The End of 5% Cash Back Credit Cards?

For a long time, the Citi Dividend Platinum Select Card was probably the most popular and the best cash back credit card available. The card allowed you to earn 5% cash rebates on purchases made at supermarkets, gas stations and drugstores. For a long time, it was the only card of its kind.

Then last year, Chase introduced the Cash Plus Rewards Visa, which was essentially identical to the Citi Dividend Card. The launched of this card gave Citi some competition. However, not long after launch, Chase discontinued their card in July this year. And not long after, Citibank also discontinued the Dividend Card.

Citibank sent existing Dividend Card holders a letter stating that the rebate formula will be changed. The 5% rebates have been reduced to 2% and Citi claims they will soon be adding cable and utilities expense under the 2% category.

Chase meanwhile has introduced the Chase Freedom Card, which allows you to earn 3% cash back every time you use your card for eligible Gas, Grocery and Quick Service Restaurant purchases. Recently, this too has changed as the Chase Freedom now only offers 3% on various categories but on a rotating basis.

I have a couple of friends who work at both Chase and Citi and they have both told me that both the Citi Dividend Card and the Chase Cash Plus Rewards card were not very profitable. Cardholders tend to pay their bill fully every month and because there was no annual fee and have to pay that 5% rebates, both issuers felt it was better to scale back the rebates paid on these so called “everyday purchase” items.

Hence, the only credit card today that still pays 5% rebates on “everyday purchase items” is the Blue Cash from American Express. However, you have to spend above $6,500 to start earning 5% rebates. The Blue Cash has the advantage over the Citi Dividend and Chase Cash Plus in that you could earn unlimited rebates. You can also earn 1.5% rebates on “other purchases”.

I personally have the Blue Cash (which is a good thing) and perhaps will consider the BP Rewards Visa because I use that station and also because it pays 2% cash rebates on both travel and dining expenses.

The free 5% ride with Citi and Chase appear to be over.