Cash-Back Credit Cards Have Loopholes

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The holidays are almost here, but the cash-back credit card offers have already arrived. Be careful, though, or you could end up with a Grinch of a deal. Here's what to look for - and look out for.

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Christmas cards and colored lights are already on sale at a number of drugstores – the holiday shopping season is about to begin. This year, if you play your reward cards right, you can quickly earn a Christmas cash bonus on your credit card for your holiday shopping.

Banks and issuers are continually tinkering with reward offers to find the right formula that encourages consumers to use their credit card and use it often.

Currently, the popular trend is rotating categories that pay larger cash-back bonuses. This started with the Discover More card, then the Chase Freedom and Citi Dividend Platinum Select cards also converted to similar formulas. Each of these issuers offer an attractive 5-percent back on designated categories for a specific amount of time. Discover and Chase have also sweetened the pot with $100 spending bonuses for reaching a set spending limit.

“Credit card issuers have added additional incentives such as $100 bonus cash to encourage cardholders to use their card and this can be a nice gift for consumers during the holidays. Holiday shopping is a good time to take advantage of these deals because you are spending more and can quickly reach the bonus levels. Some of these cards also offer zero percent for six months for purchases which gives you time to pay off your purchases with no interest,” says Bill Hardekopf, CEO of and author of The Credit Card Guidebook. “But shopping for a rewards card is confusing, and consumers need to take time to carefully compare and analyze the offers.”

Here are some areas that consumers need to be aware of when shopping for the best rewards card…

Rotating categories

On a number of cash-back cards, categories are rotated every quarter, which means you may only earn 5 percent on those grocery or travel purchases during three months of the year, and just 1 percent the rest of the year. Be alert to what categories have the higher payback. Sometimes the categories won’t apply to your purchasing habits and may not be profitable to you. For example, if you live in a big city, you may not need home improvement products or lawn and garden items, or you may not travel during the January-March time period.


Bonuses for rotating cards looks good on the promotional page but there is a catch: You must enroll at the beginning of every quarter. If you forget to enroll, you may only get the 1-percent rebate.

“Enrolling every quarter is a gimmick, like ‘mail-in’ rebates,” Hardekopf says. “Issuers offer these bonuses knowing that many cardholders will forget to enroll. It would be interesting to see what percentage of cardholders forget to enroll each quarter.”

Cash rebate limits

Many cards have limits on the amount of cash rebate you can earn with these special 5-percent rebate offers. The Chase Freedom card has a maximum $75 cash back you can earn each quarter. With the Discover More card, the maximum you can earn on these special offers is $15 a quarter or $60 per year. The Citi Platinum Select card offers a maximum of $300 in rebates per year. The American Express Blue Cash has no limit on the amount of rebate you can earn.

Spending levels

A number of these cards have tiers or levels that you must spend before the ongoing 1-percent rebate takes effect. For example, the Discover More card gives only 0.25-percent cash back for the first $3,000 of regular annual purchases. Once you spend more than $3,000, you begin to receive the 1-percent cash amount.

On the American Express Blue Cash card, the rebate is 1-percent for everyday purchases and 0.5 percent for all other eligible purchases for the first $6,500 of spending. Spend more than $6,500 in a calendar year and  you earn 5 percent on certain categories and 1.25 percent on all other purchases.

The fine print

Here’s some other rules to watch out for…

  • Reward cards typically have higher interest rates and are only a good option for those who do not carry a balance. If you carry a balance, look for a card with a lower rate.
  • You can lose your cash-back bonus. If your account is closed for any reason or if you fail to make the minimum payment due by the payment due date for two consecutive billing periods, your cashback bonus will be forfeited with most issuers.
  • Sometimes your purchase may not qualify. In the fine print, issuers may limit what purchases apply. For example, it’s not uncommon that purchases at warehouse stores may not apply for the higher rebate. Read the card’s terms and conditions to learn what purchases count toward the increased rebate.

“The most important thing when comparing rebate offers is to read the terms and conditions of your credit card,” Hardekopf says. “Make a grid where you can write down all the applicable rebates, and you can easily compare the offers on one sheet of paper. This will help you compare apples to apples rather than getting lost in the confusion of the card’s advertising copy.”

Stacy Johnson

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