The Tricks to Maximizing the Cash-Back Card Payoff

Chase FreedomSavers love cash-back cards. Unlike rewards cards that grant points, cash-back cards return a fraction of what you spend in good old U.S. currency.

Used responsibly, cash-back cards effectively give cardholders a discount everything they buy. But for the less disciplined -- those who carry a balance, for example -- be warned: You'll probably pay more than you earn in cash-back bonuses.

Banks Want You to Slip Up

Many cash-back cards offer 0% introductory rates that last for six to 12 months while charging a percentage of the balance as an upfront fee. Capital One's (COF) Cash credit card, for example, exempts interest for a year while charging 3% of transferred balances. The hope? You'll fail to pay the balance in time, kick-starting interest payments at 12.9% (or worse) while earning no more than 1.5% on your spending.

Fortunately, that's the worst-case scenario. Disciplined savers can bank hundreds of dollars yearly when paying off balances regularly. The trick is knowing how to maximize your payback, and doing that requires some effort.

Here's a brief list of considerations:
  • How much cash do you get back? (Compared to savings accounts, for example.)
  • What fees are involved? (Annual? Monthly?)
  • Are there gimmicks or giveaways? (If so, what are they worth?)
  • What are the limitations? (What's the maximum earning potential?)
The best cash-back cards offer quick redemptions and unlimited earning. Does JPMorgan Chase's (JPM) Freedom card measure up? That's the question before us today in this ongoing series examining the best (and worst) credit card offers out there.

3 Important Details About the Chase Freedom Card

You might know the Freedom card from a series of man-on-the-street TV ads that pitches the plastic as offering "found money." Here's a closer look at the benefits:

1. You don't get 5% cash back everywhere you shop. Unlike the Capital One Cash card, Chase's Freedom card offers 5% cash back on certain categories throughout the year. For 2012, money spent at (AMZN) from now through March earns 5%. Best Buy (BBY) shoppers won't earn that much till the holiday shopping season kicks off in the fourth quarter.

2. $100 sign-up bonus. New customers get extra cash back after using the card to spend $500 in their first three months. Capital One offers a similar bonus, which isn't surprising. Banks tend to match frills in order to win customers, knowing that switching into and out of card accounts can take a toll on credit scores.

3. Two introductory expiration dates apply. Here, too, it's standard practice to trade short-term 0% interest for the prospect of huge long-term profits when (ahem) "normal" double-digit rates kick in. Chase Freedom sets the zero-interest clock at six months for purchases and 12 months for balance transfers.

The downside? While there's no annual fee and no earnings limit at 1%, Chase caps higher-rate accumulations at $1,500 in spending per quarter. So forget about dreams of receiving tax refund-sized rebate checks. Balance transfers also include a fee equal to 3% of the balance or $5, whichever is greater.

This is the right card for you if...

Apply for this card if you're a disciplined saver who avoids debt but craves additional benefits for using credit cards for everyday spending. You'll earn higher average cash awards and enjoy the flexibility to earn even more if you're aggressive.

Let's run the numbers to see how rewarding it can be to carry the Chase Freedom card: Say you follow Chase's calendar and spend the maximum $1,500 per quarter with qualified merchants. Let's say you also spend $18,000 more -- or $1,500 monthly -- on other purchases. Your $2,000 in monthly charges will net you $480 in cash in an average year and $580 in your first year.

Again, refer to the checklist above. Quick redemptions and unlimited earning potential is what you want if you're in the market for a cash-back card. On these two attributes, the Freedom card appears to deliver.

Just go in knowing that Chase is hoping you'll one day carry a balance and use (ahem) "cash back" to pay down balances. Don't fall for it. No matter what the marketing material says, it's always better to collect interest than it is to pay it.

What credit cards do you use? What is the best credit deal you've found? Please let us know using the comments box below.

Motley Fool contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and past columns. The Motley Fool owns shares of, Best Buy, and JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of and writing covered calls in Best Buy.

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Brad W

I don't think this deal is available anymore, but I have an HSBC card that pays me back 5% on all gas, groceries, and drug store purchases. It has a yearly max of $500 and I usually hit that in about 11 months. It's a great card with no fees. I was worried that they weren't going to renew it last year.

February 08 2012 at 8:20 PM Report abuse rate up rate down Reply

Im enrolled in Citibank's Thank-you reward program which gives you points for having a checking accout, paying bills online, paying your credit card bills ontime (using credit wisely they call it), as well as using one or more of their thank-you credit cards. You can have more than one credit card each contributing points. The Citibank Forward card gives me 5 points for one dollar spent at restaurants and take out food establishements, bookstores, and movies and theatres. The Citibank Professional Card (which is no longer offered) gives me 3 ponts for one at gas stations and office supply stores such as Staples. The thank-you Preferred card when I opened it last spring gives me 2 points for one for everythiing for one year (they no longer offer this promotion). All of these cards also give bonus points on top of all this, sometimes I do not know why. I just paid my son's college tuition, room and board with ithe Preferred card, racking up 19,000 points for $9500.00 payment. My wife is getting annoyed trying to figure out when to use each of the cards to maximize points. Since 2007, I have cashed in more than $8000 in airline travel with these points and currently have another $1300 available. I have never paid Citibank a dime in interest or fees. They pay me well for the priviledge of having me borrow their money. This is the closest thing to free money that I have ever seen.

February 07 2012 at 2:06 PM Report abuse rate up rate down Reply


I agree,they are making money off of the merchant. However, the money they are making from him is not mine.Credit card companies love it when they have the best of both worlds. Interest from me and anywhere from two to four percent from the merchant. Turns into alot of money in a short amount of time.
When I was a small business owner my invoices averaged between $2000 and $2500 dollars per customer. When I had a situation where the customer could choose between credit or debit and they chose credit. I would tell them that the invoice is $10 cheaper if they choose debit. This is because if it runs credit, a $2000 dollar invoice would cost me $80 dollars. If it runs debit, it costs me 45 cents. Big difference huh?

February 07 2012 at 12:13 PM Report abuse rate up rate down Reply

Even if you pay your card off every month, the credit card companies are getting a percentage from every business you charge a purchase with. So the cc companies are always making money off you one way or another.

February 07 2012 at 11:18 AM Report abuse rate up rate down Reply

I really believe I am using the best card out there. PNC Cash Builder Visa gives me 1.75% cash back. No points to play games with, just cash. I have no annual fee and I really don't care about the interest rate since the account is paid off every month.
I pretty much live on this card. I'll pay anything I can with it as long as I am not charged a fee. I even bought $1000
in AMEX gift cards which I charged to my PNC Visa card so I could buy tires at Costco since they only accept AMEX. I run about $5000 a month on this card so it adds up nicely

February 07 2012 at 10:04 AM Report abuse rate up rate down Reply
1 reply to Neil's comment

I like Discover. No annual fee, I pay mine in full every month, too, and I get a minimum of 1% cash back on all purchases, and 5% back on some.

February 07 2012 at 12:47 PM Report abuse rate up rate down Reply
1 reply to GOODDOC1's comment

I used Discover too and Chase Freedom. Beware though that Discover does not give the full 1% until you spend at least $3000 each year. The first $1500 you get 1/4% on and the second $1500 you get 1/2%. The 5% is a heck of a deal though.

February 07 2012 at 1:32 PM Report abuse rate up rate down

How has everyone missed Discover Card. No annual fee. I have had this card for over 20 years and have never had an annual fee, or any fees that I can think of. I use my card for everything and then pay it off every month. I just like the convience of rarely having to carry much cash. I haven't written a check shopping in many years. On the rare occasion that a business doesn't accept Discover Card, I will use a back up master card and/or visa.

February 07 2012 at 9:21 AM Report abuse +1 rate up rate down Reply
1 reply to's comment

I also had a Discover Card for many, many years (more than 20) but they started calling me practically every week with some kind of promotion or other. I asked them FIVE time to take my name off their list and DO NOT call me anymore. (I guess because I'm an existing customer the Do-Not Call List doesn't count). Anyway, they kept on and I told them the next call I got I was going to cancel the card. It was only three days later they called again. I cancelled the card.

I now have a CitiBank Visa which gives you points which can be redeemed for prizes or cash. So far (in the last two years) I have redeemed $300 (they give you a VISA gift card) and I have enough points for $300 more, which I'm saving for my vacation in March.

February 07 2012 at 11:33 AM Report abuse -1 rate up rate down Reply
1 reply to Bonbon's comment

I've had mine since the year after they started issuing them, but they've never called me with any promotions or anything else. There are usually things in with their bill, but you can just throw them away, or get your bill on-line. I wish they were accepted everywhere, but it's happening, slowly.

February 07 2012 at 12:49 PM Report abuse +1 rate up rate down

State Farm Visa--they give 1% cash back and if you wait until you have accumulated $250.00 they add another 25%, and just like Diane said, they don't make a dime off of me because it is paid in full every month.

February 07 2012 at 9:03 AM Report abuse rate up rate down Reply
Jim Richards

Have used COSTCO'S card issued through Amexco for about 5-6 years. Very satisfied with it. Receive a check back each year in the $1200.00 to $1500.00 range.

February 07 2012 at 8:31 AM Report abuse rate up rate down Reply

I have the Chase card and absolutely love it. You're right ajt1025, if you are paying high sums in interest, you're getting no wherel. But know that I always pay my balance every month. I never pay any interest fees. And there is NO annual fee. You can't get ahead if you pay a high interest rate every month. You're just defeating the purpose. Yes, the banks are out to make money, but trust me, they don't make a dime off me and I get lots of cash back.

February 07 2012 at 8:11 AM Report abuse +1 rate up rate down Reply

We have been using a new product from AXP blue cash. It has an annual fee of $85 but we get 6% on grocieries and 3% on gas.with no top end limit. So we buy grocieries at one store that sells gas. when we buy $100.00 worth of groceries we get 10 cents per gallon off on our gas and use the blue cash card to receive an additional 3%.

February 07 2012 at 7:58 AM Report abuse rate up rate down Reply