Sunday, May 25, 2008

0% Interest Cards vs. Cash Back Cards

Choosing the best credit card is a tricky business. There are a myriad of different credit cards out there with different benefits - cash back, points, miles, 0% interest. The card that's best for you will depend on your lifestyle and current monetary situation. For me, because I have no credit card debt and because I am mainly interested in growing my savings, I am torn between two different types of cards - cash back and 0% interest. At first, I thought for sure that the cash back card was the best bet, but then I started considering a few cards that offer 0% interest for up to 15 months. So which is best? I haven't figured it out yet so I'm going to lay out what I feel are the pros and cons of the two cards that I have chosen - the Chase Freedom card and Blue from American Express. Here we go.

Chase Freedom Card - Advantages


  • Offers 3% cash back on your top 3 spending categories (recalculated monthly) and 1% on all other purchases
  • $100 sign-up bonus
  • Cash back rewards are available to withdraw after you earn $50, however, if you leave it until you reach $200, they will give you an additional $50
  • No annual fee

Chase Freedom Card - Disadvantages

  • If a merchant has not specified their spending category, it will be lumped under "other." My dentist did not categorize himself as "Medical services" so even though it was clearly one of my top spending categories, they claim there is no way to change it in the system so I only received 1% for a cool $1,000.
Blue from American Express - Advantages



  • 0% interest for 15 months - If you carry the balance (and why not, you're not paying any interest), you could put that money in a high yield savings account and earn 3% on all of your purchases.
  • Earn 1 point for each $1 spent and redeem for various rewards. 1 point = approximately $0.01.
  • No annual fee

Blue from American Express - Disadvantages

  • Carrying a balance could lower your credit score

So, let's calculate the benefits based on spending $6,000 annually on a credit card.

Chase Freedom = $90.00 (50% at 3%) + $30.00 (50% at 1%) + $100.00 (sign-up bonus) + $50.00 (additional money for letting balance reach $200.00) = $270.00
Blue from American Express = $83.19 (savings interest) + $60 (rewards) = $143.19

Looks like the Chase Freedom card would be the best bet, just for the $100.00 sign up bonus. After the first year, it would be a pretty tough call between the two because it would take much longer to reach the $200.00. I was generous giving it 50% at 3% but this could be more or less depending on your spending habits.

After this analysis, I'm pretty satisfied with my decision, although after I reach the $250 rewards, I may consider switching to a 0% interest card. What do you think? Any cards that you are loyal to or that you think have better rewards?



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11 comments:

nowaywalker said...

Well if you want to feel you are really rewarded, not just save, then a cash back card would be best. There are cash back programs that can offer so much as 6% on the purchase price...What's more, the 0% intro rate will disapper after 15 months and you will have to pay the due

Casey said...

Hey, came across your blog via Entrecard. Anyways, I saw this post and thought you might be interested in a site that lets you check out and compare a ton of different credit cards and even get paid for applying to them. If you want the link and more info, then you can e-mail me at newsnotion@gmail.com

Anonymous said...

well it is a wounderful topic and the command is very nice...and it gives the details of the interesting caluclation how a blance could lower a credit score

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helen

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Anonymous said...

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Anonymous said...

I keep balances on the 0% offer cards and pay off the cash back card every month.

http://www.MonitorBankRates.com

erikko said...

your post enlightens me not to be afraid of credit cards, but still I want to be cautious especially with debts.

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Debt Advisers Direct said...

Thankyou for the research and comparisons!

creditrepair said...

A low interest credit card with a long term balance transfer offer may well be a better deal than a credit card that comes along with a 9 month 0% offer on all balance transfers.

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Muhammad Saeed said...

Choosing a right credit card for yourself is a tricky business. I totally agree to you. Choose that credit card which suits you best and which is according to your lifestyle.
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