There was a time when choosing a rewards credit card like a cash back card was relatively easy. The standard ones offered a simple 1 percent rebate on every purchase you made on the card. The better ones paid 5 percent on certain items like gas. Choosing the better card was a no-brainer, but things began to change just before the financial crisis hit us in 2008.
Firstly, many credit card issuers found out their cash back cards were not as profitable as they thought (especially the ones which paid 5 percent rebates), so they started scaling back on the rewards they offered.
Reducing Rebates
There is a list of things that many credit card companies did to make their cards more profitable. For example, they scaled back on offering outright 5 percent rebates. Some scaled back their rewards to 2 or 3 percent for selected categories of expenses. Some also introduced tiers, meaning you have to spend a certain amount before you can earn higher level rebates.
Other scale-backs put in place include limits on how much you can make on these rebates (effectively a cap).
Complicating Cash Back
Even with these changes, it should be relatively easy to figure out the best cards for rebates based on your spending (though what you can earn back today is much lower than before), but credit card issuers have added a couple of more features that make figuring out the ideal card for you even more difficult.
Rotating Categories
Then two developments occurred that made evaluating cash back credit cards a little more complex. The first was the concept of rotating categories. This is how it works (or is meant to work): Every month, any spending on certain types of expenses earns the cardholder more than the standard 1 percent rebate (most of the time it is 5 percent). A hypothetical example would be that from January to March, one can earn a 5 percent rebate on travel, hotels and restaurants.
The big issue with this is that you have to be aware not only on what you spend, but when you spend. So if you typically do not travel during the first quarter of the year, then that particular travel rewards card would not do you any good.
Online Merchant Partnerships
The other feature that has slowly evolved is the development on online merchant partnerships between credit card issuers and merchants. For example, a card with such relationships will allow you to earn more than the standard 1 percent rebate when you shop with these merchants with your card (and through your account).
So let’s say you want to buy something from BestBuy.com and your reward card has a partnership with them. Instead of going to BestBuy.com through Google, you have to log into your credit card account and go to the site (most likely through their reward merchant page). From there, any purchase you make will be tracked and you will receive your rebates in a later statement.
The difficulty in comparing these features is that many companies have different rotating categories. Some do not even disclose them to prospective customers. Furthermore, you will never know all of their online shopping merchant partners unless you actually get the card.
Thankfully, things aren’t so bad in the cash back business credit card segment. There, the rewards still resemble the old style consumer cash back cards where you earn 1 percent for most purchases and perhaps 3 percent on a few select categories of expenses.
It is getting increasingly difficult to choose the right card if you are looking for cash rebates. The features like rotating categories and online shopping partners make choosing the right card a tedious exercise. But don’t give up on this and periodically do a check up to see if your present card is still right for you because you can and will save lots of money in the long run.
