With Lisa Gerstner, Contributing Editor for Kiplinger Personal Finance
Kiplinger’s Best Cash Back Cards
Steve speaks with Lisa Gerstner, contributing editor for Kiplinger Personal Finance, about Kiplinger’s best cash back cards. Credit card companies have significantly ramped up the benefits they offer, with the six largest credit card issuers spending more than twice as much on card rewards now than they did in 2010.
Citi Double Cash Card Takes Top Spot
Kiplinger’s favorite cash back card was the no annual fee Citi Double Cash card that gives you 1% when you make a purchase and another 1% when you pay the bill, for a total of 2%. But the math only works in your favor if you pay off your balance every month, otherwise, the interest will far exceed what you get in rewards.
Steve cites a bad experience with this card where he was charged interest on the entire statement balance even though he paid half of it on time. So, make sure you pay your card in full every month. On the flip side, if you don’t plan to pay off your bills on time, opt for a no rewards, lower interest card.
Steve notes that millennials prefer using debit cards because they can’t trust themselves to pay off credit cards every month. And that’s too bad because they’re missing out on this free money. He wishes they could figure out a way to just say no to overspending, get disciplined, and reap the many benefits of credit cards.
Also, note that rewards expire if you don’t earn any cash back for 12 months and leave the card inactive, so stay on top of that.
Second on the list of Kiplinger’s best cash back cards was the Alliant Cashback Visa Signature card which pays 3% back in the first year, then 2.5% back after that, with a $59 annual fee in the second year.
Other cards that get top billing as Kiplinger’s best cash back cards include: Fidelity Rewards Visa Signature with 2% cash back that goes to a Fidelity brokerage account and is a good way to add to your retirement savings; and the BankAmericard Cash Rewards Visa that boosts your cash back to 10% or more if you hold large deposits with Bank of America or Merrill Lynch.
Rewards Cards Offer Nice Freebies Too
Kiplinger’s best cash back cards also cover cards such as the Southwest Airlines Visa card that offers 40,000 air miles when you spend $1,000 on purchases in the first 3 months and charges a $69 annual fee. She believes flight rewards cards are good if you travel enough to reap the benefits, but recommends staying away from cards that ask you to spend a lot ($5,000 to $7,500) in the first three months. Airline cards often also waive foreign exchange fees when you use them abroad, especially when they have an annual fee.
The Best Bank For Your Buck
With interest rates set to gradually rise, Steve quizzes Lisa on banks that offer the best interest rates and the most consumer-friendly terms. Kiplinger found that, for retirees, US Bank offered the best value. For one, it’s a large bank with lots of local branches that serve retirees and is good for those who still prefer in-branch service. US Bank also offers nice perks for people 65 and older, such as no monthly fees on premium checking accounts, paper checks, paper statements, money orders, etc., and half-price on safe deposit boxes.
Internet Banks Offer The Best Rates On Savings Accounts
While brick-and-mortar banks offer really low rates on checking and savings accounts, Internet banks, with their low overhead costs, offer the best rates (1% and up) and boost them almost in lockstep with the Federal Reserve.
Lisa also mentions the Fidelity Cash Management Account as a great all around account for everyone—with no monthly fee, no minimum balance requirement, a debit card, free checks, and reimbursements on all ATM fees. Fidelity also offers higher FDIC coverage for your funds.
Finally, in Kiplinger’s best cash back cards, Lisa likes the Fidelity Rewards Visa Signature card because it gives you a little extra motivation to save money. It has no annual fee and gives you 2% back on all purchases if you deposit the rewards into an eligible Fidelity account, so that’s a nice incentive to grow your savings and investments.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Okay, get ready to make some easy money. No, this is not a get rich quick scheme. You know me better than that. It’s no pie in the sky investment in gold or something exotic. As a matter of fact, it’s not about investing at all. It’s a lot easier.
It’s so easy, actually, that if you’re not paying attention to what’s going on in this part of the financial world, you are throwing away free money. All right, so what do you think it is? Sheep herding in New Zealand, vending machines, maybe online internet sales? No, it’s really simple.
It’s something we use every day. It’s credit cards. You see, credit card companies have significantly ramped up their benefits recently. As a matter of fact, the six largest credit card issuers are spending more than twice as much on card rewards now than they did in 2010. To discuss all of this, and to bring it all together for us, I want to welcome Lisa Gerstner.
She’s contributing editor for Kiplinger’s Personal Finance. Hi, Lisa, welcome to the show.
Lisa Gerstner: Hello, thank you for having me.
Steve Pomeranz: I see it all the time. I get credit card offers in the mail, and they’re offering me zillions of points to sign up or cash back. Let’s start with the cards that offer cash back; you guys did some work and ranked some of the best credit cards in that area. Why don’t you take us through that?
Lisa Gerstner: Sure, Steve, our favorite card for just flat rate cash back, keeping it simple, is the Citi Double Cash card. And what they do is they give you one 1% when you make a purchase and another 1% back when you pay the bill, so the total on everything is 2%.
Granted you don’t get it right away because they split it up that way. But as long as you’re paying off your balance every month, which you should be with a rewards card because, otherwise, your interest is going to eat up all your rewards. It’s a great card; it’s really easy; there’s no annual fee.
It’s just nice for people who want something simple, where they can buy everything with the card.
Steve Pomeranz: I like it that way because you don’t have to know whether you’re getting 3% on dining out or grocery or gas—it’s just 2% across the board. But I will tell you I have this card, and I did have an unexpected, unpleasant surprise with this card.
And that was I decided one month—I had a large balance—I decided one month to pay off half of it in one month and half of it in another month. And they charged me interest on the whole amount for the month. So let’s say I had borrowed 10,000 and I paid off 5; I thought I was only going to pay interest on the 5. No, I paid interest on the 10. That was not a pleasant…I’ll never do that again.
Lisa Gerstner: Yeah, it can be sneaky like that. And that’s why I always say if you don’t think you’re going to be able to pay the balance every month…well, one, maybe don’t get a credit card. But if for some reason you do have one, we just go with a lower rate card because a lot of these rewards cards aren’t going to give you low rates.
Steve Pomeranz: When I talk to my kids and other millennials, I hear that a lot of them are using debit cards because they can’t trust themselves to pay off their credit cards every month.
And I think it’s too bad because they’re missing out on this free money. And I wish they could figure out a way to just say no to overspending and get discipline so they can reap these benefits. Yeah, you have that experience?
Lisa Gerstner: I’ve also seen surveys suggesting that younger people kind of prefer debit cards. They go in that direction, like you said, because they give them a harder spending limit. They know once they’re out of money, they can’t spend any more. So I hope that people can work on that. Figure out their limits, say I’m only going to spend 500 a month or whatever, I can keep under control on my credit card.
Steve Pomeranz: So you have the Citi Double Cash, there’s no fee to that, right? Are there any other caveats besides the 2% back?
Lisa Gerstner: I would say you just have to watch the rewards expire if you don’t earn any cash back for 12 months. As long as you’re using the card, you won’t have to worry about that, but if you leave it inactive for a year, your rewards may disappear. So stay on top of that.
Steve Pomeranz: Good, good, good point. Now, I also noticed that you listed as one of the best, here’s a card that pays 3% back the first year and then 2.5% back after that, what is that?
Lisa Gerstner: So this is a card from Alliant Credit Union, which is a credit union with nationwide membership availability, it’s called the Alliant Cashback Visa Signature card.
So, yeah, the first year you get 3% back, which is really outstanding, for everything you buy, with no annual fee. But then the second year, you’re going to pay a $59 annual fee, and the cash back rate drops to 2.5%. So depending on how much you put on the card, you could still come out ahead, or, say the Citi Double Cash card, even with an annual fee.
But you just have to kind of do the math with your normal spending and see if that’s going to work out. And then you also have to become a member of the credit union. So you would have to make a $10 donation to a charity to become a member and open a savings account.
So there’s just a little bit more involved to it, but you could make more money, it just depends on whether you’re kind of willing to take those extra steps.
Steve Pomeranz: Yeah, and when they pay you the 3% or the 2.5%, they are going to pay it to that savings account. So it’s not as if you could no?
Lisa Gerstner: Yeah, you can do a statement credit or as a deposit into a checking or savings account with that credit union.
Steve Pomeranz: Okay, at the credit union, yeah.
Lisa Gerstner: So, yeah, you have a couple options, yeah.
Steve Pomeranz: So it’s a little more complicated, but if you’re willing to put a little more time in, I mean even 2.5%.
If you’re spending 3, 4, $5,000 a month and you’re paying that bill off, that can add up to a couple hundred extra bucks a year, and why not take it, it’s free money, for no risk. So Alliant Cashback is another choice, cool. You also have a Fidelity Rewards Visa Signature here, tell us about that.
Lisa Gerstner: Yeah, so with this card, it gives you a little extra motivation to save money. It’s also no annual fee, and it gives you 2% back on all purchases if you deposit the rewards into an eligible Fidelity account. So that’s typically mostly a new brokerage account, retirement account, a 529, even their cash management account, which is essentially a checking account, and you don’t have to have any other Fidelity relationship to do that. So, if you want the incentive to kind of put the money back in the bank or into your investments, maybe I shouldn’t say bank, or back into your checking account or investments.
It’s good motivation to do that, otherwise, the rate is really low if you try to do any other redemption. So little incentive there.
Steve Pomeranz: Yeah, you mean if you get a gift card, you can get gift cards, but it doesn’t convert to the same as cash.
Lisa Gerstner: Yeah, you’re going to get a much lower payback if you do gift cards and merchandise.
Steve Pomeranz: Yeah, so then don’t do that.
Lisa Gerstner: So, saving is the way to go.
Steve Pomeranz: That’s cool. You get 2% back on all purchases. Again, nice and clean and simple. The only difference is if you have a Fidelity account, they’re going to credit one of your Fidelity accounts, and then you can do with it what you want. There are no restrictions on having to reinvest it or anything, right?
Lisa Gerstner: Yeah, you can put it in your account; I believe you can even put it in someone else’s account. So if you have the card and you want to give your grandkids’ 529 a boost, you can do that.
Steve Pomeranz: Wow, okay, that’s cool. You have some honorable mentions here. BankAmericard Cash Rewards Visa, you can’t blame me for having trouble with that.
Lisa Gerstner: [LAUGH] Yeah.
Steve Pomeranz: BankAmericard Cash Rewards Visa, what’s that?
Lisa Gerstner: Yeah, so this card and the rates, they are pretty decent. You get 3% on gas, 2% at grocery stores and wholesale clubs, up to a combined 2,500 in each quarter in those categories, 1% on everything else.
Now, what’s interesting about it is, if you’re already a Bank Of America customer, you’re going to get a boost on those rewards. If you just have a checking or savings account, you get a 10% bonus. But if you’re in their preferred rewards program, which means you have higher balances with them between them and Merrill Lynch, so maybe it really goes from 20,000 to 100,000, you get more.
So essentially what it comes down to is, say you have $100,000 combined balance in your investment and Bank of America accounts, your respective cash back rates go way up. It goes up to 5.2% on gas on 3.5% groceries and wholesale, 1.75 on everything else. So it’s kind of an interesting option if you’re a customer with them, you could do really well with a card like that.
Steve Pomeranz: Yeah, I wonder whether, when you have these cards that offer the different rates on the different types of purchases like gas and dining out….well, when it all comes down to it, whether you’re really even doing better than a 2%. I mean, obviously, it’s an individual thing, depending on the mix that you use.
But still, I don’t know, that 2% just seems to be so much easier. What about these cards that are offering these initial thousands or tens of thousands of points for travel? For example, I know Southwest Airlines was offering 40,000; then you’ve got the Chase card, I think, that’s offering something like 70,000 points. Tell us about those.
Lisa Gerstner: Yeah, so a lot of them are giving you these heaping bonuses at first to kind of draw you in. And it can work out really well, especially if you think the ongoing rate on the card will work for you. If you pick up the Chase card that has a 50,000-point bonus, but you think, hey, I’ll actually do pretty well with the dining and travel rewards too, that can be great.
I just think you kind of want to think about the long run, after a year will I still want to use this card? And decide that way. But, yeah, you can easily get a plane ticket or more, just with the bonus of some of these cards.
Steve Pomeranz: Some of these cards require you to spend an awful lot in the first three months to charge an awful lot. I know there was one I was reading that was now requiring $7,500 to be charged in the first 3 months. I think that’s a number that a lot of people wouldn’t hit.
Lisa Gerstner: Yeah, that’s steep. A lot of them it’s 3 to 4,000, so it really all just kind of depends on your income and your spending habits and whether you can hit that. I think 3,000 sounds a lot more manageable than 7,500. So, it varies from card to card.
Steve Pomeranz: What about foreign fees when you travel? Do any of these cash back cards or points cards offer no foreign transaction fees?
Lisa Gerstner: A lot of the travel cards waive that, and, especially, if they have an annual fee they should waive it. I think if they’re charging an annual fee and charging you foreign transaction fees, that’s a bad deal. But, yeah, especially some of these more elite travel cards, you don’t have to worry about that. Now, other cards outside of that may; I believe Citi Double Cash does charge a foreign transaction fee. So you may want to leave that one at home when you go abroad, yeah.
Steve Pomeranz: All right, so we’ve talked about free money from credit cards; let’s talk about banks. Because with interest rates ticking up here slightly, it seems to me that some banks are getting pretty aggressive in the rates that they’re offering. They’re still not in the 4 or 5 and the 7 and the 8% that they were ten years ago. We’re still talking 1 and change, but still, 1 and change is better than 0. Let’s talk about some of the banks, the best banks for retirees; what did you find in your research?
Lisa Gerstner: Yeah, so we did our best bank roundup. We found that for retirees, we liked US Bank. And one reason, that is, that it’s such a large bank, it has a large presence. So, if you still prefer that kind of in-branch service, you may well be able to find a branch near you. That’s the big part of it. But, also, they do some nice perks for people 65 and older. They waive the monthly fee on their premium checking account. Now, the rate on that one isn’t so high, I haven’t checked it very recently, but when last I looked, it was like 0.01% to 0.02%, right?
But, yeah, they waive a lot of fees like paper checks, paper statements, money orders, all that stuff is free. But the safe deposit box is half price, so they give you some nice breaks, once you’re over 65.
Steve Pomeranz: Yeah, so that absolutely is not one bank that’s paying up for deposits. I know, for example, Goldman Sachs has got a bank now and they’re offering over 1%. I know if you really do some shopping online, and especially some internet banks, you can definitely get over 1%.
Lisa Gerstner: Yeah, the Internet banks are really leading the way in trying to boost rates along with the Federal Reserve. Brick and mortar banks, not so much yet. They’re probably not going to budge much the rest of the year at all. So look to the internet banks if you’re really kind of trying to chase some higher yields.
Steve Pomeranz: In your story, you mentioned Fidelity again, as far as one of the best banks for retirees, the Fidelity Cash Management Account, how does that work?
Lisa Gerstner: Yeah, so the Cash Management Account it’s kind of a great all around account for anyone. It comes with all the features of kind of a great checking account. There’s no monthly fee, there’s no minimum balance requirement. It pays a little more interest than the other account at 0.07%, last I checked. They give you a debit card, they give you free checks, paper statements are free and icing on the cake, they reimburse ATM fees. So if you go anywhere to an ATM, they’re going to refund you any charge that the owner charges you, which is a really nice feature.
Steve Pomeranz: That’s nice.
Lisa Gerstner: Yeah, and so if you have an IRA or something or anything else with Fidelity, you already have a relationship with them, especially, it can all tie together very nicely. It’s really a pretty great account. They also have a heightened federal deposit insurance core coverage for your funds. It’s kind of a partnership with other banks that they do. So rather than up to the standard 250,000 limit you get with a standard bank account, they actually make a little higher for you, if you want to keep a lot of money in that account for some reason.
Steve Pomeranz: Some type of reinsurance, over and above the typical insurance.
Lisa Gerstner: Right, they kind of sweep the funds into other accounts, but then you can have access to them when you want them, is kind of how that works.
Steve Pomeranz: All right, my guest, Lisa Gerstner, Contributing Editor for Kiplinger’s Personal Finance.
We’re talking about credit cards. You can find out more about Lisa, to hear this interview again, and to find out more about credit cards online. Don’t forget to join the conversation at Stevepomeranz.com. Thank you so much, Lisa.
Lisa Gerstner: Thank you.