James Manning

Cash-back credit cards are a vast untapped resource for the American (and likely non-American as well) consumer. Much like Clark Howard talks about never leaving the free money that is an employer-matching 401k (make sure to check Clark’s other 401k tips), it’s a resource that’s little to no additional effort, but can help generate some extra income (or, well, help offset some of your bills).

Many people (myself included) do a first-pass effort at getting some cash back by picking up a Discover card and being happy with the 1%(-ish) you’ll get back from that. There’s nothing wrong with that at all, but you can do a little better if you give a bit of effort at it.

How, you ask? Just a few quick and easy steps. :)

Now, there’s a lot of cash-back credit cards out there at this point in the game (and more coming all the time), so first I’m going to list the finalists I came up with and their relative pros and cons. The only hard requirement I have is no annual fee – I can’t rationalize spending money to keep a card. Also, as a goal, we’re hoping to get at least 5% back on everything we spend. We may not be able to get there, but that’s our goal.

The Citi Dividend Platinum Select card has a few things going for it:- “Earn cash back on everything–a full 5% cash back on purchases at supermarkets, drugstores and gas stations, plus 1% on all other purchases”. Checking out their rewards info, the things that matter to me are 1) limit of $300 / year in dividend (cash back) 2) no real “double”-ing system like Discover card has and 2) rewards redeem in $50 increments. We’ll keep those in mind as we check out the Discover card entries.

Discover has 2 classes of cards we’ll check out for our purposes – the specialty cards are focused on a particular sector (gas, restaurant, or home improvement) and give 5% back for the purchases made with the card in that sector (I use the Discover Restaurant card every day picking up a mocha frappacino for my wife at Starbucks). The important part of these cards is that they stair-step down in their return rates – Each year, earn a full 1% (5% for gas) of your first $1,500 in purchases; your second $1,500 in purchases earn .50% (3% for gas) and purchases in excess of $3,000 earn .25% (1% for gas). Because of this stair-stepping and our goal to get 5% back on everything, ideally we’ll only be using each of these cards for that first $1,500 in the specialty (gas for gas, restaurants for restaurant, etc.), and only putting items from the speciality on them (since otherwise, we’re only getting 1%, and our goal is 5% on everything).

There’s a few things the Discover “Specialty Platinum” and “Regular Platinum” cards I’m talking about have in common. 1) They both can double their rewards with Discover’s partners. Their list of partners has varied some over time, but it’s a nice way of basically paying half-price for something (our most recent use of this was the Roomba we got at Sharper Image with Discover Cash Back bonus money). 2) The increments you can redeem the reward is $20 (better than the $50 increments of the Citi card talked about above) 3) there’s no annual cap on the amount earned (just the stair-stepping down for the specialty cards).

So, we’ve talked about the Discover Speciality cards, and then the things they have in common with the Discover “normal” Platinum card. Now, it’s time to discuss the actual Discover platinum card. Whereas the specialty cards have their rewards stair-step down, the “normal” platinum card has a reward that stair-steps up – Each year, earn a full 1% of each purchase made after your total amount of purchases exceeds $3,000; your first $1,500 in purchases earn .25% and your second $1,500 in purchases earn .50%.. Note that Discover has recently added a “Get More” program that can get you some additional purchases at 5% on your “normal” discover platinum card – it’s actually described on the same page – With our Get More Program, you can sign up to earn 5% Cashback Bonus on purchases made at select merchants or in certain merchant categories throughout the year. Since I can’t seem to find more specifics about it at the moment, I’m going to leave it out of this analysis for now, but if you’re reading this page for advice, definitely dig into it. Hopefully I’ll soon be able to find out more specific details about their Get More program (specific merchants and types of transactions) and be able to update this page. Please drop me a line if you hear some specifics!

Ok, back to the “normal stairsteps up, specialty stairsteps down” effect. This may seem a little odd, but it actually benefits the consumer considerably. Discover wants you to pick up the specialty cards and use them for all those specialty (well, as “specialty” as fast good, gas, and Home Depot can be considered) purposes, and then put “everything else” on the normal platinum card. And, that’s actually what we’ll do… almost.

Now that we’ve described the cards we’re going to keep in our wallet (yes, all of them, this is about maximizing cash back, not minimizing thickness of wallet!), we need to lay out our tiebreakers and also describe how we choose which card to use for which purchase.

Given the annual cap on rewards, the $50 increment, and the inability to double the cash back with any partners, on any given purchase, the 5% on the Citi card will lose in a tiebreaker to a 5% Discover specialty card (or the normal Discover card with the Get More program, see above), especially since the “double with partners” makes the Discover 5% an effective 10%, which is very nice indeed. The Citi’s 5% on supermarket, gas, and drug store makes it a winner in a tie against the “regular” Discover platinum card, though (again, without factoring in the new Get More program, due to lack of current details).

Since there’s an annual limit per Citi card, and a point where we have the stair-stepping down in the Discover speciality cards, one thing I’m going to leverage (not everyone will have this option, but I’m doing it), is using my dear wife to pick up another one of the Citi cards and since Discover limits any person from having more than 3 Discover cards with them as the primary cardholder, we could end up with 6 Discover cards between the 2 of us, but for now are picking up one each of the 3 speciality cards (gas, restaurant, home improvement), and then the 1 normal platinum.

The summary breaks down as follows. Again, note that there’s 2 of us (my wife and I), so this is just listing the accounts – the actual number of cards is twice this, since there’s the primary one and then the secondary (“other cardholder” card).

Credit card accounts held

• Discover Platinum Gas
• Discover Platinum Restaurant
• Discover Platinum Home Improvement
• 2 Citi Dividend Platinum Select cards
• Discover Platinum

Which card to use

• If it’s a gas purchase, always Discover Platinum Gas
• If it’s a restaurant purchase, always Discover Platinum Restaurant
• If it’s a home improvement purchase, always Discover Platinum Home Improvement
• (Once we know more about Get More) – if it’s eligible for the Get More program, Discover Platinum
• If it’s supermarket or drug store, Citi Dividend Platinum Select #1 unless we’ve already hit the $300 cap for #1 in this year, in which case use #2, unless he’s hit the $300 cap for the year as well, in which case, fall through to Discover Platinum since 1% still beats $0!
• All others, Discover Platinum

With such an approach (yes, I know it seems like a lot of cards, but it’s worth it, really), you’re getting (potentially, assuming cash-back doubling with Discover partners) 10% on gas, restaurant, and home improvement (and again, Get More program) purchases. You’re getting up to $600 (2 cards, $300 each) for supermarket and drug store purchases. And you’re also getting 2% (can double the 1% with partners) on your regular Discover Platinum picks.

So, we’ve got gas, restaurant, and home improvements at effectively 10% (5% with the double with cash-back bonus award money) with our Discover specialty platinum cards. We’ve got supermarket and drug store on top of that at 5%, as well, thanks to the Citi cards. The problem is that everything else is currently at 1%.

The real potential bonus here is that Citi gives the 5% for “supermarket”, which can be a vague term. Obviously, that boils down to what kind of merchant the charge rings up as, but here’s where we can exploit the situation created by our friends down in Arkansas. Wal-Mart Supercenters are a wonderful place to get both your groceries as well as other Wal-Mart fare. The nice thing is that when you check out, the charge is going to be just the total and “Wal-Mart Supercenter”, there’s no per-item granularity there. Since the place sells groceries (and after all “Supercenter” is really freakin’ close to “Supermarket”), I’ve found that purchases at Wal-Mart Supercenter (at least for mine) are credited at the 5% back rate (which is good, we really do buy almost all our groceries there). Wal-Mart obviously typically has great prices anyway, so tack on the 5%-on-everything situation, and you’re really getting a great deal.

In terms of the “Discover specialty, then Citi, then Discover”, the one usual caveat is that not everyone currently takes Discover (it’s twice the charge to the merchant on each purchase compared to Visa/MC, which is quite a painful hit), so for such purchase, the Citi card is obviously the way to go since all the other cards are Discover :)

What do you think? Too complicated? Anything about how I lay this out that could be improved? I’m trying to provide an explanation that both gives the necessary detail but still stays understandable (and hopefully readable), but I’d really appreciate any feedback you have so I can improve this page in the future.

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