Thursday, March 10, 2011

The Best Cash Back Credit Cards as of March 2011

   The credit card landscape is a dynamic one.  Credit card offers come and go, terms change overnight, and it seems like benefits are constantly morphing.  So with that in mind, I bring you my opinion of the best cash back rewards credit cards available in the marketplace (as of this instant). I am also going to tell you what I DON'T like about each card as well.

    First, I would encourage you to read my previous post "Take a Reward, Any Reward".  It has sound advice for anyone looking for a credit card.  Personally, I truly believe that cash back credit cards only make sense if you pay off your balance in full every month.  Simply put, you have learned how to live within your means. Otherwise, my golden rule is to take any available funds and pay off/down whatever card charges the highest interest.  That will truly be the best cashback reward one can find.
   OK, here we go.  I first recommend that you look at your spending habits for the last year.  Do you drive a Humvee and eat out every night?  Do you spend your days hanging out at Sam's Club and cutting coupons?  Or do you travel extensively, and hotels are your homes away from home?  Knowing where your money is spent will give you a clue on what card is right for you.
   Rather than do a Letterman style list working backwards, these cards are ranked from more desirable to less desirable.

1.  Chase Freedom Visa: 

PROS:  5% cash back on categories that rotate each quarter.  1% on all other purchases. No annual fee. 2.7% foreign transaction fee. No limits or caps on any cash back categories.  Cash back redemption is available once you hit $50. Chase is currently offering a $100 sign up bonus, to be credited after $750 in purchases.  
CONS: Higher than average interest rate.  Balance transfer fees and period are not as generous as some other cards.  Rotating categories require enrollment each quarter or the 5% cashback benefits do not kick in.

SUMMARY:  Overall, if balance transfer options are not a top priority, this card offers the most consistently generous cash back rewards.  Factor in the $100 sign up bonus, and the cash back rewards % goes up considerably. This has been the #1 rated rewards card for several years running.

2.  American Express/Costco card: 
PROS:  3% cash back on all gas purchases up to $3000/year. 3% cash back on restaurant purchases, and generous 2% cash back for travel expenses with no annual caps. 1% on all other purchases, including purchases at Costco. Annual fee is waived if you are a Costco member, and the card doubles as a Costco membership card which lets you get rid of the redundant Costco membership card.  2.7% foreign transaction fee.
CONS:  Relatively high interest rate of 15.24%.  Balance and transfer fees are less generous than some cards, and do not offer 0% balance transfers. Cash back is paid annually by a check that can be redeemed at Costco.

SUMMARY:  My #1 credit card for gas, restaurant and travel categories and a great backup card to the Chase Visa Freedom card above.  A must for have Costco shoppers.  If I had to limit my credit cards to 2, it would be these two cards.

3.  Fidelity Investments Rewards American Express: 

PROS:  2% cash back on all transactions.  Cash back rewards go directly into an existing Fidelity Investment account, either savings, IRA or 529 Plan. No annual fee.
CONS:  Cash back earnings are not deposited into account until earnings reach $50 ($2500 in charges).  Must establish a Fidelity account in order to qualify for card.  No balance transfer provisions.  

SUMMARY: If gas, restaurant and travel are not big categories of spending and if you don 't frequent Costco, then this would be my #2 backup card to the Chase Visa.  I would use this card on all purchases when Chase is not offering the 5% cash back.

4. Pentagon Federal Credit Union Visa card: 

PROS:  5% cash back on all fuel purchases made at the pump (not inside the store?). 1% on all other purchases.  One must be a member of the Credit Union, but they make getting in fairly easy.  Check out options #8 and #9 on their list of ways to become a member.  Other perks include 2% foreign transaction fee (instead of the typical 2.7-3%) and a 2.99% balance transfer rate with a maximum fee of $250. No annual fee.  

CONS: Strict credit underwriting.  While it is the #1 cash back card for gas purchases, it's cash back features are unremarkable for all other categories. card.

SUMMARY:  If you know your gas pump more intimately than your spouse, then you need this card.  Also, if you are looking for a long term balance transfer loan at very good rates, or a card to use while abroad, this card could do the trick.  Otherwise, I would skip it.

5.  Discover More Credit Card.

PROS:  5% cash back rewards in categories that rotate quarterly, like the Chase Freedom card.  However, the categories differ each quarter from those offered by Chase.  Enrollment required each quarter.  Introductory 18 month 0% balance transfer offer is the best in the credit card field. Also, introductory 12 month 0% APR on all purchases.  No annual fee.  Using the Discover online mall to purchase items from designated vendors can increase the overall cash back benefits up to 20%.  Their online mall has the best cash back rewards of any credit card company. However, see caveats below.

CONS:  Cash back rewards start out at a puny 0.25%,  One must spend $3000 just to get to the typical 1% level, and these tiers reset every year.  Unless your credit card spending exceeds $8000/year, I would not recommend this as your primary credit card. Further, Discover caps your 5% earnings in most categories which can be quite frustrating. For example, the 1st quarter category of travel and restaurants is capped at $800 of spending ($40 cash back). All charges made at Sam's Club or any discount store is always limited to 0.25% cash back.

SUMMARY:  I must confess that I have a love/hate relationship with this card.  If you are a Sam's Club member, you need a Discover card, and this is the one.  Otherwise, I think I would recommend this only to folks who can charge substantial amounts on the card.  Use the card until you hit your category caps, then switch to one of the other recommended cards.  Of course, if you are interested in the balance transfer provisions, this card beats the rest. 
   After these 5 cards, the field gets pretty crowded with "me too" cards offering average terms or hidden gotchas.  If you do not have at least one of the above cards in your pocket, you are leaving good money (yours) on the table.  Call your credit card provider and see if they can switch your current card to one of the above.
   I welcome your comments and suggestions.  If you think I have missed something or are out in left field, let me and our other readers know.                                                       

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