Why You Shouldn’t Settle For a 1% Cashback Credit Card

Although I still like my Fidelity 529 College Rewards Card and its 2% back towards a 529 account, there are some hurdles like having to set up recurring deposits and dealing with potential tax issues. But that doesn’t mean you should settle for any of those 1% cashback cards everyone else is offering! The similar Fidelity Investments Rewards Card offers you the equivalent of 1.5% cash back on virtually everything with minimal hassle.

You get one point for each dollar you spend, and 5,000 points is the same as $75 payment deposit into an eligible Fidelity account, including taxable brokerage accounts and IRAs. The beauty is that Fidelity accounts have no annual maintenance fees, so if you don’t already have an account you can just keep the balance at $0 and transfer the money immediately back into your own bank account.

The only catch is that you need to open the account initially with at least $2,500, which you can withdraw right afterwards. But, if you have $10,000 available, you can get a separate $100 bonus for opening a taxable brokerage account (IRAs don’t count). You get the $100 in about 7 days after your deposit clears according to the terms, and then you can take all $10,100 back out.

Even if you already use another card that gives you higher than 1.5% – like the Citi Driver’s Edge Card (mentioned previously) or the HSBC Rewards Card that give you 5-6% back on gas, groceries, and drugstores, if you use them together (one card for gas/groc/drugs, this for everything else), you’ll have a great 1-2 combo.

There is a 0% APR offer attached to the card as well, but it has a 3% balance transfer fee with no cap, so you can easily do better elsewhere.

Comments

  1. I don’t see any mention of an annual limit to points on this card, are you aware of any? How about the 1.4% card from EmigrantDirect?

  2. Speaking of the hurdles of the 529 card, here is my experience with the card. When I opened my account, they required a $50 deposit to fund the account. Additionally, I signed up for the $150 automatic deposits every 3 months because I have a MM account with limited transactions (instead of the $50 every moth).

    After my initial $50 deposit was in my account, I wanted to try withdrawing to see how the process worked. At the time of withdrawal, I had about $51.50 in the account. On the “withdraw funds” form that I filled out, I specifically requested to partially withdraw from my account (if I were to withdraw everything, then the account would have been closed). Wanting to withdraw all that I could while still leaving some behind, I decided to withdraw $50 of the $51.50.

    Long story short, Fidelity closed my account because the balance was too low, even though a $150 deposit was scheduled just a couple of weeks after the withdrawal (I guess I shouldn’t be that shocked). I had to open a new 529 account and tell MBNA that my account number had changed.

    Perhaps that was an obvious blunder on my part. It seems pretty logical for Fidelity to close the account when I only chose to leave $1.50 in the account. Moral of the story: don’t be an idiot like me. Has anyone out there withdrawn successfully from their Fidelity 529 account? If so, how much did you leave in the account?

  3. Steve the K says:

    While I like the idea of getting 1.5% cash back versus 1% with other cards, my problem with this card is similar to the 1.25% cash back card from Pentagon Federal CU.

    If I understand it correctly, the Fidelity card is run through MBNA. My problem with MBNA is that downloading transactions is a pain, if not impossible. With my 1%, et al., cards from Chase and Citi, I can download transactions easily via DirectConnect into Quicken. With MBNA, they only offer WebConnect, but the data file is only updated monthly after the statement period. This means, no real-time updating of transactions to watch for unauthorized use. In addition, my problem with MBNA is that their WebConnect hasn’t worked in MONTHS. Whenever I try downloading the data file, I get an error saying that the file does not exist.

    Given the choice of entering transactions by hand and not knowing if there are any unauthorized transactions until the statement arrives in the mail — as well as entering valid transactions that I forgot to enter and don’t remember what the purchase was for, versus downloading transactions which are updated daily with a click of a button, I can’t say that the hassle would be worth the extra 0.5% to me.

    If MBNA’s WebConnect actually worked.. Maybe. If MBNA’s WebConnect worked and the data file was updated daily.. Possibly. If MBNA had DirectConnect.. Definitely.

    In the meantime, I’ll stick with my Chase Rewards Plus for gas/groceries (5%) and brick & mortar purchases (1%), Chase PerfectCard for internet purchases (1%), Citi Professional Cash for restaurants and office supplies (3%), and Discover for their Get More promotions (5%).

  4. I’ve had the Fidelity card for a couple years. My terms are slightly better: If my rebate amount reaches $50 during any calendar quarter, the rebate is automatically swept into my brokerage account. No keeping track of Worldpoints and no phone call to redeem points is required. Now that BofA had bought MBNA (the issuer of the Fidelity card), my terms may get changed, but so far so good.

    BTW, my second card for my 1-2 punch is the Costco Amex card: automatic 3% cash back on restaurants and 2% back on travel (1% on everything else). For me, restaurants and travel are my biggest expenses so this makes the most sense.

  5. Isn’t the best ‘return’ on credit card use found using a 0% on purchases card and put the money you would use to pay it off in an interest account (5.5% E-Loan account, etc.) instead of trying to use the best rewards bonus card where you’d need to pay off the monthly balance to avoid fees?

  6. Photographer says:

    I have the Fidelity Investment Reward card, it’s a great way to save for your retirement. If you have a ROTH or traditional IRA with Fidelity, the earned reward cash go straight to your IRA account as current year contribution.

    Its yearly cash reward limit is higher than most other cash reward cards. I think Fidelity investment reward yearly limit is $1,500 or 1.5% of 100,000.

  7. fidelity also has money market fund at rate of abt 5%. fdrxx

  8. is the fidelity 529 card easy to use – online access, quicken download, etc?

    how about the 529 plan – is that quicken accessible?

  9. There is no annual limit for points, from the fine print.

    Emigrant Direct’s card is so-so, but you have to keep $10,000 with them all the time otherwise you forfeit most of the cashback, regardless of if their rates starts to fall behind. That can also cost one money.

    I have withdrawn successfully from my 529, leaving about $50 in there I think. I have also had a regular Fidelity taxable account with 5 cents in it for two years (got my $100).

    BofA and MBNA merged so who knows if they will merge websites too.

    TW – Not if you could automatically max out that card with a balance transfer or purchase check, otherwise you’re leaving unused limit. Otherwise, with this card you’re getting 1.5% (somewhat debatable but I believe to be ) non-taxable return in however long it takes for you to charge $5,000. So it would depend on your spending patterns.

    mike – see comments above re: Quicken. It’s managed by MBNA right now.

  10. Photographer says:

    The Fidelity Investment card used to be through MBNA. MBNA was just purchased by Bank of America – I Think. I don’t remember, but I’ve received notification through the mail. I am sure you can find out if you search on line.

    As for the annual limits, not sure if it was referred to my comments. I know there’s a yearly cash limit, meaning how much cash you can received as earned cash [after the points being translated to cash]. I guess you can earn as much points as you want, you just may not receive the cash all in one year. This is what I am trying to day.

  11. I see what you are saying Jonathan, but in my experience, some CCs don’t let you balance transfer the maximum (CHASE) and also after you make any payments on a CC you will then have that much credit to use easily if they are a 0% Purchase/BT card.

    In my current circumstances with CCs, it appears best to put all purchases on 0% rate purchase cards (which have rewards, just not the best out there) and place the money not spent on payments in a savings account or CD. Thus instead of 5% rewards on gas/groceries, I get 0.5% – 1% rewards PLUS 5.5% APY or more using online savings and CDs with the money not used in paying off CC balances monthly.

    Example:
    $100 in normal purchases to get a 1% reward = $1
    Add to that, interest earned in one year by putting the $100 in online 5.5% savings MINUS principal payments to CC ~ $4.51

    Total ~ $5.51 (ALL Purchases)
    —————-

    $100 in normal purchases if you just get the 1% – 5% from a high reward card bonus:
    Total: $1.00 up to $5.00 ($5 potential only on gas/groceries/drugstores!)
    —————-

    My numbers may be off since i’m not an accountant, but it seems that with a high interest savings account, you will always earn more since you are putting potential credit card payments into savings (in this case) and earning higher percent interest on all payments instead of just certain purchases due to the 0% purchase CC usage.

  12. How do you get your cashback with the HSBC card? Is it like monthly and is it only a balance credit?

    That would be an awesome deal for when I get another apartment if they can charge rent to a credit card.

  13. It is a good idea to offer alternative savings for fuel and groceries.

  14. darthamanda says:

    http://www.premiumrewards.usbank.com/
    My bank just added onto their cash back rewards program. Now, they offer savings of up to 75% cash back on some purchases that you make online, in store, via telephone, etc. I can purchases AMC movie tickets for $8.00 and get $2.00 back for each ticket I purchase. I’m excited about all of the stuff I can buy, but I’m not going to take advantge of hardly any of it. I don’t need an excuse to blow all my money just because I’ll get a little back.

  15. I’m surprised there’s no love for Citibank’s Thank You Network.

    I’ve got one card that I use at gas stations, grocery and drug stores. I get 5 points for each dollar I spend there.

    I’ve got another Citi card that I use at restaurants. I get 3 points back for each dollar spent.

    All other purchases are worth 1 point.

    Each thank you point is roughly worth 1 cent (sometimes a lot more depending on what you redeem the points for), so I’m getting back anywhere from 1-5% on all my purchases.

    I also get 800 points a month for banking with Citibank.

    I love this program, but I rarely see it get mentioned when the topic of rewards comes up.

  16. I love Froogle.com

    Just found this device for 19.99

    link

  17. TW – Your math looks good, except only your very first purchase will get 12 months at 0%; Your average time will be 6 months, making the math much closer. There are a few other issues too – I need to write up a post dealing with the pros and cons of doing that. But I do agree that if you can’t max out the card using other means then using it for purchases can yield a good return too.

    Stever – Actually, the Citi Driver’s Edge card let’s you convert to ThankYou points very easily. That’s actually how I plan to redeem my points, instead of having to worry about sending in receipts. I use ThankYou points to convert to Gas or Target gift cards, both of which I use up easily.

    Wes – I think you meant to put this in the previous KillaWatt post. I just want to note that shipping is $13 for that site, bringing it to $33 shipped. The cheapest I found was $25 shipped at some small mom and pop site.

  18. TW: The use of a rewards credit card makes only sense if you keep paying off and charging to that card. For example you charge $100 each month to the credit card, and pay it off next month (no interest incurred). With a 1% cashback card that’s 12 x $1 in rewards = $12 vs $4.51 profit from savings.
    You could argue that you could put $100 away into savings as well and your profit would increase. But than you don’t have access to that money. But you can charge expenses to a rewards card that you have anyways like groceries, gas etc. So you have access to the money.

  19. You are correct Jonathan, I was forgetting that for a 12 month card, only the first purchases will reap the full 12 months savings interest.

    I am currently using a 2 year 0% purchase card from AMEX though, so in my case i’m racking up a lot due to the 2 year period, wheee!

    Still if we take your example of 1/2 the reward for a 12 month 0% card, you are still up on “normal purchases” that are on a card which limits you to only 1% – 1.5% per purchase. So gas/grocery/drugstore 5% rewards seem to be great on good bonus cards, most other purchases seem to be best on 0% purchase cards when you save the payments in a savings account.

  20. Now that BofA acquisition of MBNA is complete, can anyone confirm what “Steve the K” posted earlier regarding WebConnect vs DirectConnect using Quicken/Money. Did they transition to BofA’s online system? That feature is definitely more important to me than 0.5% more cash back, and I don’t want to open a Fidelity as well as CC account to find out. Thanks.

  21. You get 1 points per dollar spent, but $1.5 per point:

    “5,000 points may be redeemed for a converted equivalent dollar amount of $75.”

  22. Cool.

    Btw, this is a great site! Thanks.

  23. We have had and MBNA mastercard “Myrtle Beach Golf” rewards card for over 10 years. We have been saving our rewards points toward a golf vacation. When the merger to Bank of America was in process we inquired about these points and if they would transfer and if we would loose anything and the answer was that we would have them and not loose anything and that they do not expire. We earned enough for several days hotel and rounds of golf for two.

    Per our last statement our points are gone. We called asap and they said that they have been transfered to the World Points and based on this new point system we can not even get a round trip ticket.

    Has anyone else experienced this? Any suggestions on what to do next?

  24. Albrecht says:

    Update: $100 bonus is no longer offered. It’s been replaced by miles program:
    http://www.fidelity.com /delta
    http://www.fidelity.com /united
    http://www.fidelity.com /american

    The updated link for the Visa card: http://personal.fidelity.com/products/checking/content/investment_rewards_card.shtml.cvsr

Trackbacks

  1. [...] Back in my post Why You Shouldn?t Settle For a 1% Cashback Credit Card, commenter TW raised a good question: Isn?t the best ?return? on credit card use found using a 0% on purchases card and put the money you would use to pay it off in an interest account (5.5% E-Loan account, etc.) instead of trying to use the best rewards bonus card where you?d need to pay off the monthly balance to avoid fees? [...]

  2. [...] While you’re comparing these, you should also look at the offers from the major credit card companies to see if any offers match your spending profile. Good places to start include Chase, Bank of America, CitiBank, and CapitalOne. Whenever you find one that’s interesting, make sure to evaluate it carefully before signing up. If you’re not earning back at least 1.5%, there is probably an offer out there better for you. For example, My Money Blog recommends a Fidelity Investment Rewards card that generates 1.5% cash back into a Fidelity account (of course, you need a Fidelity investing account first…). [...]

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