|by Jason Steele|
Perhaps you travel frequently for work and don’t need to spend any further time from home. Perhaps your journeys take you by car, train, or boat. Maybe you are the type that prefers a tent in Moab to a five star hotel in New York.
Most of the reward cards I use and recommend have something to do with travel. Besides my enjoyment of vacations, travel cards, when properly selected and utilized, can offer a tremendous value per dollar spent. I regularly see returns over 4 cents on the dollar. In fact, last weekend I purposely did not utilize some Starwood hotel points, as my utilization would only have returned about 2 cents per dollar.
Where Is The Best Value In Non-Travel Cards?
I like to divide all reward cards into two categories, cash and non-cash. Travel cards are just one type of non-cash reward cards you can obtain. Other non-cash reward cards typically allow you to obtain free or discounted merchandise from the cards sponsor, typically at a fixed rate. Often that rate is as little as one cent per mile. At those rates, these cards are generally not worth it, as almost all cash reward cards will give the flexibility and immediate value cash with the same or better rate of return.
When Should I Chose A Non-Cash Card?
The real value in non-cash cards comes on the purchase side. The way most of the these cards work, is that you get a small amount of points, usually 1 per dollar spent, on all purchases, yet you can get far more on purchases from the merchant offering the card. For example, the Sony card, which I hold, offers a single point per dollar spent anywhere. When I purchase Sony products from an authorized retailer, I get 3 points, and when I purchase directly from Sony, I get 5 points on the dollar. Sony, typical of these merchandise based programs, offers essentially 1 cent per point as a discount on Sony products. Therefore, it really isn’t in my interest to charge anything to my Sony card when there are cash back cards, that I will discuss, that return 2% back directly in the form of a check or a statement credit. At 3 points per dollar, it is a fairly good deal. At five points per dollar, I would always use my Sony card when purchasing merchandise directly from their website or their retail stores.
Of course, this may not be as good a deal as it seems. First, I might find the Sony products I am seeking elsewhere for a better price. Also, since there is a Sony store in the state I live in, Sony is legally required to charge me sales tax, which is %8 percent where I live in Colorado. If I were to order Sony merchandise from an out of state retailer, it would be shipped without sales tax.
Clearly, these merchant cards work best when you are making many purchases directly from the vendor sponsoring the card.
Finding The Right Cash Back Card
Among cash back cards, there are also two kinds of cards. There are the ones that provide a flat rate of cash return on all purchases, and there are ones that vary the return based on what type of spending you make. It turns out that the credit card merchants are categorized by the card companies in groups such as gas, home improvement, mobile telephone and others. For some reason, the credit card companies have been offering cards that vary the rate of return based on the spending category. Some cards even offer some flexibility to pick and chose the spending categories that you would like to receive the most return in.
Personally, I prefer to find one card with a single high rate of return. The Schwab card currently offers 2% cash back, trumping nearly all other flat rate cards. American Express Blue Cash offers up to 5% cash back on all spending, but only after you have met an annual spending floor. If you have one of those cards, that is probably the simplest way to go. As I explained, I have the Capitol One as my primary non-travel card, and the Amex Platinum Business for certain categories of spending such as gas and mobile phone service.
Balance Is The Key
Use a merchant based reward card at a particular store that you shop at frequently. For the rest of your transactions, you may want to use a high return cash back card at certain spending categories, and a flat rate return card at the rest. If you are not a very large spender, you probably need fewer cards. If you spend a lot of money for work, own a small business, or just have a higher income than most, cash back cards can provide a signicant return on your annual spending.
For example, if you earn $60,000 a year, you might easily spend $30,000 on reward cards annually. If you were to obtain %3 average cash back, that is $900 a year. Nothing to sneaze at until you realize that is in the form of a statement credit, essentially it is non-taxable income, worth well over $1000 of pre-tax income. All of the sudden a few percent starts to look like a nice raise!