cards – Schwab offers a Visa tied to your brokerage account.  They pay you 2% back in cash on all of your purchases, and that money goes right into your brokerage account.  Fidelity also offers a couple of cards that pay 2% cash back – an Amex tied to your checking account, your IRA, or your 529 college savings plan, plus a Visa tied to your checking account that pays 1.5% for your first $15,000 in purchases and 2% after that.

• Auto Cards – GM and Subaru both offer cards that pay not just 2%, but 3%, on all purchases with the caveat that the rewards are used toward the purchase of one of their vehicles.  Depending on the car you plan to purchase, GM limits your redemption to anywhere from $1,000 to $3,000, but they will still pay you 1% in cash on any points you don’t use toward a car purchase.  Subaru limits you to $500 annually, and there’s no cash option, but you can use the rewards on parts, maintenance, leasing, or anything else you buy from Subaru. 

• Navy Federal Credit Union – If you or anyone in your family was ever in the military or employed by the Department of Defense, then you may be eligible to join their credit union.  If so, they offer a Flagship Rewards card that pays 2%, redeemable toward flights on any airline.  They also offer a Business Card that pays 1% on up to $4,000 in purchases, then 2% beyond that.  And who’s to say you’re not a business?

• Discover Escape – It’s actually quite surprising this card doesn’t get more notice, because it is actually a sponsored card, and it pays 2% in Discover Miles that are effectively the same as cash.  These “miles” are redeemable toward travel certificates that can be used on any hotels, airlines, or car rentals of your choosing.  The card has a pretty hefty $60 annual fee, but you get 1,000 extra miles per month for the first 25 months you use the card.  That more than makes up for the fee for at least the first few years.

• Capital One Venture Rewards – Here’s another card where you redeem your miles for statement credit against travel expenses.  So these “no hassle miles” are effectively cash.  It also carries a $59 annual fee, but that’s waived for the first year, plus you get 10,000 miles if you spend $1,000 in the first three months.

None of Those Cards Are Right For Me, So Am I Out of Luck?

Not quite, there are a few other cards that have generous rewards for bonus categories that can still average 2% or more if you take advantage of them.

• Amex Blue Cash – With this card, after you’ve spent $6,500 in a given year, you can earn 1.25% on all purchases, plus 5% on “everyday purchases” at grocery stores, drugstores, and gas stations.  Before that it’s 1% on everyday items and 0.5% everywhere else.

• Citi Forward – Pays 5% on dining, books, movies, and music, then 1% on everything else.  This could be a huge benefit if you live in a place like New York where you are constantly eating out.

• Chase Freedom – The rewards on this one are a little hard to follow.  They pay you 5% cash back on a rotating quarterly schedule of bonus categories, and then 1% everywhere else.  They don’t specify in advance what the category schedule is going to be, but as an example if they choose furniture for next quarter and you happen to be refurnishing, this could add up.

• Gas Cards – If you spend a lot of money on gas each year, there are a ton of cards that pay up to 5% on gas.  Aside from the Blue Cash, we like the Chase BP Card and the PenFed Platinum Cashback, which both pay 5% on gas and 1% on everything else.

So take a look at the cards in your wallet.  Are you being underpaid?  If you’re earning less than 2% on your purchases, chances are the answer is yes.  But now you have all the information you need to fix that little problem.

Comments

[jclimber]

I use the Amex Blue Cash. No fee, up to 5% back on everyday stuff, 1.25% on everything else. Only issue is that I like my credit card's closing date to be the last day of the month and most cards I can call them up and set that up. But not with Amex, closest I could get is a few days before or a few days after.

[Dave]

Can you still apply for the Schwab Visa card. I can't seem to find a good link.

[Joe]

From what I've heard, the Schwab CC can no longer be obtained as of the first of this month.

[Holly]

I think you're leaving out some cards.

For example, I carry:
- Chase Freedom VISA: 3% cash back on your "top 3 categories" of the month, and 1% on everything else. Plus an extra $50 bonus if you wait until you have $200 to collect.
- Citi AmEx: 5% back on purchases at supermarkets, drug stores, and gas stations. I don't think you get any money back on other categories though.

Best way to combine these of course is to use AmEx at supermarkets, drug stores, and gas stations and VISA everywhere else. Although I confess that I usually just use the VISA because it's easier to manage a single bill.

[Eric]

Schwab CC is by far the best and most straight forward (CASH!)

But too bad it's not accepting any more applications. Good for us who jumped in while still available.

[John]

The citi forward earns you rewards not cash. the rewards are definitely better than nothing, but they don't seem all that valuable...for example you need 8000 to earn $50 cash reward. there are some gift cards and other cash like options that have a better ratio of points/$ though.

[Kimberly]

I use the Costco Amex card that earns 3% on gas and restaurants, 2% on travel, and 1% on everything else. I just ran the numbers on last year's rebate and we earned an effective rate of 1.84%. I'm happy with that. You get a check once a year that you can cash at Costco, or use towards purchases at Costco.

[KaseyD]

* Chase Signature just recently announced (invitation only??) a 10% reward on gas, groceries, restaurants, utilities. telecom but only from April thru June'10.

* Schawab - ask your broker at Schwab for the link to apply; it appears that they have taken off the online application but you might still be apply by telephone. That's what I did, and I go the card pronto.

[Rachel]

Chase Freedom: I have been a customer since 2007 and they removed the $50 bonus. I was less than $5 away from bonus. I'm pissed and plan on canceling the credit card. (I have already been moving over to the Schwab card.

[Homer S]

"... we like the Chase BP Card and the PenFed Platinum Cashback, which both pay 5% on gas and 1% on everything else."

-Not exactly-

PenFed pays 2% on supermarket purchases.

[Mike B.]

I moved from Amex Blue to Chuck Schwab and am very happy. No thinking about which card to use, no being worried about it not being accepted, no thinking about when I'll get my rewards (Amex was yearly near your start date, and my old 1% chase you had to specifically redeem occasionally).

As a huge bonus to me, they also have NO foreign transaction fees that are often 2% on most other CC. That's great for me as I go to Mexico once a year and to Europe every couple of years.

Just prayin' that they don't make any changes...

[Greg]

Chase Freedom limits the 5% to $32 per quarter from Jan-Sep and $24 for Oct-Dec.

[Alan]

They finally changed my Freedom card to the rolling 5% and 1%. I was getting close to the $200 threshold so I'm guessing that is why they finally switched me. I took the card out of my wallet, I won't use it unless there is a good 5% category in the future.

I've got the Schwab 2% card and it's great. No categories to remember and a straight 2% back.

[TJ]

"Chase Freedom – The rewards on this one are a little hard to follow. They pay you 5% cash back on a rotating quarterly schedule of bonus categories, and then 1% everywhere else. They don’t specify in advance what the category schedule is going to be, but as an example if they choose furniture for next quarter and you happen to be refurnishing, this could add up. "

That's not true. I got the information from the ultimate rewards site not too long ago.

CHASE 3% (now 5%) BONUS CATEGORIES

Jan 1 - March 30
Dining, Education, Childcare, Utilities

April 1st - June 30th
Home Improvement, Lawn and Garden, Home Furnishings and Drugstores

July 1st - September 30th
Gas, Airlines, Auto Rental and Hotels

October 1st - December 31st
Grocery Stores, Department Stores and Movies

[TJ]

'Chase Freedom limits the 5% to $32 per quarter from Jan-Sep and $24 for Oct-Dec."

When I had the 3% bonus in Jan-Mar, it was a max of 2000 Extra pts ($1000 of purchase, $20 free), for the Apr-Jun, the max bonus is indeed $32 ($800 of purchase), they're capping the purchases at a smaller clip, but giving you more free money.

[Holly]

I'm very confused. Although I had heard people complaining about Chase Freedom's changes to the reward system (mainly the dumping of the bonus), the terms of my account/rewards have not changed at all.

How do I know? Well, I recently redeemed $200 and got the $50 bonus. I also JUST NOW logged into the website to check the terms given there, and it talks about the 3% on the top 3 categories, the $50 bonus, and that's it...no rotating bonus 5% whatever it is that people are talking about here.

Is it possible that Chase is implementing their changes in a staggered fashion? Is that even legal? [I'm not complaining though because I *like* the nice simple rewards structure I've had for the past several years.]

[FMF]

Holly --

I think they may have grandfathered in some customers, but no one knows for sure.

[Holly]

Coincidentally, the very day after I posted this, I got notice in the mail of the upcoming changes to my rewards program...which will take effect June 2.

It's particularly aggravating b/c I am probably only about 3 months of normal spending away from getting up to the $50 bonus again. Maybe they're staging the rollout to hit people just when they get to that point, as someone suggested above. Although that seems likely to just piss people off and turn them to other cards; and I'm I'm not usually one to be prone to conspiracy theories.

Oh well. Guess I'll be using my AmEx from now on.

[bob johnson]

A little trick with Chase Freedom is if you are a Chase checking customer,
you get an extra 10% and 10 cents per transaction.

As a result I use the Chase card for all my tiny transactions.
Spend $1, get 1 +10 = 11 cents, effectively 11% back
Spend $5, you get 5 + 10 = 15 cents, 3% back
Spend $10, get 10 + 1 + 10 = 21, 2.1% back

Above $10, I use my Schwab card (2%), Costco Gas (3%), or rotating Discover quarterly deals.

[resourceress]

"Chase Signature just recently announced (invitation only??) a 10% reward on gas, groceries, restaurants, utilities. telecom but only from April thru June'10."

Link, please?

[Lee]

Today my Schwab Invest First Visa was rejected at WalMart. I wonder if it's only a matter of time before it's completely shutdown.

[Lee]

Schwab Invest First Visa still ok. I checked with cust. service and they say it should be ok. Must have been a communications thing that it was rejected. Used it again for all expenses this week.