Which cash back rewards credit cards are worth it?

When I started my search for a cash back rewards credit card several months ago, there was a bevy of cards available, each seemingly offering something better than the next.

I ended up picking up a Chase Freedom rewards credit card, which offered 3% cash back in the 3 spending categories I used most, plus an additional $50 bonus cash back for every $200 in cash back earned. I paid off my credit card balance in full every month and benefited from thousands of dollars in rewards.

Now, due to the credit crunch, credit card companies have been tightening their purse strings. My Chase Freedom card is the latest victim. There are no more 3% bonus categories. Also, the $50 bonus when reaching $200 in cash back rewards is gone.

The bonus being nixed means my Chase Freedom card essentially becomes just like every other 1% cash back card out there. Thus, I set out on an adventure to find a new credit card that gave me better rewards.

Which Cash Back Rewards Credit Cards Are Worth It?

I looked at hundreds of cards before making a decision. Some of my criteria were:

• No AmEx or Discover. I had an AmEx card when I ran my hosting company. Although AmEx has great customer service, I was frustrated with the few places it was accepted. Discover has similar issues. As a merchant, I hated AmEx — they charged higher rates than Visa or Mastercard and their chargeback policy was asinine.
• More than 1% cash back. 1% is pretty easy to find everywhere, but I wanted a card that paid more than that.
• No restrictions on how to use the cash back. I don’t want to be limited to using my cash back at a certain store, hotel, or airline.
• No annual fee. This goes without saying.

Instead of making you wade through hundreds of credit cards, I will narrow it down to two cards for you. Both have a few caveats, but they are worth it.

PenFed (Pentagon Federal Credit Union) Visa Platinum Card

Highlights: 1.25% cash back; 2.99% balance transfer rate for the life of the balance transfer
Caveats: Must be a PenFed member. If you are not a military service member or government employee, you will need to pay $20 to join the National Military Family Association, and then you become eligible to become a PenFed member. After becoming a member, you will need to deposit $5 in a Regular Share account to open your credit card account.

Summary: My favorite thing about PenFed is its great rates on pretty much everything. They offer mortgages, auto loans (at 3.99%!), and a 5-year CD that pays 4% APY (as of this writing.) Their Visa card is a great deal, too; it offers 5% cash back on gas, 2% at the supermarket, and 1.25% cash back on everything else. The cash rewards are simply credited to your account at the end of the month; you don’t have to request them. It’s definitely worth the $20 one-time fee to sign up with them. I am even considering refinancing my auto loan into PenFed so I pay less every month.

The application process is straightforward, albeit a bit strange if you are not a government or military employee. First, you establish your account and pay $20 for a one-year membership in the National Military Family Association. (You do not need to pay more than the $20 for a 1-year membership to retain membership in PenFed!) This is tax-deductible, so make a note of it for tax purposes. Once that’s done, go through the steps to set up your PenFed account.

PenFed will send you a form in the mail that you then sign and return to them in the postage-paid envelope provided. With the customer number you received in the mail, set up your online account and apply for the credit card. The customer service rep I talked to says that due to their 2.9% balance transfer promotion, it takes a few days to get an account approved. Their customer service was friendly and helpful — an encouraging sign. I am currently waiting for my account to be approved.

Find out more or apply for about the Pentagon Federal Credit Union Visa card.

Since I had already dinged my credit with one account offer, I decided to go for another credit card as well. (It’s always best to apply for multiple credit cards at once so you don’t have inquiries every few months on your credit report.) I chose the Schwab Invest First Visa card.

Schwab Invest First Cash Back Credit Card

Highlights: 2% cash back on everything; 2.99% balance transfer offer for 6 months

Caveats: Must open a Schwab investment account, which has a $1000 minimum (or $100/month automatic transfer). Cash back will be deposited into your Schwab account, which you can then invest, write a check on, or withdraw with a debit card.

Summary: This is a great card for those who want to invest online. I love the idea of investing credit card rewards, since I am a huge fan of my money making me more money! Schwab charges a $12.95 fee for each trade made with your account ($8.95 if you have over $1 million in liquid assets or make more than 30 trades per quarter.) You can buy CDs, stocks, mutual funds, or bonds with your Schwab account.

To apply for the card, you must first open a brokerage account. The online form will take a few minutes to fill out; you’ll need your driver’s license number. During the account setup process, you have the option to transfer a brokerage account from another broker. I have an OptionsXpress account that charges me more per trade, so I opted to move that to Schwab.

Once your brokerage account is set up, apply for the credit card. Schwab says it will approve most accounts in 7-10 days. I am currently waiting for approval.

Find out more or apply for a Schwab Invest First Cash Back credit card.

Which Cash Back Rewards Credit Card Is Better?

The difference between 1% and 2% cash back is $100 for every $10,000 you spend, so it can be well worth investing an hour or two to make the change. As for which card is better, that’s up to you. As an investor, I will probably use the Schwab card more, but your needs may be different. Of course, there are many other cash back rewards credit cards to choose from.

Making The Change Painless: Four Tips

It can be a pain to transfer from one card to another. Here are four quick tips to help make your credit card transition less painful:

1. Set all payment due dates to the same day. When you get your new card, the first thing you should do is call your credit card company and have them switch the due date to the same date as your current credit card has. That will mean it’s much less likely to go past-due accidentally. Do this for all of your credit cards — even store cards — for a totally painless process.
2. Set up online banking and link your checking account right away. Some credit cards can be really annoying to link to your checking account, so do this right after you change your due date. That way you don’t have to send a check in the mail — another safeguard so you don’t miss a due date.
3. Make a list of all automatic bill payments on your current card, and change them over all at once. This should take somewhere between 30 and 60 minutes. it should be straightforward. If you miss one, no big deal — just catch it next month.
4. Finally, don’t forget to cash out any remaining rewards on your old card. Do this preferably after you have an entire billing cycle with no more charges.

Cash back rewards credit cards are an easy way to keep your money working for you!