As I explained in my previous post, cashback credit cards make most sense in terms of getting rewards back from your credit card company for most people. I read somewhere that the credit card companies charge merchants 2-3 % of the transaction as their fee. If that is true, cards that offer 1% cashback are pretty good. Then there are some cards that even offer higher percentages of cashback. Choose wisely based on your spending pattern to reap the best benefit for yourself.
How does a cashback credit card work?
Lets take an example of a card that gives 1% cashback on every transaction. You spend around 600 $ in a month on this card. The card company would add 6 dollars to your rewards at the end of the month (after the billing cycle is done). You can get this reward back as a credit to the card if you wish. There are options of getting this money as a check or deposit to another account as well (depending on the card company).
Here I took an example of a card that gives 1% cashback. That is generally the minimum percentage out there. There are cards that offer higher percentages and you can reap rewards upto 30$ - 40$ per month. Now that is a significant reward! :) Some savvy credit card users do even better!
In my case, I found i spend most of my money on groceries and eating out every month. I did my research using Mint.com, which I highly recommend to everyone. Best part - it is free!
Now based on this research, following are what i found as the best cashback credit cards out there as of today (June 17th 2012) -
1) Blue Cash Preferred and Everyday from American Express
These are two cashback cards from American Express. One is the Blue Cash Preferred (comes with an annual fee of 75$) and another Blue Cash Everyday (no annual fee). They offer great cashback rewards on expenditure in supermarkets and fuel.
The Preferred card offers 6% on supermarket purchases while Everyday card offers 3%
The Preferred card offers 3% on fuel purchase while Everyday card offers 2%
They both offer 1% cashback on all other purchases.
Getting 6% cashback on supermarket purchases is awesome. Say you spend around 400 dollars at your neighborhood supermarket for groceries in a month. That would mean at the end of the month, you would have 24 $ back in your hand!
Say if you prefer not to give the annual fee, you would have 12 $ back.That is still awesome!
Currently they have a promotion saying if you spend 1000 $ in the first three months on this card, you will get 150 dollars as a bonus on the preferred card, that is 2 years of annual fee in your hands straightaway! :)
If you still prefer the no annual fee card, you will get 100 dollars of bonus!
2) Chase Freedom Visa Card
This is another awesome card out there. It is on the VISA network so you need not worry about where it will get accepted!. Visa is probably the most widely used card network across the world
This card offers 5% cashback on different select categories every quarter. Throughout the year it offers 1% cashback on all other categories. I have found that these revolving categories are actually very useful for us.
For example, between April and June, they are offering 5% cashback on groceries. That is pretty awesome!
Between July and September, they offer 5% cashback on gas stations and restaurants!
Looking at my spending pattern, I clearly know that I will benefit a lot in both of these quarters. Rest of the year too they have very good distribution in categories.
Best of all this card comes with no annual fee!
They have an upper limit saying upto1500 $ spent per month on the special categories will be eligible for cashback. 1500 dollars is pretty large upper limit for groceries or fuel or restaurants! so dont worry about that!
Also they too have a 100 $ bonus offer going on currently which you will get for spending 500 dollars in the first three months using their card. So that's some extra free money you can make!
Caution: While these cards say they will provide 5 % cashback on groceries, the fine print says it is only for supermarket purchases. That is if you buy your groceries from a superstore (like Walmart) or a wholesale club (like Costco or Sams Club), you will not get the cashback. So be careful to check how much you spend in supermarkets, when deciding about this card!
There are two other very good cards that I found in my research. Discover and Citibank. I will post about them tomorrow. Till then, keep saving!