Choosing a best combination for cash back credit cards…

Happy New Year 2011! Guess how I spent the Christmas and New Year holidays apart from spending quality time with my family? I actually did some search for credit cards. It all started with a need to have an additional non-Amex credit card so that I don’t have to use my debit card at places that don’t accept Amex, and also to see how my current Amex card compares with others.

If you don’t want to read the entire post, just go to the end of this page to read summary. Otherwise, enjoy reading my analysis Smile

I set up following criteria for myself:

  1. Have only two cards. One Amex and one non-Amex. This is to keep my life simple and my wallet light.
  2. Get a good Amex card as I shop at Costco a lot, and Costco stores accept only American Express credit cards (apart from debit cards, cash & cheque).  I hardly shop online for Costco.com which accepts Visa and Amex.
  3. I always pay off my bills on time and have a good credit score.
  4. [Added later] Look for cash back cards only. I would just prefer the cash into my account rather than airline miles or reward points. This particular criteria helped me narrow down my search.

Initially I just searched for best credit cards and got lot of websites with each website showing their own best cards. I have created a summary of my references here. Every card had its own pros and cons and this all got confusing. There are cash back cards, rewards cards, airline miles cards, hotels cards. It was at this point that I added my fourth criterion to narrow down my options.

I went back to the basics, and looked at my expenses for last two years. The Amex website has really nice feature called “Spend Analysis (year-end summary)”.  Amex is the only card I had so far so don’t know about features of other cards. This shows all your expenses in that year and are categorized into different shopping categories. This was particularly useful to understand how much cash back I will get from a particular card for each of the categories. I created an excel sheet with these criteria and added  a column from each of the card that I will shortlist.

The excel sheet is provided here. If you want to use it, download it and just add your expenses in the column titled “Avg Spending” and it will do all the required calculations for you and will give you an idea of how much cash back you can earn of each card. Make sure you understand how Blue cash works and assumptions made for calculating cash back.

You can add your own shortlisted card with correct formula for that column.

With the criteria and general recommendation of different sites, I shortlisted following four cards that meet my needs:

1. PenFed Visa (or FKFCU Visa)

Cons:

  • You have to be a member of PenFed. But the procedure is very simple and provided here.
  • If you spend more on things like restaurants, travel, pharmacy, hotels etc., then you get only 1% cash back.
  • Approval is not that easy.
  • No foreign transaction fee
  • It took almost a three weeks for my card to arrive after getting approved. My AMEX card came in 3 days.

Pros:

  • served my original purpose to have a non-Amex card, as a backup.
  • gives me 5% cash back on gas, 2% on superstores (including Wal-Mart, Target etc.), and 1% on everything else.  Update: 2% cashback on superstores is going away after Feb 28, 2010. Too Bad Crying face . Another Update : They have kept only 5% cashback on gas, and changed all others to just 0.25%. Not a hot deal any more. Considering FKFCU’s Visa card (which gives 5% on gas and 1.25% on everything else).
  • the cash back is deposited every month. You don’t have to wait to spend pre-defined amount.
  • Awesome customer service

2. Fidelity Amex

Cons:

  • You have to have a Fidelity account (either mySmart Cash Account or brokerage account). The cash back is redeemed only into this account.
  • You will earn cash back only after spending $2500, i.e. after you spend $2500, a $50 will be deposited into your Fidelity account
  • Even though the card says Amex, this card is not issued by American Express, rather issued by FIA Card services and it only uses American express network. So all the claims etc. are processed by FIA Card Services. You don’t get the great customer support of Amex and also all the  great services it provides
  • FIA Card Services is bought by Bank of America and in general customer service is supposedly not that good

Pros:

  • 2% cash back on everything beats lot of cards. Even if some cards give you 5% on few categories, 2% on the amount you spend on other categories might offset all the benefits of those cards.
  • This particular card gives me maximum cash back from the excel sheet that I created for my spending analysis.
  • I already have a Fidelity account
  • Opening mySmart Cash account is very easy and there is no fee either to open the account or to maintain it. Also if you open this account and use their ATM/Debit card, you can use this card at ANY ATM with Visa/Star logo and they will reimburse all the ATM charges automatically.
  • I realized I have not used any of the great features of my existing AMEX card nor I have used their customer service so far.
  • There is a website https://www.benefitinformationcenter.com/ which will give you the benefits of your Fidelity Amex card, and for my card I can see similar benefits as my existing Amex Blue Cash card.
  • The customer service number for Fidelity customers is different than the one provided on FIA Card Service’s website. So this customer service number is for Fidelity customers which is good.

3. Costco True Earnings Amex

Cons:

  • You have to be Costco member
  • Cash back returned annually (you have to wait for whole year) and needs to be redeemed in Costco retail stores

Pros:

  • I am a Costco member and shop at Costco a lot.
  • 3% on Gas (up to $3000), 3% on restaurants, 2% on all travel (including car rentals, hotel booking etc.), and 1 % on everything else is awesome
  • You get all the great benefits of being a American Express card holder since it this card is issued by American express and great Amex website for management

4. Amex Blue Cash (Update: This has been discontinued, and changed to Blue Cash Everyday card)

Cons:

  • Tiered cash back system. You will earn a lot only when you spend a lot of money every year.
  • The marketing for the term ‘grocery’ is misleading. See my earlier post on it.
  • If your account is inactive for 18 consecutive months, your rewards will be forfeited

Pros:

  • If you are a big spender, you will get good cash back.
  • You can redeem rewards upon request whenever you’ve earned 25 reward dollars or more
  • All AMEX benefits and great Amex website for management

I already have Amex Blue Cash credit card, but after doing the spend analysis, I figured out that my spending habits are not giving me much cash back from this card as I used to get earlier.

From my analysis, I figured out Fidelity Amex works best for me, followed by Costco True Earnings and then Blue Cash. Already got approved for PenFed Visa. Applied for the Fidelity Amex and waiting for their response.  Keeping my fingers crossed. I am going to keep my Blue Cash  (but won’t use it) as a backup in case I hit any issues with Fidelity Amex or their notorious customer service.

Update: I received my Fidelity Amex card today! I tried their customer service with the phone number provided on my welcome kit (Customer Satisfaction: 1-877-811-7088) and the experience was good. I think this number is for Fidelity customers and they have a separate credit card department.

Coincidently, I stumbled upon some one in the same boat as mine while I was doing this search for credit card, and it also helped me finalize my cards.

I chose not not consider the cards like Discover More, or Chase Freedom because they have rotating schedule for cash back and it gives me a feeling that “I am being used by the credit card rather than I am using a credit card”. This is just a personal preference.

I have not looked at credit cards which have annual fee, but read a lot of good reviews about Starwood Preferred Guest Amex card. Since my criteria was cash back, may be next time I will give a thought over it.

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Summary: At the end I figured out that the combination of PenFed Visa FKFCU Visa and Fidelity Amex can give me a good cash back (about 2%) for my spending habits and within my criteria.

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References: summary of my references.

Some Tips:

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