by Brittney Myers | Feb. 7, 2021
The purchase rewards rate is just the tip of the iceberg.
But as much as the huge variety of rewards cards can be a boon, it also has a major downside: choosing the right card. This can be especially difficult when you're trying to pick between two (or more) cards that offer similar or overlapping rewards.
This leads to a number of puzzling questions, like: Which of the dozen 1.5% cash back cards should I choose? How much should the sign-up bonus influence my decision? Is it worth it to pay an annual fee for a higher rewards rate? Let's take a look at how to find the right card in a sea of similar options.
If you've narrowed your selection down to two or three cards with overlapping rewards, the simplest way to pick a winner is to look at the other rewards offered. For instance, one of the most common rewards offers you can find are cards that provide an unlimited 1.5% cash back on every purchase. Most issuers offer at least one card like this, including:
At face value, all three of the above cards offer the same deal. But the Chase Freedom Unlimited® also offers 3% back on dining purchases and at drugstores, plus 5% back on travel booked through Chase. Since the Amex and Capital One options don't offer extra purchase rewards, the Chase Freedom Unlimited® easily stands out from the pack.
Similarly, when you have multiple cards with nearly identical purchase rewards, you can use the sign-up bonus as a tiebreaker. Using the same cards as above, the Capital One® Quicksilver® Cash Rewards Credit Card only comes with a $150 sign-up bonus (with $500 spend), while the other options offer $200 bonuses right now, giving them the edge. Breaking it down further, the Chase option has a lower spending requirement than the Amex -- $500 vs. $1,000 -- making it the easier bonus to get.
The first step in finding a great rewards card is to figure out where you spend the most money, then find a card that rewards you for your purchases. So, if the bulk of your budget goes to groceries, a good grocery rewards card is a must. But which grocery rewards card to pick?
Should you go for the Blue Cash Preferred® Card from American Express, with its 6% cash back on groceries (on up to $6,000 in purchases per year) and $95 annual fee? Or do you want the no-annual-fee Blue Cash Everyday® Card from American Express, which offers just 3% back (same $6,000 cap) on your groceries?
In this case, each card offers the same rewards categories, just at different rates. So, the question comes down to how much are the higher rewards rates actually worth? In essence, you want to make sure you'll earn enough in extra rewards to at least cover the annual fee -- on top of however much you'd earn with the no-fee card.
Let's do the math. If you spend $3,000 a year ($250 a month) on groceries, 3% cash back would give you $90 over the course of the year. With the 6% cash back rate, your rewards would equal to $180 for the year. If you subtract the $95 annual fee from the $180, you're left with a net return of $85 -- less than you'd earn with the lower-rate card.
In other words, if you're not going to spend enough in a given category to make up for the cost of the annual fee, you're better off with a lower rewards rate and no annual fee. Conversely, if you spend a significant amount in that category, the annual fee is well worth paying for the better return.
While this is another area with a lot of overlap, certain benefits can definitely make a card stand out. If you're looking for a good travel rewards card, for instance, choosing one with airport lounge access could be more valuable to a regular traveler than a lower annual fee or a slightly higher rewards rate.
Another major consideration when comparing similar rewards cards is issuer-related perks. For example, you'll also see a lot of differences in cardholder benefits -- like purchase protection or extended warranty coverage -- among issuers (and even among individual cards).
The specific issuer will also determine what kind of extra deals you can get. American Express cards come with access to the Amex Offers & Benefits portal, which is home to a lot of great retailer discounts. Chase cardholders also have access to a smaller selection of cardholder offers. And certain cards on the Mastercard network offer exclusive benefits, like a discount on Lyft purchases.
Whatever metric you use to choose your cards, make sure you're taking your actual spending habits and lifestyle into account. Sure, it may seem like a card with extra bells and whistles is the obvious choice -- until you do the math using your real life numbers.
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