My Cash Back Cards Aren’t Great and I Don’t Care About Travel Rewards. Which Cards Are Best For Me?

Short and sweet. That’s how I’d describe this next letter from the Reddit mailbag. In 53 words, four of which are conjunctions, our caller today (let’s call him “Al”) polls the Reddit-verse advice on “the best” cash back credit card, to replace his current cash back card, which Al consider suboptimal.

“I’m looking for a credit card that has better cash back than my current ones. I don’t really care for the travel points or anything like that. Just strictly cash back. I’ve heard chase sapphire is good and discover it, but I’m wondering what you all have found to be the best. Thanks!”

In just 53 words, you wouldn’t expect Al could go far wrong with his request, and yet in fact he does. The problem with Al’s question you see, lies in his assumption that there must be one best cash back credit card out there. But there isn’t.

Rather, the best way to make use of credit cards to get cash back, is to use them in combination.

Think of it like this: Some cash back cards pay you a decent rate, say 2% on everything you buy. Other cash back cards pay you a superior rate, say 5% on purchases of gas (but only in certain time periods, like from January to March), or they may pay you back 3% on gas all the time, but 1% on everything else.

The devil, as the saying goes, is in the details. And it’s these details that make it hard to say if a card paying 5% on one thing, 3% on another, and 1% on everything else, is better than a card that just pays you a straight 2% cash back on whatever you charge on the card.

How to work the system on cash back credit cards

So you do you untangle this intricate web of rewards? I can answer that in two steps.

Step 1: You start off by getting one single, all-around cash back card that pays a decent rate on everything, all the time, and with no limits or fees. The Wells Fargo (NYSE: WFC) Active Cash card, Citi (NYSE: C) Double Cash, and SoFi‘s (Nasdaq: SOFI) Unlimited 2% credit card all pay 2% on all purchases in all categories, with no limit on how much cash you can get back, and none of these cards charges an annual fee for the privilege.

You only need one of these cards; there’s little point in having more than one, other than to increase the total amount you can charge across cards. If asked to choose, of the three, I prefer SoFi’s card over the others, because it does not charge foreign exchange fees when traveling outside the country (and unlike Al, I actually do “care for the travel”)!

Step 2: Now that you’re guaranteed a minimum of 2% cash back on all your spending, you try to bump up your average cash back from there, trying to inch past 2%. Add a Capital One (NYSE: COF) Savor Card for example, to get 3% cash back on groceries and restaurants. Add a Bank of America (NYSE: BAC) Customized Cash card and choose to get 3% back on gas for your car. Add a Citi Custom Cash card (similar concept, but from a different bank) and choose to get 5% back your internet provider’s bill (only up to $500 per month, but most internet bills are less than that). Then substitute the Capital One card for your SoFi card when buying food or visiting restaurants, substitute the BofA card when paying your internet bill, and substitute the Citi card when filling up.

Say in a given month you spend $700 on food, $200 on gas, $100 on internet, and $2000 on everything else. How does this work out? Well, your total cash back across the four cards will be:

$700 x 0.03 = $21

$200 x 0.03 = $6

$100 x 0.05 = $5

And $2000 x 0.02 = $40

Add it up, and you got $72 cash back on $3000 in spending. $3000 divided into $72 = 2.4%. That’s the total cash back you’re getting, and it’s 20% better than a plain vanilla 2% cash back card.

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