Why Gas Rebate Cards Aren't the Best Deal
By Eva Norlyk Smith Ph.D.
October 1, 2012
I was wondering what you think about gas credit cards. I almost always stop at Shell, so I was thinking of getting their card that gives five cents per gallon, assuming you buy at least 45 gallons a month (which I almost always do). Any catches? Or are there any better cards you can recommend? Thank you. — Logan
When evaluating cash-back credit card offers, it’s always good to head straight for the bottom line: What’s the percentage cash back you’ll be earning on your gas purchases? And, once you have the card, presumably you will want to use it for other purchases. So an equally important question is: Will the card let you earn cash back on other charges as well?
The Shell gas credit card isn’t bad, but it isn’t great either. For starters, the cash-back value is modest at best. Yes, 5 cents may sound like a great discount, but percentage-wise, it’s really just OK.
What is the cash-back percentage offered on the Shell gas card? Well, today’s gas prices range from around $3.50 to more than $4, according to GasBuddy.com. For $3.50 a gallon, that 5 cents back is equal to 1.42 percent cash back. If you pay $4 a gallon, the cash-back value is lower — 1.25 percent cash back on your gas purchases.
The cash-back rate on almost any garden-variety cash-back card is 1 percent. So the Shell gas credit card gives you only 0.25 percent to 0.42 percent more, which isn’t really that impressive. Plus, you don’t earn rewards when using the card for other purchases, and the purchase APR is a whopping 24.99 percent! Finally, the card limits total cash-back earnings to $60 a year (although you wouldn’t have to worry about this limit unless you burn through more than 100 gallons a month).
As this example illustrates, gas credit cards issued by gas companies typically don’t offer the best value. They are less versatile than generic cash-back cards, and some come with minimum spending requirements and other tricky restrictions that can make it hard to benefit fully from that nice cash rebate.
The good news is that there are many other options. For maximum flexibility, look for cash-back credit cards that offer an increased rebate on gas purchases, as well as on other purchases. Here are a few examples, along with the cash-back rates you can earn.
PenFed Platinum Rewards Card: With this card, which sports a 9.9 percent variable APR, you earn 5 points per dollar on gas purchases and 3 points per dollar on all supermarket purchases. Points can be redeemed for a variety of rewards, including travel purchases and online purchases. To get a cash reward, you’d have to redeem points for a Visa prepaid card. This can be a bit of a hassle, but well worth the effort given the high value of the cash rebates you get.
The cash value of the points when redeeming for a Visa prepaid card is 1 cent in cash back per dollar spent. So those 5-point-per-dollar earnings on gas purchases would translate into 5 percent cash back on all your gas purchases. That’s the equivalent of a 17.5 cent savings per gallon of gas if you pay $3.50 per gallon, and 20 cents savings per gallon if you pay $4 a gallon. That’s three to four times what you’d be earning with the Shell gas credit card. Keep in mind, however, that you must have at least 5,000 points banked to redeem a Visa prepaid card.
An added benefit is that PenFed cardholders earn 3 points per dollar on supermarket purchases, effectively getting you 3 percent cash back for all your grocery purchases, which can really add up. There is no annual fee and no limit on cash rewards earnings.
The downside of the PenFed Platinum Rewards card is that, to apply, you have to be a member of the Pentagon Federal Credit Union. However, even if you don’t work for a military organization (or have family members who do), you can still qualify for PenFed membership by becoming a member of either the National Military Family Association (for a one-time $20 fee) or of Voices for America’s Troops (for a one-time $15 fee).
Blue Cash Everyday from American Express: This card rewards cardholders with a respectable 2 percent cash back at the pump and 3 percent cash back at the supermarket. Spend $1,000 in the first three months, and you’ll get a nice extra $100 cash-back bonus.
For a $75 annual fee, you could upgrade to the AmEx Blue Cash Preferred card, which lets you earn 3 percent on gas purchases and 6 percent on supermarket purchases charged to the card. If you spend more than $500 a month on groceries, the annual fee would be worth it, as the extra 3 percent cash back on groceries lets you earn back the $75 annual fee in five months or less. The card also has a 0 percent introductory APR for the first year (after that, it ranges from 17.24 percent to 22.24 percent, depending on your credit-worthiness).
Discover Open Road: With this card, you earn 2 percent cash back on gas purchases, as well as restaurant purchases. In addition, you can earn up to 20 percent cash back on other purchases, when shopping online with Discover’s shopping network , which includes popular vendors like Lands End and L.L.Bean. Like the AmEx card, the Open Road card comes with a 0 percent introductory APR (which lasts for 15 months). After the introductory period, expect an APR of between 10.99 percent and 19.99 percent.
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