What do you think of those types of cards that give you extra points for certain things during certain months of the year? I'm wondering if they're worth all the effort to keep track, or if I'm better off focusing on a card that gives the same rate of cash back for everything all the time. – Monique
You are asking a very good question. Rewards cards offering extra (usually 5 percent) cash back in rotating categories may seem like a good deal. But is it really worth the extra hassle to sign up and keep track every quarter? To answer that question, let's take a look at what you really are getting.
The most well-known cards currently offering 5 percent cash back are Chase Freedom, Discover “it” and Citi's Dividend Platinum Select. They all offer similar terms. For the Chase Freedom, cardholders get 5 percent cash back up to $1,500 spent each quarter (the equivalent of $75 max in rewards earnings per quarter, or a total of $300 per year) and 1 percent on all other purchases. For the Citi Dividend Platinum card, there is no cap on quarterly spending, but the yearly rewards earnings cannot exceed $300, so it's essentially the same yearly cap on rewards earnings. The caps for the Discover “it” card change, so check your card agreement.
Keep in mind that all three of these cards require you to “opt in” every three months to get 5 percent back in the special spending categories. It doesn't take long, but it is an extra step.
Because the cards offer similar terms, the key factor to consider is whether the rotating categories match your spending — and whether you will spend enough to take advantage of the bonus each quarter. This is where it gets sticky: The rotating categories change each year, and generally, the specifics are not announced ahead of time. Here is how the bonus categories stacked up for 2013.
|5 percent cash-back calendar for 2013
| Discover it
|| Restaurants, movie theaters
|| Home improvement
|| Online shopping
| Chase Freedom
|| Drugstores, gas, Starbucks
|| Restaurants, Lowe's, movie theaters
|| Gas, theme parks, Kohl's
|| Amazon.com, select department stores
| Citi Dividend Platinum
|| Drugstores, fitness clubs, Zappos
|| Home furnishings, Home Depot
|| Hilton hotels, car rentals, movies, theme parks
|| Best Buy, department stores, toy stores
You may not want to spend $1,500 in the category offered for some of the quarters. For example, unless you drive a lot, the Discover card gas bonus for Q3 wouldn't have been of much value to you, because you'd have to spend $1,500 on gas to benefit fully from it. Similarly, while the Chase Freedom bonus for Q3 gives you a few more options, if you don't happen to go to a theme park, or if you're not an avid Kohl's shopper, again, you wouldn't derive the full bonus value.
The Citi Dividend card gives you greater flexibility because the cap is on annual rewards earnings rather than quarterly spending. So if a home improvement project is in your future, you could earn 5 percent back on up to $6,000 in Q2 by using the Citi Dividend card. That is a significant discount without the hassle of signing up and keeping track every quarter. But if you're not planning a home improvement project, you're out of luck.
There is a new card on the block that addresses some of these limitations: The U.S. Bank Cash Visa Signature Card. With this card, you get to choose your 5 percent categories each quarter. This lets you match cash-back categories with your actual spending.
The 5 percent earnings are capped at $2,000 in net purchases per quarter, for a total of $100 in possible earnings per quarter or $400 a year. In addition, you get unlimited 2 percent cash back in a category of your choosing, such as groceries, gas and drug store purchases. You get 1 percent on everything else. The catch? You have to have excellent credit, and you can apply only by visiting a branch of U.S. bank.
Whichever rewards program you choose, there's considerably more work involved with cards that have rotating rewards categories. Other cards will give you lower cash-back returns for less hassle. The Capital One Quicksilver Cash Rewards card gives back an unlimited 1.5 percent back on all purchases, for example. And, if you do want to flex your spending in certain categories, the American Express Blue Cash Everyday card gives you a consistent 3 percent back for groceries, 2 percent back for gas and 1 percent back on everything else (up to $6,000 in spending per year).
Do the math to find out what those cards will net you. It won't be as impressive as what you could get with a card that has rotating categories. But unless you can guarantee you'll be able to squeeze every extra cent out of those moving targets (and have the time to plan a rewards strategy), a plain vanilla cash-back card that gives you a consistent rate will probably be more rewarding.
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