Why the Chase Freedom Cash back beats the other 1% cards for 1% purchases

So if you are a savvy credit card rewards optimizer, you know that different credit card have different promotions for select categories. You can get as much as 5% on things like groceries, gas, drugstore, restaurant, seasonal and other purchases. That's pretty much documented.

What is perhaps flying under the radar is the world of 1% earnings. Most of the cashback credit cards offer 1% on all categories that do not earn a bonus. In most cases 1% gets you 1:1 in rewards, sometimes less if a reward point is worth less than 1c.

What distinguishes Chase Freedom from the rest is that their rewards program has a special bonus on the cashback reward. If you are patient enough (or spend a lot) and accumulate $200 in cash rewards, you will instead receive a $250 reward. That's an extra $50. That is 25% more ($50/$200). That means that your 1% purchases are actually earning 1.25%. And that's why Chase beats the other 1% programs.

Be sure to check with your rewards program details to make sure you are enrolled in this particular version of the program. We do not know if there are multiple variations or everybody is signed up to the same program.

Analyzing the Chase Freedom Credit Card Rewards program

You may have seen the ads on tv, or on the net about this new Chase Freedom Credit Cards Rewards program. So what is it and how good is it?

Advantages

You can choose between cash or rewards. Your account earns either cash or rewards, and once a month you can switch between the two. The conversion is straight up, 1 point for 1 penny, so you lose nothing.

If you accrue $200 in cash, you will earn a $50 bonus and receive a $250 check instead. Nice!

Chase has a unique feature in that not only you earn 3% in select categories, but those three categories are automatically selected each month out of fifteen categories. The three categories you spend the most, are the ones that earn 3%! This is automatically done by their computers, so you don't need to select or adjust anything in your account! Nice!

Please note that the fifteen categories do not cover every single purchase you make. They cover 15 broad areas, which are: Grocery stores, Drugstores, Gas/Convenience stores, Fast food and quick restaurants, department stores, pet stores/vets, movie theatres and movie rentals, phone/cell bills, cable/satellite/ISP bills, gas/electric/utilities, beauty salons and spas, gym memberships, dry cleaners, and local commuting services. Each store/business must be correctly identified with Chase and categorized as such for the reward to be earned. Otherwise, no 3% reward. This is more evident with some places that sell food but are not listed as quick service or fast food restaurants.

You earn 1% cash back on everything else, unconditionally

Points expire in 3 to 5 years.

The card has the Blink chip so you can use it at some participating locations without swiping. Be aware that there are different "wireless" technologies, and they are not all compatible. You see technology companies never learn. I'm sure eventually they'll all be interoperable but for now, you can only use it at participating Blink locations. Check ChaseBlink.com for more details.

They also have an online shopping program where you visit retailers from a Chase website called Chase Rewards Plus. This ranges from 1% to 20%, usually the smaller and more niche the retailer, the higher the percentage. A number of big chain stores are participating, so if you are shopping online and are not using other referral programs such as Upromsie or FatWallet or eBates, be sure to check out the Chase Rewards Plus program! And Chase is not the only one doing it, there's Shop Discover, Shop AMEX, Citi Bonus Cash center and Thank You Network, etc, etc.


Disadvantages

There is a maximum of $600 per month in purchases that earn the priviledged 3%. For purchases over $600, you will earn the standard 1% rate. For example if you spend $800 in groceries in August, you will earn $600 x 3% plus $200 x 1% = $20.

They do not tell you which individual purchases earns a 3% reward. They do provide the three top categories in the statement but it's up to you to figure out which purchases qualified where. Grab a calculator or your spreadsheet!


Strategy session: Comparison with other rewards programs

Discover has a seasonal 5% Get More rewards that overlaps with some categories. For example right now you can get 5% on restaurants with Discover. So it is more advantageous to earn 5% than 3%. However Discover maxes out your 5% benefit to $400 in purchases for the duration of the promotion ($20 in rewards in a quarter), so do your math to get the most out of it. After the first $400 in purchases in the 5% Get More categories, you will earn your current Discover rate, which could be as low as 0.25%. OUCH! But given that maybe half of the quick service/fast food restaurants take Discover, you will still benefit from using the Chase Freedom card at 3% vs 1% flat from other credit cards.

Citibank's 5% on groceries, drugstores and gas stations is better, but Citi has started rolling back those down to 2%. However, if you are participating in a special Citi promotion or you are still on a 5% card, it earns more to get 5% than 3%. Please note that the difference is close because in order to get a $50 gift card at Citi you need 60,000 points while at Chase you need 50,000. A $100 gift card is $100 in both programs. Still Citi has an advantage when you do the math.

vs 1% flat rewards programs: Chase Freedom wins those by a mile! Because the Freedom card gives you 1% on everything, and 3% on the top 3 categories, vs 1% on everything. You don't need a calculator to figure out what earns you more!

Credit Card Rewards Strategy session

This post will be growing organically.

Here are some suggestions on how to maximize your credit cards rewards:

For grocery, drugstore and gas station purchases, Citibank offers 5% rewards, either in a cash-only rewards program or a rewards program (Thank You Network or Thank You Redemptions or something like that). You can have both type of cards. You can't complain with 5%! There is an annual cap on your total rewards per individual credit card.

Chase has a new creative idea for their Chase Freedom card. They have fifteen (15) categories of purchases. Each month, they calculate your top three categories and give you a 3% reward on those purchases. Everything else earns 1%. The categories are computer-calculated for every statement. You have a choice of rewards or cash. You can switch between the two choices once per month

American Express has special mail-in and email offers to receive double points for purchases until August 31, 2007. This means your Amex Blue or Optima purchases earn 2% instead of 1%. Not bad for things that don't qualify for higher rewards in other cards.

Discover's Get More program offers featured rewards that change every quarter (every three months). These earn you a flat 5% reward on those featured purchases regardless of your regular reward percentage status. The 5% reward has a cap per quarterly promotion

As always with all these, make sure you read the fineprint!