Ever wondered which card to use when you have no idea which card gives you the best earning rate? Or, do you ever wonder which card give you the best base earning rate?
I have wondered this too. I would go to a small store that I doubt has any special cash back bonus with any card and try to decide which card is the best for that situation. Or I would go to a store that might have a special cash back bonus but I don’t know off hand and have to make a quick decision as to which card to use.
So I decided to crunch the numbers as to which cards offer the best base earning rate. When I say base earning rate, I mean the earning rate that a card holder is at least going to earn. For instance, Discover It card offers at least an earning rate of 1%. The least earning rate is what I call the base earning rate. When a person is making a purchase, the cardholder is at least going to earn the base earning rate.
I split the earning rate in three categories: cash back, gift cards, and travel. The base earning rate differs depending on what the card holder is going to redeem. A card might have a good base earning rate for cash back but not for gift cards. Some cards offer a good base earning rate for travel.
I also calculate what the card holder has to spend on an annual fee card in order to earn more than a non-annual fee card.
What I don’t consider is the bonus earning rate of each card. For instance, Discover It card has a 5% cash back bonus on particular purchases. I don’t consider the cash back bonus in the calculations. The cash back bonus is not what I call the base earning rate. I might mention the cash back bonuses when choosing a card, but I am mostly interested in the base earning rate.
I chose cards that I am familiar with and what seem to be popular. I don’t own all the cards, but I read up and ask questions about the cards I am not familiar with.
So here we go…
Barclaycard Arrival World Mastercard
The BarclayCard reward system goes by miles. The base earning rate is 2 miles per dollar spent.
If you want just straight cash back, the cash back rate is $0.005 per mile, or half a penny per mile. So if you have 40,000 miles, your cash back would be $200. So at 2 miles per dollar spent, the base earning rate becomes $0.01 per dollar spent, or just 1%. So if you spend $20,000, you’ll earn 40,000 miles or $200.
The 1% return is also true for restaurant gift cards. For instance, if you want an Outback gift card, you would need 10,000 miles for a $50 gift card at a rate of $0.005 per mile. At 2 miles per dollar, the base earning rate becomes 1%. So if you spend $5000, you’ll earn 10,000 miles and you’ll be eligible to receive the $50 Outback gift card.
For airline travel, you redeem miles for credit towards airline travel purchases. Instead of redeeming miles to purchase a ticket, it is the other way around. You purchase the ticket first and then redeem miles for credit towards the cost of the ticket. The redemption rate towards travel purchases is $0.01 per mile. At 2 miles per dollar spent, the redemption rate is $0.02 per dollar spent, a rate of 2%. On top of that, you earn 10% bonus miles for the miles redeemed. In other words, you earn 0.10 miles for each mile redeemed.
For example, let say you spent $12,500 on purchases. You earned 25,000 points. You purchase an airline ticket. You redeem 25,000 miles for a $250 credit towards the cost of the airline ticket. The redemption rate at this point is 2%. As a result of redeeming miles, you earn 10% bonus miles on each mile redeemed which comes out to be 2,500 bonus points (10% of 25,000 miles = 2,500 miles) . Let’s say you want to maximize your earning rate by redeeming the 2,500 points you just earned for credit for another airline ticket. From the 2500 bonus miles at $0.01 per mile, you’ll earn $25 credit, and at 10% of 2,500 miles, you’ll also earn 25 miles. So you redeemed your miles for a credit of $275 ($250 + $25 = $275). So the base earning rate in this scenario is $275 earned/$12,500 spent = 2.2%.
Now, let’s say you spent $125,000 and you earned 250,000 miles. You redeemed the miles for airline credit worth $2,500. You also get 25,000 bonus miles. Then you redeemed the 25,000 miles for a $250 credit and received 2,500 bonus miles. You redeemed again for a $25 credit and received 250 bonus miles So the base earning rate is ($2,500 + $250 + $25)/$125,000 = 2.22%
Now, BarclayCard Arrival has a special deal for enrollments. At one time, the deal was to spend $1000 in 90 days and I get 40,000 miles. That’s $200 in cash back. That comes out to be 20% earning rate for the first $1000! Now, the deal is 40,000 miles if you spent $3000 in 90 days. The earning rate would be 6.67% for the first $3,000.
The annual fee is $89 per year but the first year is waived. After the first year, you would need to spend at least $8900 ($8900 spent = 17800 miles = $89 cash back) just to cover the cost of the annual fee. If you’re going for travel credit, you would need to spend $4950 ($4950 spent = 8,900 miles = $89 travel credit) to offset the annual fee.
Now let’s say you have the Discover It card which has no annual fee and a 1% cash back rate. Now since the Barclaycard has a base rate of 1% for cash back, you notice that on non-travel purchases the Barclaycard has no advantage over the Discover It card. If you spend say $10,000 on both cards, you’ll get $100 cash back on both cards but on the Barclaycard you’ll incur the $89 annual fee. In the end, you’ll have $100 cash back from the Discover card but $11 cash back from the Barclaycard.
For the travel purchases it is a different story. The Barclaycard earns about a 2% rate while Discover earns 1%. You would need to spend more then $8,900 on the Barclaycard ($8,900 spent = 17,800 points = $178 travel credit but with $89 annual fee the net earnings become $89) in order to earn more than the Discover card ($8,900 spent = $89 cash back). Note that this is only on the travel purchases.
Versus the Capital One Quicksilver card, for travel purchases, you need to spend $12,714 to earn more on Barclaycard than on the Quicksilver card (1.5% cash back rate). (Barclaycard: $12,714 spent = 25,428 miles = $254.28 travel credit. Receive 2,542 bonus miles = $25.43 travel credit. Net earnings = $254.28 + $25.43 – $89 annual fee = $190.71). (Quicksilver: $17,800 spent = $190.71 cash back).
Versus the Capital One Venture card, you need to spend $15,000 to earn more on the Barclaycard over the Capital One Venture. The Venture card has a base travel rate of 2%. (Barclaycard: $15,000 spent = 30,000 miles = $300 travel credit. Receive 3,000 bonus miles = $30 travel credit. Net earnings = $300 + $30 – $89 annual fee = $241 travel credit. Capital One Venture: $15,000 spent = 30,000 miles = $300 travel credit. Net earnings = $300 – $59 annual fee = $241 travel credit.)
Versus the Capital One VentureOne card, you need to spend $11,867 per year to earn more on Barclaycard than Capital One VentureOne card. Capital One has a base rate of about 1.25% for travel purchases with no annual fee. The Barclaycard has an advantage over Capital One if you spend over about $11,867 a year on travel expenses. (Barclaycard: $11,867 spent = 23,734 miles = $237.34 travel credit + 2,373 bonus miles. Net earning = $237.34 credit – $89 annual fee = $148.34) (CapitalOne: $11,867 spent = about 14,834 points = $148.34 travel credit).
For straight cash back only, the Barclaycard has an advantage over Capital One VentureOne card if you spend over $23,733 per year. (Barclaycard: $23,733 spent = 47,466 miles = $237.33 cash back. Net earnings = $237.33 – $89 annual fee = $148.33) (Capital One: $23,733 spent = $29,666 points = $148.33 cash back)
Chase Freedom Visa card
The reward system goes by points, and the base earning reward rate is 1 point per dollar spent.
The cash back rate is $0.01 per point, or 1% base earning rate. ( $10,000 spent = 10,000 points = $100 cash back. $100 cash back/$10,000 spent = 1% base earning rate).
For gift cards, the redemption rate is $0.01 per point. So for instance if you want a $50 gift card, you’ll need 5000 points. The base earning rate would be 1%. ( $5,000 spent = 5,000 points = $50 for gift card. $50 gift card/$5,000 spent = 1% base earning rate).
The redemption rate for airline travel is $0.01 per point. As a result, the base earning rate would be 1%.
However, if you purchase an airplane ticket from the Chase web site using the Chase Freedom card, you get one extra point per dollar. Since the redemption rate is $0.01 per point for all three categories and you earn 2 points per dollar from airline travel, the earning rate from airline travel becomes 2%. ($1000 spent on travel = 2000 points = $20 cash back. Earning rate = $20/$1000 = 2%)
If you sign up and get approved, you’ll get 10,000 points if you spend $500 in the first 3 months. At $0.01 per point, that comes out to be $100 cash back. So for the first $500, you get $100 back for a base earning rate of 20% for the first $500.
There is no annual fee.
Since the earning rate is 2% for airline purchases, this card is comparable to the Barclaycard Arrival card, but there is a difference. You earn 2% only on airlines purchases on the Chase card. You earn 2% if you redeem for airline credit on the Barclaycard. So, you are limited to airline purchases on the Chase card if you want the 2% rate, while on the Barclaycard you can earn 2% if any purchase as long as you redeem for travel credit.
Capital One VentureOne Rewards
The Capital One rewards system goes by miles, and for this card the base rewards rate is 1.25 miles per dollar spent.
If you want to redeem miles for cash, the rate is $0.005 per mile. At a rewards rate of 1.25 miles per dollar spent, the base rate becomes $0.00625 per dollar spent, or 0.625%. If you spend $10,000, you’ll earn $62.50 cash back ($10,000 spent = 12,500 miles = $62.50 cash back earned; $62.50/$10,000 = 0.625% earning rate).
If you want redeem for gift cards, the redemption rate is $0.01 per mile. At a rate of 1.25 miles per dollar spent, the earnings rate becomes $0.0125 per dollar spent, or 1.25%. So if you spend $10,000, you’ll earn $125 for gift cards ($10,000 spent = 12,500 miles = $125 for gift cards; $125/$10,000 = 1.25% earning rate).
If you want to redeem for airline travel, the redemption rate is roughly $0.0102 per mile if you redeem miles for an airline ticket. At a rate of 1.25 miles per dollar spent, the base rate becomes $0.0128 per dollar spent, or 1.258%.
If you redeem for credit toward an airline purchase, the redemption rate is $0.01 per mile, or an earning rate of 1.25% at 1.25 miles per dollar spent.
For cash back, Capital One VentureOne has no advantage over Discover It or Chase Freedom. For gift cards and travel Capital One VentureOne has an advantage over Chase. For gift cards and travel, Capital One VentureOne and Discover It are about the same.
There is no annual fee. Note that the earning rate is a flat 1.25 miles per dollar. There is no special bonus rate if you purchase from a particular merchant. It is 1.25 miles per dollar for every merchant all the time.
Capital One Venture Rewards
This card is similar to the other Capital One VentureOne card. The rewards system is the same as the VentureOne card except the earning rate is 2 miles per dollar spent and there is an annual fee of $59.
For cash back, the earning rate is $0.005 per mile. At 2 miles per dollar, the base rate is 1%. If you spent $10,000, you’ll earn $100 cash back ($10,000 spent = 20,000 miles = $100 cash back; $100/$10,000 = 1% earning rate).
For gift cards, the redemption rate is $0.01 per mile. At 2 miles per dollar, the base rate is 2%. If you spent $10,000, you’ll earn $200 for gift cards. ($10,000 spent = 20,000 miles = $200 for gift cards; $200/$10,000 = 2% earning rate).
For airline travel, the redemption rate is roughly $0.0102 per mile. So at 2 miles per dollar, the base rate becomes $0.0204 per dollar, or 2.04%. ($10,000 spent = 20,000 miles = $204 for travel; $204/$10,000 = 2.04% earning rate).
The annual fee is $59 but the first year is waived. The introductory offer is 20,000 miles if you spend $2000 in 3 months. For cash back, that converts to $100, for a base rate of 5% for the first $2000. For gift cards or airline travel, the miles converts to about $200, for a base rate of 10%.
Now the question is – how much do I need to spend in order to earn more money on the Venture card than the VentureOne card. For cash back, you need to spend $15,733 in order earn more cash back on the Venture card over the VentureOne card. (Venture: $15,733 spent = 31,466 miles = $157.33 cash back. Net earnings = $157.33 – $59 annual fee = $98.33 cash back.) (VentureOne: $15,733 spent = 19,666 miles = $98.33 cash back.)
For cash back, the Venture card has no advantage over the Chase Freedom card and Discover It card because of the annual fee.
For gift cards and airline travel (the redemption rates for both gift cards and travel are almost the same so I’ll just consider $0.01 per mile), you need to spend over $7867 on the Venture card to earn more money than the VentureOne card. (Venture: $7867 spent = 15,734 miles = $157.34 credit. Minus $59, the net earnings is $98.34.) (VentureOne: $7867 spent = 9,834 miles = $98.34.)
Versus the Quicksilver card on gift card and travel, you need to spend $11,800 to earn more on the Venture than on the Quicksilver card. (Venture: $11,800 spent = 23,600 miles = $236 earned. Net earnings = $236 – $59 annual fee = $177 earned). (Quicksilver: $11,800 spent = $177 cash back).
Compared to the Discover It card, for gift cards, you need to spend $7866 on the Venture card to earn more than the Discover It card. (Venture: Venture: $7867 spent = 15,734 miles = $157.34 credit. Minus $59, the net earning is $98.34.) (Discover: $7867 spent = $78.67 cash back. You cannot buy gift cards at a fractional value, but let’s say you could like a Staples card where you pay $20 to get a $25 gift card where you get 25% more than what you paid for. So 25% more of $78.67 is $98.34.)
Capital One Quicksilver
The cash back rate is simple: 1.5% on everything. There is no annual fee.
Since the base rate is 1.5%, the Quicksilver card is superior to the VentureOne card in all categories. In most cases, the Quicksilver card is superior to the Discover It card and Chase Freedom.
American Express Blue Cash Preferred Card
This is an interesting card. The rewards is in terms of dollars.
The base cash back rate is 1%. For supermarket purchases, the cash back rate is 6% up to $6,000 in purchases, then it goes to 1%. For gas stations and some department stores, the cash back rate is 3%. The annual fee is $75.
So to cover the annual fee, you need to spend $1250 in groceries or $2500 in gas or department store purchases. Not bad.
If your paying for groceries, you need to spend $1,500 to earn more on the American Express card than the Discover It card. (AMEX: $1,500 spent = $90 cash back. Minus $75, the net earnings become $15.) (Discover: $1,500 spent = $15 cash back.). For paying gas or department store items, you need to spend $3,750 on the American Express card to earn more than the Discover It card. (AMEX: $3,750 spent = $112.50 cash back. Minus $75, the net earnings become $37.50.) (Discover: $3,750 spent = $37.50 cash back.).
Versus the Quicksilver card for purchasing groceries, you need to spend $1,666 to earn more on the AMEX card than on the Quicksilver card. (AMEX: $1,666 spent = $99 cash back. Net earnings = $99 – $75 = $24.) (Quicksilver: $1,666 spent = $24 cash back).
If you really want to take advantage of the AMEX card, buy gift cards at the grocery stores. You’ll get 6% cash back on gift card purchases. When you go this route, you’ll need to consider how much discount you can get elsewhere for the gift cards. If you cannot get a 6% discount on gift cards elsewhere, then it is prudent to buy a gift card at the grocery store using the AMEX card.
(You can buy gift cards at a discount on sites such as cardpool.com and raise.com. Check these sites out to see if you can get a greater discount than 6%.)
Note that this gift card trick does not work on prepaid credit cards.
I live in Phoenix and Fry’s supermarket had a special of 4x points for certain gift card purchases. So if I bought $250 in gift cards, I get 1000 Fry’s points, not to mention the $15 cash back on the AMEX card. 1000 Fry’s points equates to $1.00 off per gallon on gasoline purchases. Normally, you get 2x points on gift cards.
The introductory offer is $100 in reward dollars if you spend $1000 in 3 months. That’s comes out to be 10% cash back for the first $1000.
The annual fee is $75. The first year is not waived. However, the intro offer includes one free year of Amazon Prime. Also, (I didn’t know this until I tried) cardholders are eligible for ShopRunner which provides free 2nd day shipping on selected items from retailers such as TigerDirect and NewEgg. And, if you are a Costco member, you can purchase items using this AMEX card.
Discover It Card
The card reward system goes by dollars. The cash back rate starts at 1%.
To redeem in cash, the rate is $0.01 per dollar spent, or just 1%.
For gift cards redemption, the base rate is different depending the gift card. For instance, you can get a $50 Outback gift card for $45 cash back. So the base rate for an Outback gift card becomes 1.11%. In another example, you can get a $25 Staples gift card for $20 cash back, which makes the rate 1.25%. ($2,000 spent = $20 cash back = $25 gift card = 1.25%).
Discover does not have redemption for airline travel. The closest thing to travel is getting getting a gift certificate for cruise travel, Sandals resorts, or TourSales.com. The base rate varies depending on the certificate. For instance, you can get a $300 certificate for Tauck Tours for $100 cash back, for a base rate of 3%.
For long time Discover Card users: Make sure you have the It card instead of the More card. Prior to the It card, there was the Discover More card. When the It card was introduced, the More card members may not have been automatically converted to the It card. Call Discover card customer server to check if you have the More card or It card.
One big difference between the two cards is the cash back rate. The cash back rate for the It card is 1% all year around. The cash back rate for the More card resets to 0.25% every year. It is 0.25% for the first $3000 of purchases, then it becomes 1% thereafter until the end of one year. Then the rewards rate starts all over at 0.25%.
Discover It card has no special sign up deals. It has no annual fee.
If you want just cash back (not gift cards nor traveling), I would recommend the Capital One Quicksilver card.
If you want cash back and if you spend more than $1,666 a year on groceries, consider the American Express Blue Cash Preferred Cash. I heard from the news that a family on average spends about $4000 a year on groceries, so spending $1,666 shouldn’t be a problem for a most families.
If you want gift cards and spend under $1,666 per year, try the Capital One Quicksilver card.
If you want gift cards and you spend between $1,666 and $6000 per year on groceries, try the American Express Blue Preferred Cash card.
After you spend $6000 on the AMEX card, it gets a bit complicated. If you spend less than $11,800 after you spend $6000 on AMEX, try the Capital One Quicksilver card. If you are going to spend over $11,800 a year after you spend $6000 on the AMEX card, try the Capital One Venture card.
If you travel under $11,800 per year, try the Capital One Quicksilver card or the Discover It Card. In most cases, the Capital One card is the way to go. But if Discover card offers gift certificates with a base rate of greater than 1.5%, the Discover It card is the way to go.
If you travel between $11,800 and $15,000 per year, try the Capital One Venture card.
If you travel over $15,000 per year, try the Barclaycard Arrival World Mastercard.
Credit Card Strategy
It is a good idea to have more than one card handy. At least three is good. The big reason is the fraud protection that each credit card has. If you’re shopping and all of a sudden one of your credit cards doesn’t work anymore, very likely it is because of fraud protection. If you have another card, you can still finish the purchase. There was a time that two of my cards were disabled. Fortunately, I had a third card.
If you can, get the Discover It card and the Chase Freedom card. They have no annual fee. Both cards have 5% cash back bonus on certain categories and the categories change for each quarter. For instance, from January to March 2014, on Discover you can get 5% on restaurants, and on Chase you can get 5% on gas. Moreover, the Chase Freedom card earns 2% cash back from airline travel.
If you’re considering the gift card route, check out cardpool.com and raise.com. I have used them both. You can buy gift cards at a discount. For instance, you can purchase a Victoria’s Secret gift card at about a 14% discount. If cardpool.com or raise.com sell gift cards greater than a 6% discount, you’re better off buying from them than redeeming points, miles, or cash back. Otherwise, buy gift cards at a supermarket using the American Express Blue Cash Preferred card.
The only time (I can think of) you would redeem for gift cards is if the credit card rewards program offers a gift card that you cannot anywhere else at a discount. One such card is the Marriott gift card. Capital One offers the card and if you redeemed for it the earning rate would be 1.25%. I cannot find this card anywhere else at a discount.
The American Express card is only annual fee credit card worth getting if you spend more than $1666 on groceries. Families on average spend $4,000 per year on groceries so the American Express would be worth it for most families. Furthermore, if you shop the Internet a lot, you can take advantage of a free membership to ShopRunner and one free year membership to Amazon Prime.
The Quicksilver card is a pretty good card for just about everything. At 1.5% cash back, the card has one of the highest cash back rate for a no annual fee card. The only reason you would go with Discover or Chase Freedom is if there is a 5% bonus cash back rate on a particular purchase.
The problem with the annual fee cards (except AMEX) is that you have to be a big spender in order to earn more from them than the non-annual fee cards. Another factor is how much you’ll spend on the annual fee card if you use the other non-annual fee cards as well. Let’s say you’ll spend $20,000 per year on credit cards but you have 4 credit cards. If you split the spending equally on the cards you would spend $5,000 on each card. If one of the cards is annual fee card, you might need to spend more on it than on the others in order to get your monies worth.
If you get a new credit card that has a good introductory offer such as bonus cash back, points, miles, etc if you spend a certain amount in a certain time frame, make the new credit card your primary card until the target amount has been reached.