Strategies to maximize cash-back rewards

Flat-rate cards are easier, but rotating categories pay better

Cashing In columnist Tony Mecia
Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes "Cashing In," a weekly column about credit card rewards programs, for

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Question Dear Cashing In,
I am wondering what would be the best credit card for me. I want a credit card with little or no fees and charges and that has cash-back rewards. I plan to pay it off every month. What do you think? -- Max

Answer Dear Max,
A lot of times people seek advice on what cards to get. It's often a tricky question to answer, because it depends on their preferences and spending habits, which typically don't fit neatly into two or three sentences. 

Here, though, you've given me enough to work with that I can suggest a couple of cards to investigate, as well as help you frame your thinking on checking out other cards.

Surveys asking about reward preferences consistently show that people prefer cash over any other category of credit card rewards. But maximizing the cash you'll actually get back isn't always easy. 

Cash-back cards have been moving toward being more lucrative, but also more complicated. A survey from 2012 showed that about two-third of these cards offered different cash-back amounts based on what you charge or how much you are charging. For instance, a card might offer you 3 percent back on gas, 2 percent on groceries and 1 percent on everything else. That can add up if you buy a lot of gas and groceries, but if you do all your spending on that one card, you'll probably average a lot closer to 1 percent -- since you're likely to spend far more on "everything else" than you are on those two categories.

Other cards rotate the bonus categories every quarter. For example, they might give 5 percent at gas stations from January through March, then 5 percent at restaurants and movie theaters from April through June. 

A simpler option is to find a cash-back card that offers a flat rate. Most cards with the same cash-back rate seem to hover around 1 percent back. However, I'm familiar with two that offer twice that.

For many years, people seeking a better return than that would apply for the Fidelity Investment Rewards American Express card (no annual fee). It offers 2 percent back on all purchases, which are deposited into a Fidelity account. Cardholders can establish a cash account and withdraw the money, or direct it toward a retirement, college-savings or brokerage account. For people who wanted a solid and flat rate of return on spending, this was a workhorse card for several years.

In August, Citi introduced a cash-back card that rivals Fidelity's. The Citi Double Cash card (no annual fee) gives you 1 percent back when you buy, then 1 percent back when you pay your bill, for an effective rate of 2 percent. The rewards can be redeemed for a check, a statement credit, a gift card or a credit to a Citi checking or savings account. 

Using one of these cards is going to be a simple and straightforward way of earning a strong return on your purchases.

If you want to get a little more complicated, an alternate strategy could be to use several cards for different kinds of purchases, or to use one of these 2 percent cards in conjunction with cards that give big category bonuses. For instance, if you spend a lot at restaurants and grocery stores, you could find cards that give bonuses for spending at those locations and use a 2 percent card for everything else. Or find a card that rotates bonus categories every quarter, and use that card at the bonus locations only while using a 2 percent card everywhere else. That way, you'll push your average return above 2 percent. 

As usual with reward cards, pay them off every month. Otherwise, interest charges will quickly negate the rewards you're earning. Also, be aware of the effect of annual fees. They can also eat into your cash rewards.

Max, the best advice is to do a little bit of research, decide what's best for you, then make it happen. Good luck.

See related: Road to rewards redemption gets easier, Investment cards: Spend today, rewards tomorrow

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Updated: 03-25-2019