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Flat cash back bonus or higher percentage rewards rate: Which is better?

An unconventional introductory offer might be worth more


The Chase Freedom Unlimited card recently updated its introductory offer to include a higher percentage of cash back in the first year. Is it enough to beat the standard cash bonus?

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Editor’s Note: The offer below on the Chase Freedom Unlimited is no longer available as of Oct. 10, 2019. 

The Chase Freedom Unlimited® card recently debuted a new sign-up bonus, allowing cardholders to earn 3 percent cash back on all purchases in the first year of card membership (on up to $20,000 in purchases, then 1.5 percent). Previously, users earned a $150 bonus after spending $500 in the first three months.

This begs the question: Which bonus is more valuable? When choosing a new card, should you opt for a flat cash bonus or the opportunity to earn a higher percentage for a limited time?

Generous flat cash bonuses do exist, but when comparing cards with similar rewards rates and point values, the percentage increase is almost always the better option. These bonuses reward smart spenders and can be extremely lucrative. While there is certainly something satisfying about seeing an extra $150 on your statement all at once, it might not always make the most sense for you.

What is a percentage increase sign-up offer?

Typically, credit cards offer a flat number of points or cash back for meeting a specified spend threshold in the first few months of card ownership. A percentage increase bonus – like the one on the Freedom Unlimited – bypasses this standard, and instead allows cardholders to earn a bit more for the first year.

For example, the Freedom Unlimited typically offers 1.5 percent cash back on every purchase. For the first year, however, cardholders can earn 3 percent cash back on every purchase (up to $20,000 in purchases for the year).

Comparing introductory offers

To understand the value of a percentage increase introductory offer compared to a flat cash back bonus, consider cards with a similar rewards scheme. The current Freedom Unlimited offer, for example, is worth around $477 with an average spend. If you max out the $20,000 cap, it is worth even more.

Potential earnings in first year: Chase Freedom Unlimited

3% cash back x $15,900 annual spend = $477
3% cash back x $20,000 annual spend = $600

Other 1.5 percent cash back cards include a more traditional bonus and cannot bring in as much in rewards in the first year. With the Capital One® Quicksilver® Cash Rewards Credit Card, cardholders can earn $150 after spending $500 in the first three months – which is pretty typical for cards with this rewards scheme. When you combine this bonus with normal earning, you earn less in the first year than you can with the Freedom Unlimited.

Potential earnings in first year: Capital One Quicksilver

(1.5% cash back x $15,900 annual spend) + $150 sign-up bonus = $389
(1.5% cash back x $20,000 annual spend) + $150 sign-up bonus = $450

Why a percentage increase introductory offer is a better deal

A flat cash bonus is certainly enticing. You can receive a big influx of cash all at once, just for meeting a spend threshold. If you are planning a trip or have a large purchase to pay off, this can be an easy way to take care of that.

However, smart spenders can get way more value out of a percentage increase bonus. If you are careful to stockpile your rewards in the first year, you can use them for the same purpose as a flat cash bonus and earn more to use toward your next vacation or splurge. While the wait for cash might be a bit longer, you can have a bigger payout.

How to maximize a percentage increase bonus

A percentage increase bonus is particularly valuable for spenders who follow a few simple tips.

Put most of your spending on that card in the first year

If you juggle rewards cards, you probably separate your purchases based on which offers the best bonus rate in that category. For the first year of card membership, however, it might make more sense to shift spending to take advantage of a higher than normal rate.

Meet the spend cap in the first year to maximize rewards

With a card like the Freedom Unlimited – which includes a $20,000 purchase limit on the 3 percent bonus (before dropping to the standard 1.5 percent rate) – you’ll get the most out of the card if you can meet that cap. Just be careful not to increase your spending more than you can pay off, to avoid racking up interest.

Save up your rewards for the first year

The biggest downside to a percentage increase bonus is that you don’t get the sudden influx of cash that comes with a traditional sign-up offer. If you save all the rewards you earn in the first year, you can see a larger amount when that year is up.

Consider transferring rewards to another card

With the Freedom Unlimited, you can transfer your rewards to another Chase Ultimate Rewards card to get more value. For example, if you transfer $477 of rewards to the Chase Sapphire Preferred Card and redeem them for travel through the Ultimate Rewards portal, you can boost the value of those rewards to $596 – thanks to the Sapphire Preferred’s 25 percent point boost on travel redemptions.

Final thoughts

In the end, an introductory bonus is one of many factors to consider when choosing a credit card. Long term value and alignment with your spending patterns are just as important. However, if two cards with a similar rewards scheme offer either a flat cash bonus or a percentage increase offer, it is worth thinking twice before jumping at a quick influx of rewards. By spending carefully, you can earn more with a percentage increase bonus and take your next trip with rewards alone.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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