It’s Time To Rethink The Cash Back Credit Card

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UPDATE: The offers and terms of the Barclaycard Arrival & Arrival Plus have changed. You can find the best current offers here.

There’s no denying that frequent flyer programs are becoming considerably less generous. And there’s also no denying that they’re generally trying to head in the direction of being more revenue based than not.

Now, for those earning miles primarily through flying, that might not impact consumer behavior all that much. You’ve gotta go where you’ve gotta go, regardless of how many miles you earn. And if you’re a business traveler, chances are the primary consideration factoring into your airline choice isn’t how valuable the miles you earn are (though it can certainly be a tiebreaker).

The same can’t be said for people earning miles primarily through credit card spend. If you’re earning miles primarily through credit card spend:

  • Your primary motivation should be which card offers you the highest return on everyday spend
  • At the same time, the airlines are to some degree assuming you’re not an educated consumer

For example, Southwest has long had a revenue based frequent flyer program. Last year they devalued redemption rates, and as of last month they made the pricing of their revenue based program dynamic (which is a rather alarming precedent for revenue based programs).

The point is, as consumers we don’t have to take it. And it makes more sense than ever before to consider a cash back credit card. Why?

  • There are several cards out there which offer a return of at least 2%, many of them without an annual fee
  • For non-bonused spend, that’s a return that’s tough to beat
  • While the dollar isn’t the most stable currency in the universe, it’s certainly more stable than the SkyMile 😉
  • There’s no learning curve to redeeming cash — if you can redeem miles optimally you can get an amazing return, but the average consumer doesn’t have the time/willpower to do that.

Cash back

With that in mind, what are the best, most straightforward cash back credit cards out there? I’ll focus on just three, for the purposes of this post. These are cards which don’t have category bonuses, but instead offer the best, flat return on everyday spend:

Citi® Double Cash Card

This is a no annual fee credit card that offers 1% cash back on every purchase, and then an additional 1% cash back when you pay for those purchases. There are no limits to the amount of cash back you can earn. For a card with no annual fee, that’s a return which is tough to beat.

Citi-Double

Fidelity® Investment Rewards® American Express® Card

This card offers 2% cash back on purchases without an annual fee, so is very similar to the Citi® Double Cash Card. The one consideration on this card is that the cash back goes into a Fidelity account, so you do have to open an account with them to use the card.

Fidelity

Barclaycard Arrival Plus™ World Elite MasterCard®

If you plan on traveling anywhere at all, ever, then this is the best option, in my opinion.

A lot of people would say actual cash back is more valuable than cash back towards travel. For me that’s not the case, and I am guessing for most people reading this blog, that’s not the case either. Unless you spend less on travel than you’d earn in rewards, it’s the same thing. And that’s simply to say that the same amount of cash back would be equally valuable to me regardless of which form it came in.

With the Barclaycard Arrival Plus™ you’re essentially earning ~2.22% cash back towards travel — you earn two miles per dollar spent, plus a 10% refund on redemptions. Each point can be redeemed for one cent towards a travel purchase.

The card has an $89 annual fee which is waived the first year. So why could it be worth paying an annual fee, when the above 2% cards don’t have an annual fee?

  • The card offers a great sign-up bonus of 40,000 miles, which basically gets you $440 towards a travel purchase
  • You’re earning a return of ~0.22% better than the above cards — here’s the math on that
  • The card has no foreign transaction fees, if you do travel internationally
  • The card has Chip + PIN technology, so can be used at many kiosks in Europe

Bottom line

While a lot of people like to put the words “free” and “miles” in the same sentence (in other words, miles are “free,” so who cares if award charts are devalued), there’s a direct opportunity cost to every mile you earn.

And as the airlines keep making miles less valuable, using their co-branded cards also becomes more valuable. For the average consumer it’s tough to beat a straight 2% cash back card like the Citi® Double Cash Card.

Meanwhile if you do any amount of travel, something like the Barclaycard Arrival Plus™ World Elite MasterCard® is tough to beat, given the nice sign-up bonus, waived foreign transaction fees, and Chip + PIN technology.

With all the changes frequent flyer programs are making, who’s thinking of earning cash back for their everyday spend?

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Comments

  1. I’m slowly switching over to CB option. My wallet consist of Amex BCP, discover It, Chase freedom, citi DC and Chase ink. I earn a lot of 5% back. No less than 2%. Use the arrival to book travel. Works out well for me. More flexibility to book with anyone I want and stay using airbnb or book using other sites.

    It isn’t for everyone. But for domestic travel, CB seems to be better option.

  2. When I was forced out of my US Airways card from BofA, I didn’t want a Barclays MasterCard so switched to the BofA Travel Rewards Card. Although I need to maintain a high balance across BofA/Merrill Lynch accounts, I get a 2.25% return, no foreign exchange fees and no annual fee. Feeling pretty good about it — although it does seem strange not to see a monthly miles bump.

  3. what about the bank americard cash rewards? That’s who I bank through so it makes sense but are there any other perks to it? Has no annual fee, 3% on gas, 2% on groceries and 1% on everything else. Also you get a bonus if you put awards back into BOA account.

  4. Bank of America’s Travel Rewards card can actually beat out the Arrival Plus depending on your relationship with the bank. If you have between $50k-$100k in deposits and investments at BofA you would get 2.25% cash back towards travel. WIth over $100k you would get 2.625% back. There is no annual fee or foreign transactions fees on this card. It may sound like a lot to have at BofA, but if you have an old 401k to roll over, or other investments, it shouldn’t be that difficult to get there.

  5. Im signing up for a cash back card that offers 3 per cent on everything
    Someone at Gary’s blog mentioned it
    Limited to select states to sign up in

  6. @Quinn that’s interesting about the BofA Travel Rewards card, but when I checked the website it says this:

    2.Card eligibility guidelines: Most Bank of America® branded consumer credit cards (such as the BankAmericard Cash Rewards™ credit card and the BankAmericard Travel Rewards® credit card) are eligible to receive the Preferred Rewards bonus, as long as the card account is open and in good standing. The Preferred Rewards bonus will replace the customer bonus you may already receive with the card.

    So my question is it appears as if the 75% bonus replaces the 1.5x bonus? Or do you have the card and in fact they stack to make 2.625%?

    Thanks

  7. I continue to find using hotel cards for my un-bonused spend is my best choice (SPG wherever Amex is accepted; $10,000 per year on Citi HHonors Reserve to earn a free weekend night each year plus points worth 1.5%; and now Club Carlson $10,000 per year to earn a free night in US properties plus points worth at least 1.5% even after the devaluation).

  8. The death watch is on as the blogsters turn the bison herd toward the next cliff. How long before CB card deals join the recently departed UFB, ST or Redbird deals? Did we learn nothing from AMEX OBC?

  9. @Dan: Quinn is correct. With a 100K relationship, it’s 2.625 all-in. Not many people know about this, but there are a few scattered blog posts here and there. Objectively, this is the way to go if you can swing it.

    I qualify (I’ve been an ML and a B of A client for ever), but I haven’t pulled the trigger on this because you have to mess with their portal in order to redeem.

    Also, right now the Barclays Red Card (f/k/a US Airways card) is pretty good: 1.5x on everything through June 30 and the same kiosk PIN capability as the Arrival.

  10. I’m confounded by the fact that Capital One Venture still doesn’t get much love, even when a post like this specifically compares Cash Back Cards. Its a 2% card, and annual fee is waived first year. Based on signup bonus, i would peg this a strong 2nd behind the Barclays Arrival. I don’t have the Capital One card, but have considered it (i don’t like the fact they hard pull from all 3 credit bureaus). BUT, i don’t know how you can ignore the 40K point signup bonus ($400 value) that far and away beats the Citi Double Cash and Fidelity Amex listed. After $3000 spend, you get 6x-7x more usable points than either the Double Cash or Fidelity Cards. Is it because Capital One doesn’t offer affiliate links or referral kickbacks to the extend the other credit card providers do?

  11. If you aren’t able to get more than 2 ¢pm on your airline miles redemptions, then you’re doing it wrong. I understand that Intl F/J isn’t for everyone, but I’ve never not gotten my money’s worth on last-minute domestic Y, and everyone can use that.

  12. @Dan, I actually work for BofA/Merrill Lynch. The Travel Rewards card gets 1.5% normally. If you have a checking account open, it goes to 1.65%. With between $20k-$50k in deposits, 1.875%. $50k-$100K it goes to 2.25%. And with $100k+ it goes to 2.625%. And, no the cash back booster is not stackable.

    I’ve also seen targeted offers for 20,000 bonus points after spending $500 in 90 days. I know its not great, but better than nothing.

  13. @ADK: C’mon, Dave. The only buffalo jump here is for the crazy-bonus MS-eligible spend. OBC died because the boffins at Amex didn’t count on the OBC-VGC-MO cycle enabling users to earn 5% back on tens of thousands in spending per month.

    Presumably Amex, et al, straight-up 2% CB is low enough to be sustainable. I mean, how many years has Fido’s Amex been out there?

  14. @Quinn@Tom

    Thanks for the info, that does sound promising, we already have checking account plus deposits so may put this card on my list

    To redeem you use the BofA site, are prices and functionality similar to other platforms?

    Thanks

  15. Is the Barclays card actually chip and PIN or chip and signature like most of the other US cards we have?

  16. Barclays is supposedly Chip+PIN (although it tries to do Chip+Sig first so that may be the most common experience).

  17. @Chris, it’s Chip+PIN capable but Chip+Signature preferred, meaning it’ll fall back to Chip+PIN when signature is not an option.

    I’d love if they would allow the option to change that.

  18. (From the first Tom above)

    @Norman: On the merits, Norman, the Capital One Venture card is more than a bit problematic. The gating issue is that Capital One does a hard credit bureau pull from all three major bureaus! According to another blog I respect, “If you think of it like this, this is really a sign up bonus of $133.33 per hard pull. I personally don’t think this represents enough value to be worth it, so I won’t be applying for this card.” Plus there’s the complexity of dealing with their program. All that’s a complete deal-killer for those who play this game.

    But what about the Double Cash? It doesn’t have a sign-up bonus at all. Good point, and I’m glad you asked. There are a couple of answers. First, it has no fee and no complexity, and is therefore a great “keep forever” card, i.e., a card that goes beyond a simple “is this hard pull worth it?” analysis. And second, for “game players,” it’s a particularly favored landing pad for those looking to convert from another Citi product to one with no fee. A conversion results in no credit inquiry at all. I got mine through a conversion, for example.

  19. @Tom, I hear what you have to say (which is why i mentioned the issue about the hard pulls). However, the premise of the post precludes any impact of hard pulls on your account (and expressly discusses the earning potential of the card). Now i agree, after considering all the facts, i wouldn’t sign up for a Capital One card, but that’s not to say that the card can’t/won’t work for somebody else. So to omit it as an option above just seemed very convenient, along the lines of which cards traditionally offer referral/affiliate kickbacks (Citi) vs. those that don’t (capital one). Even if its not favorable due to the points you mentioned, i think this post would have been a perfect opportunity for Lucky to explain the pluses (2% cashback, 40K signup points) vs the minuses (3 hard pulls, perceived issue with their program).

    To your second point, Capital One offers a no-fee Venture One card that you could also get converted to from the normal Venture card before your annual fee hits (all the while keeping the 40K signup bonus at the same spending power, albeit with half the earning power). so I don’t see how the Double Cash card is better on those grounds.

  20. I do not see how regular folks can afford to play the mile/point game by relying solely on credit card spend unless they (a) own a business or are engaged in an occupation that does volume purchasing and/or (b) churn credit cards to get sign up bonuses, which can be a full time occupation. Without either, to rely solely on bonuses from credit card spend, be it cash back or miles/points, seems like tinkering around the edges.

    With a 5% cash-back card, which may be the highest return out there, one earns back just $50 per $1,000; @ 2%, we’re talking about $20 per $1,000. The questions then is how much does the average person out there spend a year on general purchases that can earn enough cash/points back for a decent redemption?

    I am not saying that it cannot be done; I just do not see how it can be viable, since I could not enough general spend on credit cards to be able to afford my annual 3-week vacation, which I pay for in full with points and miles that I earned primarily through revenue stays and airline tickets…

    The most important credit cards in my wallet for earning points/miles are those that are co-branded for the loyalty programs that I patronize because they usually earn me the most points/miles per spend, but on TOP of points/miles that I earn through revenue stays/airline tickets…

  21. My only reason for keeping Barclaycard Arrival+ after 1st year is the Chip & PIN capability. If other banks start doing Chip & PIN (not Chip & Signature), I’d probably drop this card.

  22. I think the Barclay Arrival+ is great for me. I am currently living in south east asia and primarily use a credit card for all purchases. When comparison shopping the best travel credit card for me, I considered how frequent I and/or my family would be traveling and whether that travel will be on one or multiple airlines. I can expect to travel annually to the US and make 1 or 2 trips annually to other parts of south east asia. I don’t travel enough to collect a significant amount of miles. When traveling around asia, the best and cheapest airfare are with the low cost carriers which are not affiliated with any of the US carriers. In addition, I am aware that the US carriers that travel internationally are switching their frequent flyer programs from pure mileage accrual to amount spent + mileage accrual, not to mention also increasing the miles needed for discount or reward airfare. So rather than collecting miles to apply towards a US carrier, which would take me years to qualify for a reward fare, I like the convenience of collecting points and being able to apply the points as credit towards a travel transaction. The Barclay Arrival + card just made sense for me.

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