Credit card rewards “transfer” wealth from cash users to credit users. If you choose the right credit card and use it responsibly, it can come in the form of discounts.
By using a credit card (earning rewards), you can get cash back. For example, assume merchants (like Walgreens) pay a 2-3% interchange fee to accept your card. In most states, this amount is the same, thus merchants increase product costs.
Consumers using credit cards can earn rewards, while cash users foot the bill. According to data from the Boston Federal Reserve Bank, cash users pay $149 annually to the system. Credit card users receive $1,133 annually from the same system. If you want to learn more about becoming the recipient of funds, read on.
Side Note: If you prefer not to use credit cards but still want the benefits of rewards, I recommend checking out cash back portals. One of the most competitive rates and payment methods currently is Rakuten. Here’s a recommended link to check them out: Rakuten
Tier 5: 1% to 1.5% Credit Cards
These are typically the starting point for those new to this channel. They know they should have a credit card for all the reasons we mentioned earlier, including building credit and getting some rewards, but haven’t researched much beyond that.
You can usually get 2-3 times the value with minimal effort. For example, some 1.5% cards are associated with other card sets, but this is usually because something (premium cards) makes them more valuable.
Tier 4: 2% Credit Cards
These cards are my recommendation for those who want to set it and forget it and use one card for everything.
The Citi Double Cash® Card (1% when you buy, 1% when you pay), Fidelity 2%, and PayPal 2% Mastercard, along with some regional credit union cards, meet the criteria. Among them, I recommend the Citi Double Cash because it gives you more options.
One of the benefits of Citi is that when you travel or get cash back with a Citi card, you can transfer points between any two cards. For example, Double Cash can be changed to a Costco credit card.
For travel, 2% is the benchmark we use when comparing cards; we hope it can meet the minimum threshold of 2%.
The Citi Double Cash Card is a great example of a card that serves you for travel, offering up to 4% cash back for premium redemptions like business or first-class flights.
Tier 3: Specialty Credit Cards
These types of cards are for people who spend a lot of money in specific places. Cash back here is just cash back, so generally, there are no additional reward options. The goal here is to find cards that offer at least 3% cash back. You want your cards to work for you.
Cards in this category are divided into three subtypes:
- Payment Method
An example of payment method cards is Apple Pay. Apple gives you 3% cash back when you use Apple Pay at places like Apple, Walgreens, Duane Reade, Nike, Uber and Uber Eats, and Exxon.
For those with expensive prescriptions, Walgreens’ 3% cash back can be a windfall. Similarly, if you spend a lot on Apple products, this is a good choice.
- Vendor or Store
The Amazon Prime Card is a good example, offering highly competitive 5% cash back for heavy Amazon shoppers or Whole Foods regulars.
If you’re someone who buys a lot of electronics or cameras, B&H is worth considering, as it can offset up to 8.5% of the tax. This can save a lot on a $1000 camera lens!
Be careful with this; avoid buying cards for places you don’t spend much money or won’t use in the future.
Specific category examples:
The Costco Anywhere Visa® Card by Citi earns 4% cash back on gas up to $7,000, and 3% cash back on dining and travel. The Capital One Savor earns 3% cash back on dining and entertainment. The Blue Cash Everyday® Card from American Express earns 3% cash back at U.S. supermarkets, up to $6,000, then 1%. Terms apply.
The benefit here is that you’re not locked into specific stores. You can go to Trader Joe’s, Safeway, and Whole Foods, as well as any restaurants or gas stations, etc.
Many cards in this category also have fee versions. The American Express Everyday Preferred and Blue Cash Preferred are typical examples of credit cards with different annual fees.
To find out which card is best for you, do a simple cost-benefit analysis. Ignore all other multipliers; if your supermarket spending is $3,167, you’re fair to any card. If you spend more than this amount, the Blue Cash Preferred offers better value.
Finally, make sure these cards cover the basics you need
