Cash-back and other rewards programs are a great deal for many. But not all cash-back programs are created equal. While every credit card may have benefits for some, these 10 have some serious drawbacks for a ton of people.
1. BP Chase Visa
No annual fee, 0 percent interest for the first six months, a reasonable interest rate and up to 10 percent rebates on BP gas for the first couple of months (in addition to other benefits like 1 or 2 percent rebates on other purchases and at-the-pump discounts) actually sounds like a good deal. But it may be too good to be true.
After the first couple of months, the rebates go down to 5 percent, which is actually still a pretty good rebate, and after the first six months, you go up to the normal interest rate, which is between 12 and 20 percent. Still not that bad compared to some, except that if you still have an unpaid balance on the charges you racked up during the first six months, you’ll start paying the normal interest on that balance, not just on new purchases thereafter.
It’s also tough to redeem your rewards and rebates, and you can only redeem in $25 increments.
2. HSBC American DreamCard
This is probably the weirdest one. The cash back is in the form of a monthly sweepstakes (based in part on your everyday shopping — the more you shop, the more entries you get). Now, you could legitimately win cash, but given its interest rate (which could double if you’re late), why wouldn’t you opt for a card with automatic cash back?
3. Walmart Discover
Here, you’re better off with a regular Discover card. You’ll get 5 cents off every gallon of gas at Walmart in addition to 1 percent back on all purchases. Compared to the Discover It card, which gives you the same 1 percent plus 5 percent on other revolving categories, it just isn’t as good a deal. Even worse, Discover only operates the payment network, so you’ll get Walmart’s customer service, not Discover’s.
4. Marathon Platinum Reward Card
Platinum always sounds good, but this may be more like tin for some cardholders. It comes with bells and whistles, like a 5 percent rebate on all Marathon purchases, including gas, but it also comes with a fairly hefty interest-rate-to-benefit ratio. Your benefits are limited to a mere $270 a year, and you’ll pay almost 30 percent if your payments are late.
5. Money Return Platinum Plus Visa from Bank of America
Many Bank of America cash-back cards are really strong, but this isn’t one of them. You pay high interest rates to get half that back. Sure, 10 percent back seems like the best deal ever (especially with no annual fee), but unless your credit is less than stellar, you can probably save more money by just having a lower interest rate.
6. Visa Black Card
American Express made the black card a coveted status symbol, but this may be a wolf in sheep’s clothing. You’ll get 1 percent cash back (or points), which doesn’t sound that crazy (there are plenty of great cards with the same benefits). Here’s the catch: They want you to pay almost $500 a year to have it! Fees aren’t a negative in and of themselves, but if you pay them, you should get more than you get from other no-annual-fee cards.
7. Susan G. Komen for the Cure (and most other) affinity card
We really hate putting this one on this list. While the direct benefits to the cardholder are actually just as good as other Bank of America cash-back cards, our issue here is the cash back to Komen. The organization gets $3 for each signup and $1 for each renewal, plus 20 cents for every $100 in purchases. To give just $20 to Komen, you’d have to spend almost $10,000 a year on your card. If you want to donate money to cancer research, you’re better off donating directly and just going with a regular cash-back card. Again, this actually applies to a lot of these charity-based affinity cards, so research them carefully and do the math before you sign up.
8. No preset limit cards (all of them)
This is another one where the actual terms aren’t that bad. The problem here has to do with how having no preset limit can affect your credit score. Because of the way these cards are reported to credit bureaus, they’re forced to guess at how your debt ratio is actually working. If they over guess (and they probably will… more on that later), your score could take a hit.
The reason it’s easy for them to over guess is that though you don’t have a ceiling, there technically is a limit. If you go over that limit, you’ll be penalized by the credit card company, making the best way to protect your credit score something that will also cost you extra money. If you have one of these cards, they can easily change you to a similar card that does have a limit.
9. Speedway SuperAmerica Platinum MasterCard
The first problem we have with this one is that you don’t get actual cash back. Now, you get lots of points for each dollar spent (plus 10,000 points after the first use), but to get any real cash value out of it, you have to redeem your points at the store kiosk, and you’re limited to selecting from “cash” back (read: gift cards/coupons for things like gas, gift certificates, etc.). Add to that the crazy rates of nearly 30 percent if you get behind on your payments, and this just isn’t a great deal.
10. Citgo Preferred Visa
Up front, this seems like an excellent deal. Just like many of the other cards on this list, it can only be used at Citgo stations, but if you’re in the right state, those are everywhere. And gas is so expensive, having a reward card is a good idea.
In addition to flexible payment options, you can get additional cards at no cost (great if you’ve got a teenager at home), there’s zero liability on unauthorized charges and you get 5 cents off every gallon of gas, which, although you pay full price up front, is applied directly to you bill! No redeeming. It couldn’t be easier.
Problem is, unlike many other gas station cards, you don’t get rebates or cash back on anything but gas. Additionally, this is another one that has crazy fees if you get behind on a payment.
Tips from a pro
We reached out to NextAdvisor.com founder Erik Larson for his tips on getting the most out of cash-back cards.
- If the earning or redemption formula seems difficult to figure out, it’s probably because it’s not very good. If the rewards were really great, a company would be dumb not to make it very easy for you to figure out how great they were.
- Watch out for earning limits. Nothing’s worse than using a card for a large amount of purchases only to find out that your rewards were capped and you earned nothing for a lot of those transactions, especially if you’re paying an annual fee.
- Watch out for fees. An annual fee can completely change the equation of which card is best for you. And it’s not just annual fees. Watch out for other fees, too, especially if you have to pay any kind of fee to redeem rewards.
- If you’re going to be carrying a balance on the card, any rewards you earn are likely to be outweighed by the interest you pay. So you probably want to shop for a low-APR card instead.
The good news is, the folks at NextAdvisor have identified the 10 best cash-back cards. Check out the list on their site. You can use their customization tool to help you decide which one is the best for you based on your spending habits.