I hate credit cards with bonus rewards in rotating categories. Banks must have done studies and found it works effectively (for them). Citi, Chase, and Discover all do it. I just want a card that gives me a good rebate on known categories every day.
Fortunately there are two good choices in the market: American Express Blue Preferred and PenFed Platinum Rewards.
Which one is better?
AmEx Blue Cash Preferred
American Express Blue Cash Preferred card (“Blue Preferred”) pays 6% rewards on purchases at supermarkets, 3% on gas and department stores, and 1% on everything else. Whenever you accumulate $25 worth of rebates, you can request a statement credit.
It has a $75 annual fee. There’s also a no-annual-fee version that pays only 3% rebate on purchases at supermarkets, 2% on gas and department stores, and 1% on everything else. If you spend more than $210 a month at supermarkets, you are better off with the Blue Preferred after the annual fee than the no-annual-fee version.
You get 6% only for purchases at grocery stores. If you buy groceries at Costco, Walmart Supercenter, or Super Target, they usually don’t count as 6%. It has been reported that American Express will limit the 6% cash back on grocery store purchases to $6,000 a year starting in 2013.
This chart shows the reward percentage after the annual fee if you use this card only at grocery stores for the first $6,000 before switching to a 2% card after $6,000.
“Old” AmEx Blue Cash
Before Blue Cash Preferred, American Express had a Blue Cash card. It paid 0.25% cash back on the first $6,500 and 5% cash back on both gas and grocery store purchases. Existing cardholders still have this card but it’s no longer available to new applications.
Because of the lower cash back on the first $6,500, compared to the alternative of using a 2% cash back for that $6,500, this old Blue card effectively has an annual fee of $6,500 * (2% – 0.25%) = $114. Of course the upside is that the cash back on gas is 5% versus 3% in Blue Cash Preferred but it’s 5% versus 6% on grocery store purchases.
PenFed Platinum Rewards
PenFed Platinum Rewards card pays 5% rewards on gas, 3% on supermarkets, and 1% on everything else. You redeem rewards in prepaid debit cards or gift cards.
The easiest way to use up the value on a prepaid debit card would be to make a one-time payment on a utility bill. My Internet service provider accepts one-off payments by credit card.
If you don’t mind applying for and carrying an extra card, get both. You would get the highest rewards for both gas and groceries. Use the Blue Preferred card only at grocery stores and use the PenFed card only for gas.
If you only want to use one card at both supermarkets and gas stations, which one you should get? It depends on whether you spend more on gas or at grocery stores.
I made this simple calculator. It also shows whether you should consider upgrading the old AmEx Blue card to the new Blue Cash Preferred card.
Because I spend more at supermarkets than at gas stations, I’m using AmEx Blue Cash Preferred.