Which to use? Know your spending habits, and look at costs, benefits
Dear Cashing In,
I would like to know which credit card is best for me, and which card I can get the most out of. I currently have Chase Freedom, Citi Double Cash, American Express JetBlue and American Express Blue Sky. On the Chase Freedom card, I like the 5 percent, and I use it 25 percent of the time. I almost don’t use the Citi cash back. AmEx JetBlue is my everyday card, because I want to use the points going on vacation once a year to Florida. I use the AmEx Blue Sky maybe once in a few months, though I currently have 30,000 points on it that I don’t want to lose. About me: I spend approximately $25,000-$40,000 a year combined in all cards. Thanks. — Joel
Although this sounds like a pretty specific question, your dilemma reminds all of us that it can be useful to periodically step back and examine our spending habits and our cards to ensure we are using them in a way that maximizes rewards.
If you have multiple cards — and most of us do — I recommend taking a few moments every now and then to write out the cards’ rewards and place them next to each other. If you do that, you can pretty quickly see which ones are best for you, and which ones might be worth pruning.
Let’s quickly summarize your cards:
Chase Freedom: No annual fee. Card offers 5 percent cash back on up to $1,500 in purchases on categories that rotate each quarter, 1 percent on all else.
Citi Double Cash: No annual fee. Up to 2 percent cash back (1 percent when you charge, 1 percent when you pay).
American Express JetBlue: This card was discontinued March 20, 2016, and switched to a Barclaycard JetBlue card. That card has no annual fee, 3 percent back on JetBlue purchases, 2 percent back at restaurants and grocery stores and 1 percent on all else. Rewards are in the form of JetBlue frequent flier miles, which seem to be worth around 1.4-1.6 cents per mile, based on my quick check of a few fares and miles required (JetBlue’s rewards tend to be pegged to the price of a ticket).
American Express Blue Sky: No annual fee. Card offers one Blue Sky reward point per $1 spent, and you can redeem 7,500 points for a $100 statement credit for travel purchases. That works out to a rate of return of about 1.3 percent of your spending.
First, let’s note that none of your rewards cards has an annual fee, so they really cost you nothing, assuming you pay your bills on time and in full.
That lets us focus squarely on the rewards. If you can calculate how much you are earning in rewards per $1 spent, as I have above, the results become obvious.
Clearly, your biggest return comes on the Chase Freedom 5 percent back on the rotating categories, though that big bonus is capped at $1,500 per quarter. Assuming you can spend that much on those categories, you max out those generous rewards when you spend $6,000 a year to earn $300 in cash back (5 percent). Once you hit the $1,500 per quarter in the assigned categories, this card, like Cinderella at midnight, transforms into something ordinary: just 1 percent back. Don’t use this card unless you are earning the 5 percent.
Your next biggest reward card sounds like a sleeper: Citi Double Cash. It is essentially unlimited 2 percent back. That is a higher rate of return on spending than your two other cards.
Yes, the American Express JetBlue card accrues JetBlue frequent flier miles, but the value of those miles you are earning — somewhere around 1.5 percent on most of your spending — is less than the 2 percent you would earn on Citi Double Cash. Spending on JetBlue purchases, restaurants and groceries is OK on this card, since that spending is at or above 2 percent back.
Same with Blue Sky: You are earning only about 1.3 percent back on your spending.
You would be better off using Citi Double Cash, sticking those rewards in the bank, then paying for your JetBlue flights to Florida. Of course, if you don’t trust yourself not to spend that money on something else, you might stick with the JetBlue card, since you would be more likely to use those rewards on flights.
In summary, to maximize your rewards, I would use your Chase Freedom on the designated 5 percent categories until you reach the $1,500 per quarter maximum, then use Citi Double Cash on everything else (except buying JetBlue tickets, which will earn you 3 points per dollar, and perhaps at restaurants and grocery stores — you’ll earn the same on those purchases as you would using the Citi Double Cash). Using a flat cash back card might not be as exciting as accumulating frequent flier miles, but in this case, the rewards are superior.