Maximizing What’s in Your Wallet Q3 2011

Welcome to the Q3 edition of Maximizing What's in Your Wallet!  The big news is that I have a new grocery card that I can't wait to tell you about.  

As a reminder, this post is for all the credit card deadbeats out there looking to maximize cashback rewards. So, if you never carry a balance on your credit cards, have them set to auto-pay in full every month, and want to make the most of Q3 2011, then read on.

Here's how you should allocate your spending: 

Gas – This is a no-brainer. It's the same card year round. It is the PenFed VISA Platinum Gas / Cash Rewards Card. You'll get 5% back all the time on gas purchases. Just make sure you pay at the pump. I used to use this card for a lot more, but the rewards have been really scaled back such that only the 5% gas reward makes sense.  However, as a gas card, it's a great choice.  You could also use your Discover® More Card! or Chase Freedom as both are offering 5% during this period.

Groceries – Normally, I would be looking for a rotating rewards card to pay me 5% back for the quarter and buying lots of grocery gift cards at the 5% level to carry me through some of the dry quarters.  No more.  Say hello to my new  Blue Cash PreferredSM Card from American Express which pays me 6% back on all grocery purchases.  It also pays 3% on gas and 1% on everything else, but I'll only be using it at the grocery store.  The downside to the card is the card carries a $75 annual fee.  Normally, I would never accept that kind of fee since American Express has other cash back cards that don't have an annual fee, but when you do the math, it turns out to be the best option.  I spend at least $7,200/yr at the grocery store.  6% of that is $432 cashback–> $432-$75 annual fee= $357 –> $357/$7,200 = 4.96% year round cashback.  Oh, and my sign-up bonus if I spend $500 on the card in the first 60 days is $100.  That's 20% + my 6% = 26% off of a month's worth of groceries!  So I signed up.  Props to the folks at Bogleheads for pointing it out to me.

Restaurants – I've got nothing.  Cook at home! 

Home Improvement, Department Stores, and Clothing Stores – I've got nothing.  You don't need new clothes anyway!

Hotels and Airlines – Either use your Discover® More Card! or Chase Freedom as both are offering 5% during this period.

Movies – Discover® More Card! has the market cornered this quarter as the only card offering 5% back.

Gifts – For gifts I use the Amazon VISA year round. When you buy through Amazon with the Amazon VISA you get 3% back and the first time you sign up, they give you $40 off your purchase. It's well worth the sign up.  I am tempted to use my new  Blue Cash PreferredSM Card from American Express to buy Amazon gift cards at a grocery store for the 6% cashback.  If I can be more planful about such purchases, I will probably do this. 

Everything Else – Frequent readers know I love my 2% cashback Charles Schwab Invest First VISA card. It is my catch-all card for any expense that takes a credit card and does not fall in the preceding categories. The card is no longer offered to new customers, but you can get a roughly equivalent card in the Fidelity Retirement Rewards AMEX.

Two final thoughts: Please remember to sign up at Chase and Discover to be eligible for their 5% rewards, and remember this advice is ONLY for people who don't carry a balance…EVER.

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  • Jake

    Why not the Citi Forward for restaurants? The ThankYou points program kind of sucks, but if you’re truly trying to optimize your wallet, just be patient and the card will earn you 5% at restaurants.

    • Jake,

      I really HATE ThankYou points. I endure lots of hassles for rewards, but I just can’t bring myself to do ThankYou points. They feel like a floating rate currency where Citi can just de-value them on a whim by increasing the costs of items (which they’ve done in the past). Further, they expire if you don’t use them. For someone like me that spreads his spending around, I’d rather not have that worry. So, for me, it’s just not worth it.

      Thanks for your comment!

  • Diego Silang

    The American Express Blue Cash Preferred Card should also give you 3% Cash Back on purchases from Department Stores year round.

  • Oren

    What type of fee does the grocery store usually charge when you buy gift cards on credit cards?  Can you buy a Visa gift card so that you are essentially changing Amex to Visa and getting a 6% bonus?

    • Typically the fee is about $5 for VISA gift cards. It’s listed on the card itself so you can see. Thus, you need a very high dollar card to make this arbitrage worth your while. There are some reloadable cards that you can put $500 on. There you would earn $30 on the 6% cashback while paying $4.95 for the card. Then, you would use that reloadable card anywhere you like to bleed out the funds. When it runs out, you pay the fee to reload it at the grocery store and go through the same process. That is worth it to some people I’m sure. I would worry about losing such a high value gift card that has no ties to me. If it gets lost, you’re screwed.

  • Oren

    sorry, this comment is just so that I can get an email when this is updated 🙂