Reader Q & A on High Cashback Credit Cards
The last few deals we featured sparked lots of interest since they offer 6% and 5% cashback at the grocery store. However since both of these cards involve some extra strategies to maximize (and calculate) the benefits, they also generated plenty of questions from readers.
American Express Preferred Card
First up is the American Express Blue Cash Preferred® Card sign up bonus which offers a 100 Reward Dollars and Amazon Prime Sign Up Bonus.
The Blue Cash Preferred® Card from American Express earns 6% cashback on groceries (up to $6,000 per year in purchases) and generated some great questions. The benefits on this card involve some extra math and strategies so let’s dive into the questions:
Do you have to pay the $75 annual fee the first year for the preferred card? – Katie
Yes, the Blue Cash Preferred® Card from American Express doesn’t waive the annual fee the first year like many others. In general, I’m not a fan of carrying cards with an annual fee unless I am certain we’ll come out ahead with the cash back. As you’ll see in the calculations below, it will never be a problem for us, as we’ll always spend more than $208 on groceries each month.
In addition, I guess you could factor in the new Amazon Prime benefit, (only if it’s something you would normally pay for) as the year of Amazon Prime would offset the annual fee during the first year.
Anyone know how this works if you already have a Prime membership? I’ve been eyeing the Preferred card for nearly a month, but I just don’t like the idea of not being eligible for almost have the signup bonus. -Kevin
The terms state: This offer is only available for new Amazon Prime memberships. However, it also gives a direct link to sign up and charge the Prime membership (Sign-up for and use your new Card to purchase Prime at amazon.com/amexbluecashpreferredprimeoffer). If you use that link, I bet the statement credit will be automated.
In our house, only one of us has a Prime membership, so technically the other person could probably open a “new” Prime membership. If it went through and we got it to work, we could cancel the other one or choose to not renew it.
However, since I already have this card, I can’t test it. I’m not sure if it would work or not, but let us know if you (or any other readers) give it a shot!
Regarding the $208.33 [break even point], is the calculation correct? Should it not be $104.16? How are you calculating the $208.33 as I show my calculation for the $104.16 below:
$75/12 = $6.25
6.25/0.06 = $104.16
Thanks for pointing this out – we may switch to the preferred card as our grocery shop per month is above $104.16 – Howard
You are right, $104.16 is the breakeven amount per month when the cashback would cover the annual fee if you are looking at the card all by itself. However, if you are trying to determine the break even point of selecting the preferred card instead of the everyday card, then you’d need to subtract the earnings you get on the everyday card. Don’t forget that the Preferred card earns 6% cash back on groceries, while the Blue Cash Everyday® Card from American Express card only earns 3% (both up to $6k in spend).
When you are working on the calculation to determine which card is better, based on your monthly numbers, it would look like this:
$75/12 = $6.25
$6.25/ (0.06 – 0.03) = $208.33
Or another way to see it in action, if you spend $208.33 per month on each card, your benefit is the same:
Preferred card: (208.33 * 0.06) – $6.25 = $6.25
Everyday card: (208.33 * 0.03) – 0 = $6.25
Any amount above $208.33 and your earnings will be more with the Preferred card than the Everyday card.
I see your messages that you max out on grocery purchase in the Blue cash preferred card… But the stores which provide 6 % are very limited… how do you take care of this ? – Jai
I max out the grocery store purchases at our local grocery store. The purchases include our regular groceries and buying gift cards and prepaid cards. You can read the details on purchasing prepaid cards for cashback at all stores.
Wells Fargo 5% Card
In addition to the Amex card, the Wells Fargo 5% Cash Back Credit Card also generated some questions when I mentioned that I’d be pursuing this card after I max out my Amex:
Thanks for posting about this new card…..so it seems like this is better than the amex since there is no fee… Are you going to cancel your amex blue once you get this? – Jen
While I am excited about the Wells Fargo card, it won’t replace the Amex card. Since the Wells Fargo card only offers 5% for 6 months, it’s just a temporary card. My plan is to max the Amex card first, then switch to the WF card for 6 months, then do another 6 months on a WF card for my husband (if it’s still around), and finally go back to the Amex card for another round in 2015.
What happens after 6 months? – Michael
It looks like it will go back to a flat 1%.
For why its worth, Amazon Prime membership can be extended to other members of your household for free. I just discovered it while updating the credit cards on my wife’s account.