PayPal credit card adds broad 3 percent cash back category
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The PayPal Cashback Mastercard®, which used to give a flat 2 percent cash back on every purchase, now gives an unlimited 3 percent cash back when using PayPal. That includes online, mobile and in-store transactions. All other purchases earn 2 percent cash back.
Because PayPal can be used so widely, this is now one of the most lucrative cash back cards. Only a few very niche options can top the PayPal Cashback Mastercard’s rewards rate.
Cards that give more than 2 percent cash back broadly
For example, the Alliant Cashback Visa® Signature Credit Card gives 2.5 percent cash back on up to $10,000 in qualifying purchases per billing cycle (then 1.5 percent cash back). To earn the 2.5 percent rate, cardholders also need to have an Alliant High-Rate Checking account with an average daily balance of at least $1,000 throughout the previous quarter.
The AOD Federal Credit Union Visa Signature Credit Card gives an unlimited 3 percent cash back on every purchase, but it has a notoriously difficult approval process.
The USALLIANCE Visa Signature Credit Card also gives 3 percent cash back on everything, but the promotion expires at the end of 2022.
Lastly, the Discover it® Miles card awards an effective 3 percent cash back on everything in a cardholder’s first year. It gives 1.5 miles on every purchase and those are doubled at the end of the first year (and each mile can be worth one cent when redeemed as a statement credit). However, in year two and beyond, that rate is cut in half without the introductory mile-doubling bonus.
What qualifies for PayPal’s 3 percent category
PayPal is accepted by 29 million merchants, according to its 2020 Annual Report. This includes more than 700 of Internet Retailer’s 1,000 largest online retailers, Digital Commerce 360 reports. Unfortunately, there are some notable omissions, such as Amazon.com. Still, there are a lot of ways to pay with PayPal.
It has been possible to use PayPal Key as a workaround when PayPal is not directly accepted online, although that’s about to change. PayPal announced the program is being discontinued on April 20, 2022.
There are limited opportunities to use PayPal in person. Walmart, CVS and 7-Eleven are among a select group of retailers that accept PayPal in stores via QR codes. Hopefully, this program will grow, but for now, PayPal Cashback Mastercard holders should expect to rack up most of their 3 percent rewards online.
Should you get this card?
The PayPal Cashback Mastercard used to be more on par with cards such as the Citi® Double Cash Card and the Wells Fargo Active Cash® Card. These are no-annual-fee cards that give 2 percent cash rewards on purchases (in the case of the Double Cash, technically 1 percent when a cardholder makes a purchase and another 1 percent when they pay it off).
The PayPal card gives new cardholders $100 off their first $500 in purchases. The Active Cash is a bit more generous, awarding $200 in cash rewards after new cardholders spend $1,000 in their first three months. The Double Cash currently offers $200 cash back after spending $1,500 on purchases in the first 6 months of account opening. Beyond the introductory bonus, the PayPal Mastercard is now a more lucrative card than these other two, given the introduction of the 3 percent PayPal category.
Cards such as these serve two main purposes. One is for someone who wants to keep things simple. They don’t want to be bothered with rotating categories or annual fees or remembering which card gives the best rewards on certain types of purchases. This is actually a surprisingly lucrative strategy. Because while other cards may tout four, five or six percent cash back on certain purchases, they often give a meager 1 percent cash back on most other buys, and they frequently have spending caps on their top-earning categories. If you use one of those cards broadly, your average rewards rate could end up well below 2 percent.
This brings us to the other scenario: Using a card such as the PayPal Mastercard as a foundation guarantees you’ll get no less than 2 percent cash back on any purchase. You could layer in other cards with more generous rewards on certain types of spending while maintaining that elevated floor. It’s a bit more complicated, but mathematically, it’s worth it. You just need to be willing to put in the effort of juggling different cards for different types of purchases.
The bottom line
The more you use PayPal, the more your PayPal Cashback Mastercard’s rewards rate will outpace the 2 percent benchmark that has historically been the high end of the mainstream cash back market. I’m seriously thinking about getting this card. To gauge the potential upside, I will focus on how many of my purchases I could make via PayPal.
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