Expected Value of Credit Card Rewards vs. Cash Back?

[cthomer5000]

After getting my finances in serious order over the last year or so, I'm ready to really start making my money work for me.

There are a lot of purchases I make on a monthly basis that are out of pure necessity (train ticket, parking pass, etc...), and many transactions I make regularly that could be made with cash or credit. Now I know there are a great number of incentive cards out there, offering a range of stuff like:

• Airline miles
• money towards a car
• cash back

So I figure I might as well get on board with some form of incentive card and get something back on money I have to spend anyway.

Before I do it myself, is there anyone out there who has seriously broken down whether any incentive card is a better deal than a straight cash-back card?

Basically I'm looking for something with no annual fees that would give me the best value back. APR is really a non-issue since any charges to it are going to be paid off before any interest accrues. Ideally I'd want it to be low just in case I ever need to actually use the card (highly unlikely), but I would certainly be willing to trade a better deal for a higher APR. Off the top of my head I can't see myself being interested in anything outside cash back or airline miles.

My gut feeling is that in every case I would be better off with the money, but I was just curious if anyone had a ballpark idea before I calculate this stuff myself.

[QuikSand]

If you are at all inclined to join at Costco, they have a deal with American Express that features a no-fee card and a very handsome cashback policy -- at least 1% on everything, 2% on travel, and 3% on restaurant meals. It is a true credit card also, where you can let balancer float if you must (though I reckon we need not say that's a weak course of action to follow).

Worth checking out, especially if you have any interest in Costco (where you must be a member already).

[cthomer5000]

Well, I'm going to take a crack at figuring out the expected returns on a few cards. For arguments sake let's assume that a nice even $5,000 of charges will be eligible for whatever program will charged to this card annually.

Cashback Card
1% cash back (maxes out at $300)
annual return: $50


Airline Miles Card
1 mile per dollar (no max)
annual return: 5,000 points
25,000 miles per continental US flight (valued by them at $400)


Seems like a bit of a toss up to me. With decent investment I think I could turn the $250 of cash I'd be getting back over the course of 5 years into about $325 or so by the time I could cash in my miles for a single flight. I think most flights the miles would get me could be had for that or near that with some advance planning.

Early Verdict: Doesn't really matter. And in that case I think I would want control over the money if i'm not getting a noteworthy value in an airline card


edit: I guess it should be noted that the value of the airline card would increase (exponentially?) against the cash card with higher charges per year.



GM Card
5% back for use towards purchase of Chevrolet, Pontiac, Buick, Cadillac, GMC and HUMMER vehicles. (no maximum)

annual return: $250 in "GM bucks" (my phrase, not theirs)


verdict: Looks to be a pretty solid deal to me if you know you're going to be buying a car in the next couple years and would want something in those line of vechicles. Also good because you don't need to reveal you'll be cashing this in until after you've negotiated your car deal. I think this would be better than cash if it's the right fit for the person/family.

[Logan]

I know you're looking for more of a breakdown on the benefits of each...but I'll follow Quik's recommendation with one of my own.

Citibank offers a dividend Visa card that gives 1% cash back on everything, and 5% on purchases made at supermarkets, pharmacies, and gas stations. The extra benefit from using it for gas was really nice a couple months ago when prices were at their highest. It essentially knocked off 15 cents a gallon.

[cthomer5000]

Originally Posted by QuikSand

If you are at all inclined to join at Costco, they have a deal with American Express that features a no-fee card and a very handsome cashback policy -- at least 1% on everything, 2% on travel, and 3% on restaurant meals.

I'm definitely going to shop around a little bit (no real hurry). I believe I've seen a few other deals like that, where the cash back is a 1% minimum but with a few higher rates on other purchases (I know there are some aimed specifically for gas or grocery purchases). Thanks for the specific tip though, I'm not personally a member, but a couple family members are. Not sure If I could weasel in there on that basis. (If not i think i may be able to find a similar or same deal outside Costco).

Originally Posted by QuikSand

It is a true credit card also, where you can let balancer float if you must (though I reckon we need not say that's a weak course of action to follow).

I've learned financial responsibility the hard way, and I'm damn happy to say I carry no bad debt . Just massive student loans which are very low interest, and therefore not worth paying above minimum since I can beat the interest rate through basically any course of investment with the funds I would be using to pay off my student loan more quickly.

[cthomer5000]

Originally Posted by Logan

I know you're looking for more of a breakdown on the benefits of each...but I'll follow Quik's recommendation with one of my own.

No worries, good leads on cards worth invesitgating are certainly welcome!

[Rich1033]

I have been very tempted by this a few times, just have never pulled the trigger. Its 5% cash back at supermarkets and gas plus 1% everywhere else.

http://citi.bridgetrack.com/usc/divi...A679CC6C887877

edit- oops, looks like I was beat to the punch.

[Easy Mac]

Originally Posted by QuikSand

If you are at all inclined to join at Costco, they have a deal with American Express that features a no-fee card and a very handsome cashback policy -- at least 1% on everything, 2% on travel, and 3% on restaurant meals. It is a true credit card also, where you can let balancer float if you must (though I reckon we need not say that's a weak course of action to follow).

Worth checking out, especially if you have any interest in Costco (where you must be a member already).

That's good to know. AMEX keeps sending me stuff for their gold cards for me to sign up, but i really don't want to pay off more than one card at a time.

[Easy Mac]

dola aside,

Also, if you're looking for cheap prescriptions and have a stingy/nonexistant health plan, use Costco. The membership was $40 I think and I paid $9 for a generic prescription of 20 mg of prozac, 100 count. When I bought 10 mg of generic at CVS, it was $60 for 60 pills. The Costco account paid for itself right there. Haven't really used it much outside of that though, I never have enough money to buy 100 pounds of frozen vegetables (though I'm tempted to pull the trigger on one of their cheap HDTV's and just debt myself for a little while).

[cthomer5000]

FWIW, the GM Card doesn't seem like a bad deal - 5% on everything with no upper limit on annual earnings. Seems like it would be a good deal for people who knew they were going to want a new car in a few years (hope you like GMs!) and could push a lot of money through the card annually. There are maximum amounts than can be applied to each model though, but it's in the 2,000-3,000 range for everything. If this was the right need for someone, it seems like a very good deal.

Probably not the card for me, but it seems to be a solid value. Airline cards are definitely a distant 3rd at the moment (in my opinion).

[cthomer5000]

Originally Posted by Rich1033

I have been very tempted by this a few times, just have never pulled the trigger. Its 5% cash back at supermarkets and gas plus 1% everywhere else.

http://citi.bridgetrack.com/usc/divi...A679CC6C887877

edit- oops, looks like I was beat to the punch.

Only drawback is that it appears to max out at $300 in "dividend dollars." I personally would be very unlikely to reach that, but thought i'd just point it out if anyone else started to do some serious math after thinking that one through.

edit: Chase offers a card that appears to be identical, and also tops out at $300 annually.

[Radii]

Oliegirl and I recently got AMEX's "Blue Cash" card. It has no maximum to the cash back, but there's a catch. For the first $6500 you spend on the card you earn cash back at a very very low rate(1% for grocery/gas and less for everything else), then after that it's 5% grocery/gas and 1.5% on everything else.

You'd have to spend quite a bit to get more than $300 doing this, but if you are the type that is able to financially handle putting most of your expenses on a card and paying it off every month this could be the most lucrative option(espicially if you have a family and groceries run $100/week or more)

[gstelmack]

After "Check21" started getting implemented (where writing a check became an open invitation to your checking account...), my wife and I switched to online banking for bills and a Visa card that we pay off every month for all around-town stuff. Because we go to Disney every other year or so and recently started our family, we jumped on the Disney Rewards card, which is 1% back as reward dollars you can spend 1-for-1 at Disney.

We took our daughter for her 2nd birthday in January after using the card for a year or so and had $500 to spend. So I'm all over something that gives you a reward you can really use.

We're looking to switch our online credit card (we have one for local stuff, and one we use online) to a different rewards card now. We hear Toys 'R Us has a rewards card we're thinking about...

[Draft Dodger]

Originally Posted by gstelmack

We took our daughter for her 2nd birthday in January after using the card for a year or so and had $500 to spend. So I'm all over something that gives you a reward you can really use.

yep. I love my Amazon card. Probably not the best deal around (1% on purchases, 3% if they are at Amazon) but I sure do love getting those $25 Amazon Gift Certificates in the mail every once in a while.

not to threadjack, but how did your two year old like Disney? we're trying to figure out what age to take our kids - seems like now (1 and 3) they are a bit too young to fully enjoy it.

[Radii]

Oh and also, I have heard Clark Howard(radio money management guy, huge in Atlanta) say many times not to use airline miles cards as they aren't guarenteed if something happens to the airline, and that the airlines can put as many restrictions on their use as they want, not to mention the whole 25K miles thing no matter how short the flight may be(wouldn't it be nicer to have cash for a $150 ticket?). Just get a cash back card and use the cash to travel.

[Grammaticus]

One thing about airline cards, if the card is worth anything, it offers double miles on purchases. Amex works this way. So, that would significantly make a difference in your calculation above.

[cthomer5000]

If the GM card is a good fit for the individual, it looks like a clear-cut winner to me. Otherwise the Chase card looks to be the way to go. I'll personally be going cash card, barring any new discoveries in the next few weeks.

[gstelmack]

Originally Posted by Draft Dodger

not to threadjack, but how did your two year old like Disney? we're trying to figure out what age to take our kids - seems like now (1 and 3) they are a bit too young to fully enjoy it.

2 years old was PERFECT. She was so excited to meet Pooh, Tigger, Eyeore, and the gang, she loved the Muppet 3D show and the Playhouse Disney show in MGM, Peter Pan was a great ride, she got to meet Mickey Mouse, and she had an absolute BLAST at the HoopDeDo Review (where we took her for her birthday). This was her 2nd birthday week, so she was just turning 2. She's now approaching 3 and she still remembers bits and pieces of it (which is what I was hoping for; I remember bits of my 2nd birthday, so I'm hoping these are memories she'll keep). 1 is too young to get much out of it, but your 3 year old will definitely have a blast.