If you want to keep it simple and use the same cash back credit card for all of your transactions, which one should you get? These are the best options among flat-rate cash back cards.
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If you want to keep it simple and use the same cash back credit card for all of your transactions, which card should you get?
Even those of us who like to juggle different cards that offer various percentages on gas, groceries, travel, dining and other categories will find this to be a useful exercise for determining our best “everything else” card.
Cards that are particularly generous in year one
The high end of the cash back market is defined as cards that offer 2 percent or more back on everything. The Alliant Visa Signature Card has the highest earn rate: 2.5 percent across the board (3 percent the first year). It charges a $59 annual fee, which is waived in year one. You have to be an Alliant Credit Union member to apply. Check here to see if you qualify for a free membership. If not, you can join for a one-time $5 fee.
The Discover it® Miles card offers 1.5x miles on all purchases, and it matches all the miles you’ve earned in your first year. It doesn’t charge an annual fee, but the earn rate falls to just the standard 1.5x miles in year two.
See related: The best cash back credit card for parents
Doing the math
The Citi Double Cash Card is essentially a 2 percent cash back card (technically, it’s 1 percent when you spend and 1 percent when you pay it off). There’s no annual fee. This card occasionally dangles a $100 sign-up bonus, especially to targeted consumers, but at present there is not a widely available offer.
You could potentially snag a sign-up bonus and get the Citi Double Cash through a back door. For example, you could apply for the Citi Premier Card and grab 60,000 bonus points (after spending $4,000 within the first 3 months) and later ask Citi to switch you over to the Double Cash. The Citi Premier charges a $95 annual fee.
Let’s compare the Citi Double Cash with the Alliant Visa Signature Card. How much do you need to spend in order to make the Alliant Visa Signature’s $59 annual fee worth it?
This is a question for year two and beyond, when the Alliant Visa Signature gives 2.5 percent cash back and the Double Cash gives 2 percent. The tipping point is $11,800 in annual spending. If you spend more, you’re better off with the Alliant Visa Signature. If it’s less, you should opt for the Citi Double Cash.
See related: How do you redeem cash back rewards?
Using cash back to save for the future
There’s another option to consider – the Fidelity Rewards Visa Signature Card. It’s a flat-rate 2 percent cash back card with no annual fee and a twist. Cash back must be contributed to a Fidelity investment account. Examples include a retirement plan, a college savings plan, a health savings account and a brokerage account.
All of these options have significant future growth potential, depending on how well the investments you choose perform, and there are possible tax advantages.
Using “free money” from credit card rewards to plan for future financial goals has behavioral finance benefits, too. It’s especially easy to fritter away “found money” such as credit card rewards, tax refunds and bonuses because of mental accounting (many people find it easier to part with money obtained via these avenues since they didn’t work for it in the same way as their paychecks).
It’s especially tough to delay gratification and fund your future self rather than consuming something today. The Fidelity Rewards Visa Signature Card helps automate this process.
Travel cards masquerading as cash back cards
I’ll briefly include two other examples, even though both are more geared toward travel rewards than cash back. Barclaycard Arrival Plus World Elite Mastercard and Capital One Venture Rewards Credit Card holders earn 2 miles per dollar. Each mile is worth 1 cent toward travel but just 0.5 cents in cash back (note: the Barclaycard gives 5 percent of your miles back every time you redeem).
These cards have generous sign-up bonuses (70,000 miles from Barclays after spending $5,000 in the first 90 days and 50,000 miles from Capital One after spending $3,000 on purchases in the first 3 months), and they waive their annual fees in year one. After that, Barclays charges $89 and Capital One charges $95.
The final word
If you truly want to go all-in on a single cash back card, I’d pick the Alliant Visa Signature Card (assuming you’re charging more than $11,800 annually).
Remember that if you’re willing to do a little more work, the best approach is to sign up for several different cards that maximize specific categories. If you do that, you can raise the cash back bar well above 2 percent.
Oh, and keep an eye on Apple and Goldman Sachs. They’re reportedly planning to launch a cash back card that may allow cardholders to earn 3 percent on Apple purchases and 2 percent elsewhere. That would definitely be worth including in this conversation.