I was disappointed by my return on ongoing spending with my cash back cards last year. Here’s how I would create the ideal cash back card, based on different rewards rates, earnings categories and sign-up bonuses.
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If I were creating the perfect cash back card, what features would it include?
Well, no annual fee, of course. But I’m not going to say 10 percent back on everything or a $1,000 sign-up bonus because that wouldn’t be realistic. In all seriousness, what would I consider to be the ideal cash back card?
Here are three primary scenarios:
- A substantial, flat reward on all spending (but no sign-up bonus, because you can’t have it all). Would an issuer offer 2.5 percent back on everything?
- Generous tiered rewards on spending, but again, no sign-up bonus. Nirvana might be 2 percent on everything plus 3 percent on a category (or two, if I’m being greedy).
- A particularly lucrative sign-up bonus, with lesser rewards on spending. Perhaps a $500 sign-up bonus? I doubt you’d be able to get more than 1.5 percent back on everything, in that event, and even that is probably pushing it.
To help answer this, let’s look back to look forward.
See related: My favorite new cards of 2018
What I’m currently earning
After reviewing our 2018 spending and cash back rewards, I determined that my wife and I earned an average of 1.9 percent back on every dollar we spent on a credit card (2.4 percent if you include the sign-up bonus from our Wells Fargo Propel American Express® card).
I was actually disappointed by the 1.9 percent return on ongoing spending. Our efforts to juggle four cards with different category bonuses averaged a lower return than if we had just kept it simple and used the Citi Double Cash Card for everything. I shouldn’t tell my wife, Chelsea, because she rolls her eyes at my efforts to mix and match various cards. She would love the simplicity of putting everything on a single card.
Maybe it really is time, as I’ve mused in previous columns, to take the plunge and replace our Capital One Quicksilver Cash Rewards Credit Card (1.5 percent on everything) with the Double Cash (2 percent: 1 percent when you buy, 1 percent when you pay). I wouldn’t want to go all-in on 2 percent (sorry, Chelsea) because I value the 3x points on travel and dining that we get from the Propel card and 3 percent at U.S. supermarkets (on up to $6,000 annually, then 1%) from the Blue Cash Everyday® Card from American Express.
If we went with a blended option of the Double Cash, the Propel, the Blue Cash Everyday and our other card (the Chase Freedom), we would have earned 2.3 percent on our 2018 spending (not counting the Propel sign-up bonus). That is, replacing the Quicksilver with the Double Cash and keeping all else the same, we would have improved our overall earn rate from 1.9 percent to 2.3 percent. Over a full year, it would actually be a bit better, because we only had the Propel card for about a third of 2018, and we’re getting a lot out of that card.
Still, in my mock scenario, this is making a strong case for the flat 2.5 percent back option. In fact, let’s raise these hypothetical stakes even higher: Let’s assume my newly created, mythical card would be my only credit card.
I’m ruling out the excellent sign-up bonus and lower ongoing rewards selection because I’m in this for the long haul. I tend to buy and hold my investments and my credit cards. If I could get 2.5 percent back on everything, that would be a really good deal. And that’s not just an attempt for marital bliss.
See related: How four different issuers grant cash back
What this means for you
This exercise isn’t just idle entertainment for cash back lovers, it actually matters to you. Walking through all of this builds a strong case for most people putting all of their spending on a single credit card with the best earn rate you can get.
Did you know the Alliant Cashback Visa Signature Credit Card really does offer 2.5 percent back on everything? No unicorns, I promise. It does even better (3 percent) in year one. There is a $59 annual fee, though (waived in the first year). And you have to join Alliant Credit Union, which costs no more than $5 and might even be free. This card offers tremendous value, yet it flies under the radar.
A couple of cards offer 2 percent on all spending: the aforementioned Citi Double Cash (offers 1 percent when you buy, and 1 percent when you pay) and the Fidelity Rewards Visa Signature card. The catch is that the Fidelity card requires you to deposit your rewards into a Fidelity brokerage, cash management, retirement or college savings account.
If you want to get a little more advanced, use one of these cards that offer 2 or 2.5 percent back on everything as a foundation and supplement with cards that do better in certain categories (like the Blue Cash Everyday for purchases at U.S. supermarkets and the Propel for travel and dining).
It’s good to know that solid cash back earnings can be found on Earth, not just in fantasyland.