There’s nothing like getting paid to pay. It some ways, the now popular cash back cards feel like they’re providing free money. As folks say, ‘if it seems too good to be true, it probably is’. Yes, cash-back cards are not the gravy train. As with any credit card balance, the 5% cash-back is quickly outweighed by the much more significant Annual Percentage Rate. However, a well-chosen cash-back card can be a valuable tool to keep in your wallet.
Two of the favorited cash-back cards are the Discover It and the Chase Freedom cards. They have reached this popularity because of their appealing 5% cash-back feature. In both cases, this attractive percentage is accessible to purchases that fall within certain categories. In order to choose one card over the other, the long-term factor that will affect your cash-back are these categories.
For both cards, the categories that earn 5% change quarterly. Every three months, you need to shift your mental spending to take advantage of the increased percentage. If you purchase outside of the categories, you’ll receive 1% cash-back. The price is right for this card, as neither one has an annual fee. Both cards have the same spending limit on which you can earn the prized 5%. You can spend up to $1500 in the quarterly categories and therefore receive up to $75 in cash-back.
Both cards also use a category activation system that requires the cardholder to activate their access to these categories. This activation means that you have to log in to your account online or call to confirm that you will be purchasing in these categories and want to earn 5% instead of that measly 1%. This extra step is seemingly unnecessary and a pitfall for those who forget to activate. You’d think that it’s straightforward that people who are using the card would want to access the better cash-back rate.
For the category authentication, both cards have their strengths within this system. Discover It has no end date for when you can authorize your card to access these categories. The Chase Freedom card authorization period ends about two weeks before the quarter closes, which could leave some people out in the cold. The Chase Freedom card , however, has a clear email and text reminder system to make sure that you don’t miss your window (and have the widest window possible). And once you activate it, it provides the 5% on all combined purchases made within the quarter.
To begin, let’s look at this quarter: July to September 2016. The Discover It card will give you 5% back for purchases at home improvement stores and on Amazon.com. If you’re planning some small home renovations, this category could provide a big benefit. You could easily earn 5% ‘off’ of your reno, as the category is quite open as to the range of business it allows. Instead of providing a list of authorized establishments, Discover provides a description of the type of business. However, if you’re not planning renovations, the category isn’t that useful. Some Amazon.com purchases could provide certain cash-back opportunities, but likely you won’t near the same benefit.
The Chase Freedom card offers the 5% for restaurant tabs and purchases at wholesale clubs. Chase provides a lengthy list of the eligible restaurants, which they describe as places where their primary business is eat-in or sit-down dining. For example, almost every fast-food restaurant you can imagine is listed. However, hotel and casino restaurants, as well as grocery store cafes and bakeries are not eligible. However, you can earn 5% back at the grocery section of wholesale clubs, like Costco. This category is more useful to the average consumer, as food purchases, whether at restaurants or bulk groceries, are a common expense.
In the current quarter, you could be a big winner with Discover It’s home renovation plans and the more significant purchases that come along with that. However, most consumers will have better luck earning 5% back within the Chase Freedom restaurant and wholesale club category. You may not max out your $1500 allowance, but the category is still more accessible.
Looking forward, we head to the last quarter of the year: October to December. Of course, this quarter holds the holiday shopping season. Both cards are holding out on the final category details. Perhaps the suspense adds to the end of year cheer, but it can make it difficult to pick the better holiday shopping companion.
We do know that the Discover It card will provide you with 5% on all your Amazon.com purchases. For those who don’t want to leave their home for the mall, this cash-back category could be a boon. The Chase Freedom card will continue to offer the 5% on wholesale club purchases. Looking towards the hearty eating season that it is, you could get all your holiday groceries at a great cash-back rate. However, the biggest winners of the quarter are yet to be announced.
Looking back to the fourth quarter of 2015, we can see what kinds of categories could appear. Of course, the categories change and are rarely the same year to year, but it provides some context. The Discover It card provided 5% at Amazon.com, department stores, and clothing stores. The Chase Freedom card provided the great rate at Amazon.com, zappos.com, audible.com and diapers.com. Here, the Discover It card seems to come out the better option based on the wide range of store types, rather than specific websites. However, the preference really depends on whether you like to shop online or in person.
For this year, the Chase Freedom cash-back card is the best card to earn higher cash-back on everyday purchases. Everyone needs to eat, and you could earn on food bills or restaurant tabs. Home renovation and online shopping at Amazon.com is more niche, though highly useful for those consumers who fall into that niche. However, the release of the fourth quarter categories will be a key comparison point. Keep an eye out for the announcement, as it will likely come out in mid-September.