Are you using a cash back credit card? If you aren’t, you should be. These credit cards provide you with cash — not airline miles or reward points redeemable for merchandise that you don’t need selling for its full retail price — but cold hard cash. Money which you can use for anything that you like. American Express has just announced two new cash back credit cards, one of which can get you 6% cash back. That’s a pretty enticing offer if you ask me.
If you are like me, you pay off your entire credit card balance every month, regardless of the balance. Also, you abhor the idea of paying an annual fee for the privilege of using the credit card providers’ card. And finally, you probably only have an American Express card because you have been using it at Costco.
On June 30, 2016, Costco will be switching from American Express credit cards to Visa. You may think that you no longer have a need for an American Express card, but AmEx is offering a new credit card with up to 6% cash back on supermarket purchases.
Actually, AmEx has two new credit cards: Blue Cash Everyday® Card from American Express and Blue Cash Preferred® Card from American Express. The former has no annual fee, the latter offer superior cash back terms.
|Blue Cash Everyday® Card||Blue Cash Preferred® Card|
|US Gas Stations||2%||3%|
|US Department Stores||2%||3%|
|All other purchases||1%||1%|
While the $75 annual fee may be a deterrent for many, the 6% cash back on grocery purchases might allow you to mitigate that annual expense.
How Much Do You Spend at the Supermarket?
Americans spend about $150 per week at the grocery store, according to a Gallup study. (The study indicates that young adults’ average weekly food spending is $173, more than what older Americans say they spend. Those with incomes of $75,000 or more per year are averaging $180 per week, compared with $144 for those with incomes of $30,000 to $74,999, and $127 for the lowest income group.)
Can we offset the $75 annual fee just on grocery spending? Firstly, there is a caveat. The 6% cash back on supermarket purchases is only good for the first $6,000 annually, after that, the cash back discount drops to just 1%. With that in mind, let’s do a quick calculation. If you are spending $150 a week, that means that you are spending $7,800 at the grocery store. The first $6,000 will get you $360 cash back. The remaining $1,800 in supermarket purchases will result in an additional $18 cash back.
The free card — which only provides 3% cash back — would get you $198 cash back. The difference between the two cards — just on grocery purchases — is $162. Backing out the $75 annual fee means that the Preferred card would more than pay for itself, just on grocery purchases.
Here’s an side-by-side example adding in expected gas station purchases:
Blue Cash Everyday® Card
Blue Cash Preferred® Card
|US Gas Stations||
|Total Cash Back
(less annual $75 fee on Preferred)
While I am normally opposed to the idea of paying an annual fee for a credit card, this Preferred card –even with its $75 annual fee — seems like a pretty good deal. But as they say in advertising, but wait, there’s more…
Get up to $450 more cash back
Both of these cards will pay you additional cash during the first year, just for using the cards. You can get up to $450 cash back on top of your purchases during the first year. If you spend at least $1,000 during the first three months of use, AmEx will pay you $250, plus if you apply by 06/15/2016, you can get 10% back (up to a maximum of $200) when you use the Card at US Wireless Telephone Service Providers in 2016. These cash back rebates are paid back to you in the form of statement credits.
Which card is right for you?
If you are off-put by the $75.00 fee, then the choice is easy, jut go with the card with no annual fee. If you are willing to consider paying an annual fee, you need to spend enough to cover the fee. Just looking at the 6% that you will receive at the supermarket, you would have to spend $1,250 just to cover the $75 fee. That might seem a bit steep, but it’s just $24.03 a week.
Now that we feel confident that we can cover the cost of the card, we need would need to spend enough to exceed the return that you would get with the card with no annual fee.
|Annual Purchases||Blue Cash Everyday® Card||Blue Cash Preferred® Card|
Using the supermarket cash back as a guide, we can see that spending $2,500 a year is the breakeven point. That’s $48.07 a week. If you spend at least $50 a week at the grocery store, you are likely better off spending the $75 annual fee. As a reminder, since Costco will no longer accept the American Express card, you can’t factor in those food expenditures into your cost benefit analysis.
Whether you are looking for an alternative to your existing Costco branded American Express card or are considering a new cash back card, these new AmEx options certainly seem worthy of your consideration.
If you would like to get further information or apply for either of these cards, here’s a link to the AmEx promotional page: new American Express Cash Back Credit Cards.