The idea of doubling your money doesn't often go hand in hand with credit card use, but a new product is promising to do just that. Yet it's still a gamble for some borrowers.
The Double Cash card, launched Friday by Citi (C), offers the typical 1 percent back on purchases -- and then awards another 1 percent back on what cardholders pay on that balance each month. "It's like cash back with a side of cash back," said Ralph Andretta, head of product management for Citi Cards.
That 2 percent rate is a competitive offer among all rewards cards, not just cash back. "Two percent across the board is excellent. It's the very best offer," said Odysseas Papadimitriou, chief executive of comparison site CardHub.com. Most cash back cards offer 1 percent to 1.5 percent back.
Points Are More Popular
In the second quarter of 2014, cash back offers accounted for 40 percent of mailed credit card offers, up from 36 percent a year earlier, according to Mintel Comperemedia. They're second only to points cards, which account for 47 percent of offers. Consumers could see more high-earning cash back deals as the cards' popularity increases, said Lisa Hronek, a research analyst for Mintel. "What is that standard earn going to be as the space heats up?" she said. "That competition [for customers] drives innovation."
Only a few other cards on the market come close to the Double Cash offer, but each has limits:
- The Capital One (COF) Venture Rewards card and Barclaycard (BCS) Arrival Plus offer a 2 percent rate, but in miles -- a less attractive reward currency, Papadimitriou said. Both also have annual fees.
- Fidelity's (FNF) Retirement and 529 cards offer 2 percent back in points. "You need a Fidelity account to open that card, and all your rewards go into that account," said Kevin Yuann, director of credit cards for comparison site NerdWallet.com.
The extra 1 percent on Double Cash, for some cardholders, might serve as extra incentive to pay off the balance fast. "They're piggybacking off that good feeling people get when paying off their bill," said Yuann. (It's not the first card to offer an incentive for paying as well as spending, but again, it's the most generous. Capital One's Journey Student Rewards offers 1 percent back, plus a bonus of 25 percent cash back earnings for paying the bill on time.)
Not Always the Best Tactic
Still, Citi's card isn't a good fit for everyone -- particularly those consumers who might be enticed into spending more, with the net result of carrying a balance. "If you don't pay your balance in full, you really need to forget about rewards and focus on finding a card with the best interest rate," said Papadimitriou. "That's how you save the most money."
After a 15-month 0 percent APR on purchases and balance transfers, Double Cash will have a rate of 12.99 percent to 22.99 percent, based on the applicant's credit score. Carrying a balance even for a short time would more than offset in interest charges any rewards earned, he said.
Double Cash may also not be the best fit for avid reward hunters, who can do better than 2 percent by chasing bonuses over several cards, said Yuann. Amex (AXP) EveryDay offers a 20 percent point bonus for each billing period in which cardholders make at least 20 purchases, while cards such as Discover (DFS) and Chase (JPM) Freedom award 5 percent cash back in rotating categories, which can result in bigger yields. This quarter, for example, Discover is offering the bonus on up to $1,500 in gas station purchases.
But that strategy requires more diligence -- users often need to sign up each quarter to earn bonuses,and pay attention to details on reward caps and eligible stores, he said. (That Discover gas bonus doesn't apply for purchases made at warehouse club and discount store stations, or using a virtual wallet technology.) Of course, the rotating rewards aren't a good deal if you aren't a big spender in the chosen category of say, home improvement or movie theaters.