Optimize Efficiently: Credit Card Rewards

It’s no secret that I love optimizing things. I have to make a strong effort to optimize what I optimize though. Sometimes I get caught up in optimizing things that just aren’t worth optimizing. Lately, I’ve become pretty excited about the idea of optimizing my credit card rewards. I slowly realized that I spend enough to earn something from funneling all my purchases through credit cards, but the less you spend, the less you’ll earn. I’ve been tracking my credit card spending over the last few months in a Google doc. I made a list of the major extra spend categories that you can get credit cards for and made a pie chart of my spending in those areas:

2012 Average Monthly Credit Card Spending 2013 Average Monthly Credit Card Spending

Notice how big the “Everything else” category is in the pie charts? Yeah. So the biggest win will be to optimize there.

Side note: Notice that last year my Restaurants spending was 20.7% in an average month and this year it’s only 8.2%? I’ve decreased it from about $400/month down to $150/month. That’s a pretty good drop! I’m also not spending as much on Amazon.com, which is good too.

My current system is as follows:

  • 3% Amazon.com spending (Chase Amazon.com Visa)
  • 2% Drugstore, restaurant, and gas station spending (Chase Amazon.com Visa)
  • 1% everything else (Chase Amazon.com Visa or credit union Visa)

I could double the Everything else rewards by simply by adopting the Fidelity Investment Rewards American Express Card that gives you 2% back on all purchases. (Thanks to tj and Executioner for recommending it on my last credit card strategy post!) I would be able to redeem the rewards for $50 in cashback every 2.5 months based on my current spending for a reward of about $240/year versus the current $120/year. Not everywhere takes American Express, but many places do. Based on last year’s spending, adding the Fidelity 2% Amex would have netted me an additional $175 in cashback over my current system since that pulls in groceries, airlines, and department stores, as well.

Another option would be the Fidelity Investment Rewards Visa Signature Card, which gives you 1.5% back on your first $15,000 in spending and 2% thereafter. But, my estimate of “Everything else” spending for the year is only $12,000, so I’d likely only get the 1.5% back on everything. You can’t redeem the rewards until you’ve accumulated $50 worth either and the points are separate from the Amex one, so I’m not sure if it’s worth it to go for both. The break-even point would be if > 50% of my “Everything else” spending dollar-wise was done at places that take American Express, then combining that card with a 1% one makes more sense than using the 1.5% Visa card.

I’ve also looked at cards with bonuses for the following categories:

5% cashback at gas stations – That’s a great cashback rate, except that I spend very little at gas stations. Last year, I averaged $40/month and this year I’m at $23/month so far. Getting a 5% gas card would net me an extra $8 this year or an extra $14 last year. That’s not nearly as worthwhile as the $174 jump with improving the “Everything else” category. You also need to be careful to not overextend yourself with credit cards and you can’t redeem the cashback often enough that the points expire. So if I was to get a gas card, it would be the PenFed Platinum Cash Rewards card that automatically credits your 5% cashback each month. The problem then would just be remembering to have it on me when I happen to get gas.

5% cashback on airfare – On every airline! This card is also through PenFed and it’s an Amex, the PenFed Premium Travel Rewards American Express Card. I was kicking myself for not having this card when I spent ~$1,000 on overseas flights a couple months ago since that was a loss of $40 in cashback rewards. Oh well, I did get about $10 in cashback rewards from that at least. I may consider adding this card at some later point, but I think I’ve bought all the flights that I will for this year now.

American Express Blue Cash Preferred/Everyday: This card has some great benefits:

  • Preferred: 6% cashback at grocery stores, 3% cashback at department stores and gas stations, 1% everywhere else ($75 annual fee)
  • Everyday: 3% cashback at grocery stores, 2% cashback at department stores and gas stations, 1% everywhere else
  • Roadside assistance

6% at grocery stores with the Preferred card looks great until you factor in the $75 annual fee. You would need to spend more than $2,500/year or an average of $208.33/month for this card to break even over the Everyday card. And the Everyday card is a $25/year increase in cashback rewards at that level over the 2% Fidelity Amex, with most likely only being able to redeem the rewards twice a year. Honestly, if I got one of these two cards, it would be mostly for carrying the Roadside assistance feature and some of the purchase protection from American Express like extended warranty and return policies. Plus, right now, they’re offering $150 in bonus reward dollars if you spend $1,000 within the first 3 months of opening the Preferred card or $100 with the Everyday card. So I will probably give in and open the Everyday card eventually, mostly for the free roadside assistance and the $100 bonus.

I had been looking for a no foreign transaction fee credit card beyond my Charles Schwab debit card, but it looks like my credit union is in the process of removing the foreign transaction fees from their credit cards, so no action is required on my part to obtain a no foreign transaction fee credit card. That’ll be pretty nice.

I’ve already opened the Fidelity Cash Management account necessary for redeeming the rewards from the Fidelity 2% Amex card, but since my plan was to wait until July to apply for another credit card, I’ll hold off for another month and a half or so. I’ll apply for the Amex Blue Cash card in early October when my current roadside assistance is about to expire.

Hope everyone is having a good weekend!

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20 thoughts on “Optimize Efficiently: Credit Card Rewards

  1. Nice job cutting your restaurant spending! And it’s a good thing you don’t spend a lot on gas- prices are through the roof. I just bought a bike this weekend and am excited to use it a lot this summer.

    I’m ‘lazy’ when it comes to cc spending in that I’ve had the same cash back rewards card from amex for years and don’t even look at other options, but maybe I should.

  2. One of my biggest expenditures is dining out so I use the US Bank Cash + card. You get to pick 2 different 5% cashback categories each quarter. I always choose dining out and recently chose hotels to take advantage of some upcoming vacations I have planned. Check it out.

    • Hmmm that card looks really interesting! You have to apply in a branch. I would probably pick Groceries and Restaurants for the 5% categories and then maybe Sporting Goods in the quarter that I renew my gym membership. Thanks for the tip!

    • I looked into it a bit more and I’m not sure how worthwhile that card would be. I already have a card that gives 2% on gas stations AND drugstores and am going to get the Fidelity Amex 2% card which will give 2% on everything (including groceries). The 5% cashback categories are pretty limiting based on my (low-ish) spending:

      * Sporting Goods Stores: gym membership counts here I think, so I could do that for the quarter when I pay the annual fees (gain: $20/year)
      * Cell phone: my bill is pretty cheap, so would only gain $12/year
      * Bookstores: this doesn’t include Amazon.com, so not useful here.
      * Department Stores: this could have been worth it had I had this card and the category set before buying my patio furniture (to the tune of $25), but otherwise, I’ve toned down my Nordstrom spending, so not that much of a win here
      * Restaurants: I’ve toned this down to ~$150/month, so this would gain me $54/year, which is more of a win than the other categories so far
      * Electronics Stores: I never spend any money here
      * Hotels: if I could actually plan my business trips prior to the beginning of a quarter, this could work out nicely (potential gain: $25-50/year)
      * Fast Food: don’t really eat at fast food places
      * Furniture Stores: don’t really shop at furniture stores
      * Car Rentals: I have yet to rent a car yet in my life.
      * Charity: I’m not sure if the places I donate to appear on this list.
      * Movie Theaters: Hah. I spend like $20/year at movie theaters, which wouldn’t even gain me a whole dollar.

      So this could be worth it, mostly for Restaurants and then planning ahead for the other 5% category for either Hotels, Sporting Goods, or Department Stores.

  3. Weve held a hsbc weekend card that paid 2% all weekend and since we work all week and pay for everything on the weekend weve been paid well. Now its been bought by capital one and changed to 1.5% everyday. This article was well made as I’m searching for another 2% or more! Thanks for the graph view idea Leigh as I just created one and itill help me search for card that I really need, and not a card that rebates on things I only spend 3% of my money on. Weve also got the penfed gas card and it helps.

    • A weekend card sounds like an interesting one! I would recommend checking out the Fidelity Amex card – it gets 2% everywhere that takes American Express. Glad to help – making a graph of my spending definitely helped me put into perspective what exactly I should look at. That’s great that the PenFed gas card is working for you!

  4. I recommend a Visa 2% cash back card if any still exist with no annual fee, as amex is not accepted everywhere. I have a priceline one, but I think they no longer offer it.

    For international- it might not be worth it if you don’t travel a lot since you are already getting out of the fee, but capital one has one with no annual fee, no foreign exchange fee + 1.5% cash back card. This site charts the foreign exchange fees, but not the rewards. http://www.flyerguide.com/wiki/index.php/Credit/Debit/ATM_Cards_and_Foreign_Exchange.

    In contrast, if you travel internationally a lot, they have a 2% cash back card that has a $59 annual fee bu not foreign exchange fee. It becomes worth it over the no fee 1.5% at about $12000 international credit card spending and then you have the bonus of having just one general cash back card international and domestic.

    Also as a general matter, I don’t find I spend enough on categories to make getting and then carrying category cards worth it. I just use the 2% cash back on all my purchases and sign up for credit cards for bonuses only (usually 400 dollars or 40k miles is my threshold), and then stop using them. I pay for my international flights using the sign up bonuses – trivial to come up with enough for one round trip international a year.

    • I would love to find a Visa 2% cash back card with no annual fee, but I can’t seem to find one, so the Amex one seems like not a bad tradeoff. I at least get 2% on drugstores, restaurants, and gas stations with my Chase Amazon.com Visa and 1% on everything else with that or my credit union visa card.

      My soon-to-be no foreign transaction fee card has 1% cash back on everything :) So I think I’ll just stick with that versus the Capital One card.

      Thanks for ringing in on the categories! It’s looking like it doesn’t make much sense for me either. Upgrading to a 2% card will be nice though.

        • That one does look interesting! I saw that on TFB’s site a while back. I think I’m going to give the Fidelity 2% Amex a try and see how many places don’t take American Express (so far, the only place I know of is my electricity company only takes Visa and Mastercard) and then re-evaluate.

          I don’t really count a $400 sign-up bonus as covering the fee for the first 5 years…I count that as no annual fee for the first year and a $400 sign-up bonus and then a really expensive $89 annual fee thereafter. The extra cashback on that versus falling back to a 1% card if a store doesn’t take American Express most likely isn’t worth an $89 annual fee to me.

  5. Well done with cutting the restaurant bills! I use my Capital One card for cash back and my Jetblue Amex to amass points for free flights. I make sure each gets a proper workout to maximize my benefits, and I always pay in full monthly. If you’re savvy, credit card rewards are an excellent way to work the system a bit! :)

    • Thanks! I’ve never even flown on Jetblue – not sure where they go from my city exactly. I also don’t fly a lot anymore for non-work purposes, so I’m not sure how much a flights card would help me out. I’m definitely loving my cashback though!

  6. I try to put most expenses on my cards in order to maximize rewards. The cards I use the most are Chase Freedom (quarterly rotating categories that earn 5% back) and Chase Sapphire Preferred (has an annual fee but the points can be transferred to partner airlines and hotels.

    • Are you finding that you get a lot of points out of the rotating 5% categories? The 5% on restaurants this quarter would have been helpful, but none of the other 5% categories look that great against my spending.

      • It depends on the categories. I like gas stations, restaurants, and Amazon the best because those are categories I spend on anyway. As a Chase checking account holder, I get an extra 10% bonus on the points. On its own, Chase Freedom my not be very lucrative, but I like that I can transfer these points to my Chase Sapphire Preferred account and redeem with travel partners.

  7. Leigh,

    What a nice coincidence — I just recently signed up for 4x new credit cards. Since I plan on retiring soon, I’m starting my journey to accumulate as many travel miles as possible. Been reading up on the blogs and just got: Chase Sapphire (40,000 points), 2 American Airline cards, and a US Airways card. That’s just Round 1! I’m gonna start Round 2 in a few months. Can’t wait!

    5% cashback sounds awesome on gas… but I recently started biking so I’m hoping I won’t be needing it much ;)

    • That’s a better way to “save” money on gas ;)

      Sounds like you’re doing well with the travel miles! Those require a bit more planning than I really want to do at this point since retirement is still at least a few years away! I want to get something that’s a better default card than I have for now.

  8. As far as the Fidelity Visa and Amex goes, you can transfer points in between the two, but you need 2500 points to transfer from one account to the other. It has to be in increments of 2500, AND the transferred points do expire after a certain amount of time, so as soon as you hit 2500 on either the Amex or Visa you just transfer it to the other card’s points pool and redeem everything that you have. It’s probably not worth the hassle if you are only talking about one monthly purchase that you can’t use the amex for.

    • Thanks for the tip! Do you have both?

      I think I’ll try the Fidelity Amex first and see how it goes. The only place I know of that doesn’t take Amex right now is my electricity company. Putting that on a 1% cashback visa versus the Fidelity 1.5% visa would lose me $3-4/year. I’d need a few more items since that spending wouldn’t earn enough to hit 2,500 points in one year.

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