Speaking of credit card rewards optimization, I was thinking about how the algorithm might work for me. I’m curious if others have a similar system. Man, I have a lot of cards…
Tier 1 – Special Rotating or Temporary Promotions (5%+ back)
First up, you’d want to check for cards that offer an exceptional bonus cash back. Chase Freedom and Citi Dividend both offer 5% cash back on rotating categories on up to $1,500 in spending each quarter. That’s a possible $75 extra each quarter for each card. Other cards may offer a temporary bonus as well.
- Chase Freedom® Visa – 5% category are Gas Stations, Theme Parks and Lowe’s from 7/1/13 to 9/30/13.
- Citi Dividend Platinum Select® Visa Card – 5% categories from Citi at Home Depot, Home furnishing stores and home and garden stores between 4/1/13 and 6/30/13, with enrollment.
Since I don’t buy that much gas, I would only charge restaurants on the Chase Freedom (but not gas) and airline purchases on the Citi Dividend.
Tier – Permanent Category Bonuses (3%+ back)
Some credit cards offer a year-round bonus on things like restaurants, travel, gas, groceries, and more. Here are a few that I have:
- Blue Cash Preferred® Card from American Express - 6% cash back at U.S. stand-alone supermarkets (up to $6,000), 3% cash back on gasoline at U.S. stand-alone gas stations and select major department stores, and 1% cash back on other purchases. The Blue Cash Preferred from American Express does have a $75 annual fee, but keep in mind that spending $25 a week on groceries, that 6% back will earn enough cash ($78) to pay for the annual fee by itself. So all groceries (and ahem… gift cards to many stores sold in grocery stores…) go on that card. Amazon.com is also one of my top places to shop, but I just keep the Citi Forward card linked up online as my default credit card while it actually sits in a drawer. I don’t actually have the PenFed card anymore, but it’s still great for those that buy a lot of gas.
Tier 3 – Everything Else (2%+ back)
Here’s your backup catch-all card. Don’t settle for 1% back here, you can do better.
- Fidelity Investment Rewards American Express® Card – 2% cash back on everything, which transfers to any Fidelity account (non-401k).
- Capital One® Cash Rewards Card - 1% cash back on all purchases, plus a 50% bonus on the cash back you earn every year. As long as your card is still open at the end of the year, that’s a total of 1.5% cash back.
- Starwood Preferred Guest® Credit Card from American Express – Up to 5 Starpoints for every eligible dollar spent at SPG Hotels & Resorts, 1 Starpoint for every eligible dollar spent everywhere else.
If you like airline miles or hotel points, here’s where your personal spending habits may also factor in. I value Starwood points at 2 cents or more per point due to their ability to convert to miles and primarily their value in hotel stays (including Sheraton, Westin, W Hotels) so I actually switch between a 2% cash back card and the Starwood depending on my point balance as I like to keep enough to pay for upcoming hotel stays. My Fidelity cash ends up in a 529 so that’s not as much fun.
American Express cards also offer extended warranty protection that I like for larger purchases as their customer service is always the easiest to deal with when you actually need to file a claim. However, American Express cards aren’t accepted in certain cases (like my auto insurance), so you should have a Visa/Mastercard as a final backup.
All in all, it’s not as crazy as it seems. If the Chase/Citi 5% categories aren’t daily-use categories but things like airfare then I don’t keep them in the wallet (0-3 cards). Out of Tier 2, I only keep the Blue Cash AmEx with me (1 card). Out of Tier 3, I actually have a similar-but-grandfathered Fidelity 2% Mastercard and the Starwood AmEx (2 cards). So the total is really about an average of around 4. I’m thinking of switching to an All-Ett “world’s thinnest wallet” which should cut the thickness in half.
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