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What’s the Catch With Cash Back Credit Cards?

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Earn 5% cash back just for shopping and using your credit card. Get bonus rewards each time you make purchases in common categories, like gas and groceries. It sounds almost too good to be true… and in some cases it is.

If you have good to excellent credit (a FICO credit score of about 700 or more), you can qualify for some of the top-tier rewards credit cards that offer cash back of 5% or more, with no annual fee and a host of other perks and benefits. Pay your balances in full each month so you don’t pay interest on your purchases, and you could be earning hundreds of dollars a year — simply by using a good cash back rewards credit card.

Last Christmas I used my Chase Freedom card and earned more than $100, which was a nice bonus in January when money always seems to be tight. I did it by activating the bonus categories, shopping carefully, and using the Chase Ultimate Rewards Mall online to earn even more (10% or more) at select retailers.

Of course, I also made sure I had the money in the bank to cover my credit card balance before I accrued interest. For many people, that’s the biggest “catch” when it comes to managing credit and maximizing rewards credit cards.

Let’s look at some of the other ways you’re not getting as much as you might think with a few of the most popular cash back rewards cards. We’ve ranked the cards below based on the amount of fine print we found with each program.

Most Fine Print: Discover More
Discover More is advertised as the card that rewards you with 5% cash back. However, after examining the fine print you will find that there are limits to just how much you can earn at the 5% rate in categories that rotate quarterly.

The categories for October through December this year are restaurants, department stores and clothing stores (perfect for holiday shopping and adding to your back-to-school wardrobe, right?) But you’ll only earn 5% on the first $300 worth of purchases. I can spend that in one weekend out with the girls if we hit the mall and then go for dinner and drinks. When you do the math, that’s just $15 in cash back at the 5% rate quarterly.

As far as the 1% cash back rewards every day, there’s a catch there, too. Discover More has a tiered rewards program. The first $3,000 you spend each year (beginning the month you get your card) receives rewards at a rate of .25%, or just one-quarter of a penny per dollar. After you spend $3,000 for the year, you begin earning at a rate of 1%, or one penny per dollar. There’s no limit to how much you can earn at this rate.

It’s not hard for the average person or family to charge $3,000 yearly if you pay all your household bills with your Discover card. If you charge $1,000 per month, you’ll reach the 1% tier after the first quarter. But if you want to maximize your rewards, it’s important to be aware of what you’re really earning.

Some Fine Print: Chase Freedom
Unlike Discover More, with Chase Freedom you start earning 1% cash back right away, with no cap on how much you can earn — except in the rotating categories that allow you to earn 5% cash back. With Chase, you’ll earn 5% cash back on purchases up to $1,500 net, which equals $60 cash back. Of course, with both Chase and Discover, you have to remember to activate the bonus categories to earn points, and you have to remember which categories are active for the quarter.

There’s no limit to the bonus points you can earn in the Ultimate Rewards Mall, but there’s something else to watch out for. You may be able to find what you’re shopping for at a lower cost elsewhere.

I was recently shopping for books and DVDs and decided to shop at BN.com through the Chase portal to earn bonus points. But I decided to check Amazon.com (not a Chase partner) before I finalized my purchase. Amazon had all three items for less money (with free shipping), even after I factored in the bonus points. I used my Chase Freedom card to earn the base 1% cash back and shopped at the website with the lower price.

Chase is also currently offering new cardholders a $200 sign-up bonus with the Freedom Card. However, there is a small catch with this as well. You don’t earn your $200 bonus with Chase until you spend $500 or more in the first three months.

That’s just the start of the various qualifications you must meet to maximize your rewards on these cards.

No Fine Print: Blue Cash from American Express
With its recently revamped rewards program, American Express Blue Cash now seems to have far less “fine print” behind its rewards program. You earn 3% cash back at supermarkets, 2 % back at gas stations and department stores, and 1 % on all your other purchases. You don’t have to “opt-in” and you start earning at the bonus rate immediately. Additionally, there’s no cap to how much you can earn at the bonus rate.

I mentioned how I used my Chase Freedom card to shop through Amazon. Looking back, I really should have used Blue Cash because of the fact that Amazon is considered a department store through the Blue Cash Rewards program, meaning you earn 2% back on purchases (or 3% with the preferred version), which beats Chase Freedom and actually matches the Amazon credit card.

At CreditShout, we’re big fans of this card and recommend it over the other cash back cards in many cases. If you can look past the $200 sign-up bonus offered by Chase Freedom or aren’t a fan of the rotating rewards categories offered by the other cards, then Blue Cash is definitely the better choice.

Dawn Allcot joined the CreditShout team over two years ago. Since then, she’s been sharing her knowledge and enthusiasm for managing credit and saving money through responsible credit card use.

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