Two well-known rotating cards include the Chase Freedom Flex (Mastercard) and Discover It Cash Back (Discover). A lot of people scoff at these two cards, saying that they are “beginner” cards that they got when they were young and that they have better options to maximise their cash back rewards nowadays.
Some examples of their “better” cards include flat 2% cards such as the Fidelity VISA, Wells Fargo Active Cash Visa, or Citi Double Cash. These cards give 2% back on all purchases.
Rotating cards such as Chase Freedom Flex or Discover It Cash Back give 5% back on a set of categories every quarter and 1% on all other categories. For example, Discover It Cash Back currently gives 5% on gas stations & EV charging stations, home improvement stores, and public transit. Let’s say that you spend $300 on gas this quarter, buy a $500 desk from Home Depot, and buy $20 worth of bus tickets. You get in total ($300 + $500 + $20) x 0.05 = $41 worth of cash rewards back. If you additionally spend $600 on dining this quarter with your Discover It Cash Back card, you only get $600 x 0.01 = $6 of cash rewards for all dining purchases..
Typically, if you put all your spend on a rotating category card, you’ll average less than 2% cash back. The quarterly categories only cover a small portion of everyday expenses. In this case, if you have a single credit card, choosing a 2% flat card would give you better overall rewards than a 5% rotating category card.
However, if you have a 5% rotating card paired with a 2% flat card, this can be a powerful combination.
Here are the reasons why rotating 5% cards are powerful:
- Obviously, 5% is 2.5 times more than 2%. But this means that if you spend $2000 on a rotating category in a quarter, it’s worth the same as spending $5000 on a 2% card. Basically, if you spend $400 each month on groceries, and a rotating card offers a 5% grocery quarter, then you would get back $1200 x 0.05 = $60 in cash rewards, as opposed to $1200 x 0.02 = $24 in cash rewards with a 2% card. You get the same rewards for 3 months of spend as a 2% category for 7.5 months of spend.
- You can get high rewards back on things you wouldn’t typically get high rewards back for. For example, there are few credit cards that offer more than 2% rewards on home improvement. If you were moving to a new apartment and are planning to buy new furniture, you could plan your high spending — such as buying that couch you’ve been eyeing, or that nice nightstand — around the 5% home improvement category that rotating cards offer.
- Some regularly occurring categories are fairly lucrative. Both Chase Freedom Flex and Discover It Cash Back usually offer an Amazon.com category and a PayPal category. Especially with Discover It Cash Back, where the Amazon category aligns with the holiday season, you can get cash back for your online Christmas shopping. No other cards offer 5% on Amazon with the exception of the Bank of America Customised Cash, which requires $100,000 in BoA checking and investment accounts to get to that rate. PayPal likewise can be used for almost any online category. So if you’re like me and like to go to the shooting range, you could wait until the PayPal category to buy ammo in bulk.
- Chase Freedom Flex, as of May 12, 2024, has a hell of a welcome bonus right now. Along with $200 of a sign on bonus for $500 of spend in 3 months, applying in-branch for the card gives you 5% on groceries for the first year. That could be $300 of cash back in a year if you spend $500 on groceries per month. Chase Freedom Flex additionally offers 3% on dining and drugstore purchases all year round, and 5% back on travel booked through the Chase travel portal. Since dining is currently one of the 5% categories, this is equivalent to getting a whooping 7% back in dining, half to a third of your tip, every time you go out to eat. Since travel is also currently offering 5% back, this is a 9% return on Chase portal trips you book.
- Discover and Chase both offer mobile wallet quarters, which essentially gives you a 5% catch all card for 3 months of a year. Mobile wallets, such as Apple Pay and Google Pay, are available almost every place you shop in person, and available in many places online. My insurance company, State Farm, allows you to pay for insurance with mobile wallets.
- With the two rotating 5% cards combined, both the Discover and Chase Freedom Flex, it’s possible to cover most of your spending categories at 5% for half the year. Usually, categories don’t overlap, so maybe in quarter 1 Discover will cover groceries, and quarter 2 Chase will cover groceries, and the remaining categories can be covered by a 2% flat card. In that case, you’ll be getting 3.5% overall a year on groceries, without even having a grocery card.
- Neither card has a minimum redemption, so you can take out your cash rewards and dump it into your retirement account to invest at any given point.
I hear a lot of people saying that their “rotating category card is useless” and they want to close the account because they never use it. If tracking category spending is too much to think about and requires too much overhead for you, then don’t bother with 5% rotating cards and get a flat cash-back card or some fixed category cards. But no, neither of these are useless cards and they can offer a significant addition of cash back compared to other cards available on the market, if you’re willing to use them correctly.
Again, I want it to be clear that if you carry a balance on your card, all the benefits of credit card rewards are completely wiped out. A 30% APR on interest is 25% more than 5% in rewards and you’re better off going with a debit card. Also, if category cards cause you to spend your money on something you wouldn’t usually buy, such as buying a $2000 gaming computer that you don’t need because electronics are currently a rotating category, then you should avoid category cards. Rather than saving 5%, you’d be losing $1900 if you tend to spend like that.
You should always use credit cards in the exact way you would use a debit card. Pay your balance in full and don’t buy anything you normally wouldn’t. If you’re able to follow those two rules, rotating category cards could save you hundreds of dollars every year.
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