What The Best Credit Card Rewards Programs Aren’t Telling You

I believe that every consumer should have access to a credit card that has the best available rewards program. That’s why I’ve been an avid user of the American Express Blue Cash credit card since 2007. When I discovered the card, I thought I had the best rewards credit card, so I have been using it as my primary purchase account for the last five years.

Here is a breakdown of the card, which is no longer available to new cardholders (new cardholders can choose between the Blue Cash Everyday and Blue Cash Preferred, which have different terms).

Blue Cash from American Express

• No annual fee.
• Don’t care what the interest rate is because the balance is paid in full every month.
• 1% cash back on Gas, Grocery, and Drugstore. 0.5% on Everything Else.
• When the account accumulates $6,500 in eligible purchases during your anniversary year, the reward changes to 5% cash back on Gas, Grocery, and Drugstore. 1.0% on Everything Else (1.25% for the 1st year only).
• There is no limit on rewards earned (the only stated limit is “up to $400 for each purchase of automobile gasoline”).
• American Express used to apply the rewards annually as a statement credit, but the credit has to be manually redeemed now. It can be used as a statement credit, to shop for products, or applied to gift cards.

Sounds pretty good right? Have you taken a good look at your credit card statement lately?

Here’s what the best credit card rewards programs don’t want you to know: It’s up to the merchant to classify themselves in the correct category in order for you to earn the appropriate rewards. The technical term is called a merchant category code. It’s used to classify a business when they accept credit payments.

For example, if a major supermarket retailer decides to classify themselves as “specialty retail” instead of “grocery,” you’re not going to get the bonus cash back in the “grocery” category. If you fill up your gas at your local 7-11 and the charge goes through as a “convenience store” purchase, you’re not going to get the bonus cash back in the “gas” category.

I never really put much thought into the rewards program and the classifications because I was always wowed by the money I got back as a statement credit every year. That is until I did a simple analysis on the rebate I was receiving, compared to the total I spent on the card every year. Put away the fancy theoretical category spending calculators, you’re going to be disappointed.

Blue Cash Rebates Over The Last 5 Years

Now keep in mind that I’m a big fan of simplicity. There are a lot of rewards fanatics out there that will jockey several different credit cards to maximize their reward dollars. That’s fine, but like most people, I don’t have time for that. I just want to pay as much as I can with one credit card and pay one bill at the end of the month. Using the Blue Cash from American Express, even with the bonus categories, I only averaged a cash back rebate of 1.4% over the last five years. Here I was fooling myself that I was making out like a bandit with 5% cash back categories.

How could I have done better?

I’ve known about the Fidelity American Express Rewards Cards for quite some time now. I never signed up because I didn’t want another credit card, didn’t do the cash back analysis, and didn’t read the fine print. On the surface, the card boasts 2% back for every purchase with no limits. The cash back can be directly deposited into a Fidelity Cash Management, Brokerage, 529, or Retirement Account. I’m pretty happy with my Roth IRA over at Vanguard, so the only new investment account I’d be interested in opening is a taxable investment account. Not being ready to make that move yet, I’ve been hemming and hawing about pulling the trigger on the credit card account. That is until I did the analysis and read the fine print.

Fidelity Investment Rewards American Express Card

• No annual fee.
• Don’t care what the interest rate is.
• 2% cash back on purchases with no annual limit.
• All the same American Express cardholder benefits.

A cash reward shall be issued for a U.S. dollar sum in the form of a check or an electronic deposit to a checking or savings account of your choice. Cash reward check expires 90 days after date of issue. You can redeem points for deposits into an eligible Fidelity account.

Potential Rewards with Fidelity Investment Rewards

Bingo! Sold. Every dollar counts. I signed up for the new card on New Years day and am now waiting a response for approval. My plan is to take the cash back annually in the form of a direct deposit into a checking account. That way, I have the option to use the money to pay my credit card bill, fund a taxable investment account, or contribute a little extra money into my daughter’s 529 plan.

What do you think? What is the real cash back rebate percentage you are getting on your credit cards? How do you use your rebates?