Federal government data show American consumers spend most of their money on food, whether it be groceries or dining at restaurants. Your credit card rewards strategy should start there. Here are a few great options for earning cash back on your food purchases.
To examine the latter point, I recently analyzed data from the U.S. Bureau of Labor Statistics. It has great insight into how residents of 22 of America’s largest metropolitan areas spend their money.
I focused on groceries, restaurants, gas and transit because those are key credit card rewards categories. I was surprised to see how much the results varied across the country:
- Average annual grocery spending (what the BLS calls “food at home”) ranged from $3,779 per household in Atlanta to $6,195 in Seattle.
- Average annual restaurant spending (“food away from home”) fluctuated from $2,761 in Miami to $5,629 in Washington, D.C.
- Average annual gas expenditures went from $1,514 in New York to $2,706 in Los Angeles.
- And the average transit outlay (“public/other transportation”) swung from $459 in Tampa to $2,099 in D.C.
The national averages by category were $4,464 (groceries), $3,459 (restaurants), $2,109 (gas) and $818 (transit). Clearly, food is the big winner, so a solid credit card rewards strategy should start there.
Specific card recommendations
The Capital One® Savor® Cash Rewards Credit Card is an excellent choice for foodies because it gives 4% cash back on dining and 2% at grocery stores (plus 8% cash back at Vivid Seats until May 2020, 4% on other entertainment purchases and 1% on everything else). There’s a $300 welcome bonus if you spend $3,000 in the first three months, and a $95 annual fee, which is waived the first year.
Using the national averages in the four spending categories mentioned above, the typical cardholder would earn $557 the first year (aided by the sign-up bonus) and $257 annually in year two and beyond. Starting in year two, the yearly profit is $162 after subtracting the annual fee. Those are solid returns, plus, remember that any other spending which goes on the card would increase the totals.
Another good option would be the Blue Cash Preferred® Card from American Express. This is my favorite grocery card because it gives 6% cash back at U.S. supermarkets (on up to $6,000 of annual spending, then 1% after that). Select U.S. streaming services earn 6% cash back, too.
This card is also useful for U.S. gas station and transit spending (3% cash back on each), and it gives 1% on everything else. There’s a $250 welcome bonus in exchange for spending $1,000 in the first three months, plus a $95 annual fee.
All of this adds up to a $545 profit the first year and $295 in subsequent years, even after subtracting the annual fee (unlike the Savor card, it’s not waived the first year).
A third possibility is the Wells Fargo Propel American Express® card (3x points on popular streaming services, dining and travel, including gas stations, and 1x points on everything else). This one gives 20,000 bonus points (worth $200) to new cardholders who spend $1,000 in their first three months. It does not charge an annual fee. That’s $367 in rewards the first year and $167 annually in year two and beyond.
See related: Best credit cards for grocery shopping
Cash back is king
Two-thirds of rewards credit card holders prefer cash back, according to a 2019 CreditCards.com survey. I’m one of them. I travel some, but it’s not a passion of mine, and it’s not always practical with a young child and a full-time job.
What’s most meaningful to me is earning cash back from purchases I would have made anyway. I earned almost $2,500 in cash back last year; that’s like an extra paycheck. It really adds up, and you can do it too.
Start by maximizing your key spending categories, such as food and transportation, and watch the rewards roll in.