Are cards that automatically reward your top spending categories a good deal?

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If you’re the kind of person who likes to maximize rewards but doesn’t want to put in a lot of work, a new trend could work to your benefit. Several credit cards now let you earn rewards in your top spending categories without requiring you to preselect the categories.

Consumer card examples

  • The Citi Custom Cash℠ Card gives 5 percent cash back on your top eligible spending category each billing cycle (up to $500 in purchases, then 1 percent), and everything else earns 1 percent cash back. Eligible purchases include restaurants, gas stations, grocery stores, select travel, select transit, select streaming services, drugstores, home improvement stores, fitness clubs and live entertainment.
  • The Venmo Credit Card doles out 3 percent cash back on your top eligible spending category each month and 2 percent on your second-largest category. All other purchases earn 1 percent cash back. There is no longer a rewards cap. The eligible categories are dining and nightlife, gas, groceries, travel, transportation, entertainment, health and beauty, bills and utilities and “other.”
  • The Chase Freedom Flex is running a promotion that gives cardholders an extra 4 percent cash back on up to $1,500 spent in the eligible rewards category where they spend the most from Oct. 1 to Dec. 31, 2021. This is in addition to the standard quarterly rotating categories (in Q4 2021, those are PayPal and Walmart, and cardholders who activate earn 5 percent cash back on up to $1,500 of those purchases, then 1 percent cash back after that). The bonus categories for the additional offer are dining, gas stations, grocery stores (not including Target and Walmart purchases), travel (including transit), select streaming services, drugstores, home improvement stores, fitness clubs and select live entertainment. If the top spend category includes PayPal purchases, those will earn a total of 9 percent cash back.

Business card examples

  • The World of Hyatt Business Credit Card gives 2 points per dollar spent on cardholders’ top three spending categories each quarter through Dec. 31, 2022, then drops to the top two categories after that. The eligible categories are dining, shipping, airline tickets purchased directly from airlines, local transit and commuting, social media and search engine advertising, car rental agencies, gas stations and internet, and cable and phone services. These bonus categories do not have a spending cap.
  • The American Express® Business Gold Card gives 4X points on up to $150,000 per year in two select categories your business spends the most in each billing cycle. Those categories include airfare purchased directly from airlines, advertising (purchased in the U.S. to promote your business online, on TV or on the radio), U.S. gas stations, U.S. restaurants, U.S. shipping costs and U.S. computer software, plus hardware and cloud data made directly from select providers.

What’s in it for you

The pitch is that you can just spend as you normally would; the card issuers point out that there’s no need to preselect categories or jump through any special hoops. This may benefit the issuer more than it helps you, however, because your non-bonus spending often earns lackluster benefits.

Let’s say you spend $2,000 per month on the Citi Custom Cash. If at least $500 is in one of the eligible categories, it’s nice that one month you might maximize travel and then maybe the next month it’s groceries or home improvement stores and so on. That’s a streamlined process that caters to someone with varied spending habits who doesn’t want to put in much legwork. But what about your other spending?

If you earned $25 cash back by spending $500 in one of the Custom Cash’s 5 percent categories, the other $1,500 that you spent only earned $15 (a 1 percent return). In total, you got $40 back on $2,000 in spending (an overall return of 2 percent). If you spend more than $2,000 per billing cycle on this card, you’ll come out ahead with a no-annual-fee, 2 percent cash back card such as the Citi® Double Cash Card (which technically gives 1 percent cash back when you make a purchase and another 1 percent when you pay it off).

And even though the Venmo Card no longer has a cap, it’s still going to be hard to top a no-annual-fee card that gives 2 percent cash back on every purchase (the Wells Fargo Active CashCard and the PayPal Cashback Mastercard® are additional examples). That’s especially true the more you use the card, since only one category per month qualifies for 3 percent cash back on the Venmo card and one earns 2 percent. Additional spending only gets 1 percent cash back, so the more you use the card, the lower your blended average is likely to be.

But these cards are useful as part of a broader rewards strategy

As you can see, if you use one of these cards for all of your spending, you’re not getting the best bang for your buck. But if you truly want to maximize your credit card rewards, these cards can be useful as part of a broader multi-card portfolio.

You could use a 2 percent cash back card as a solid foundation and surround it with cards that emphasize categories in which you spend a lot of money. The Citi Custom Cash and the Venmo Card would be particularly well-suited for some of the more obscure categories—such as home improvement stores, fitness clubs, entertainment, health and beauty, and bills and utilities— since these aren’t as common. There are many more cards to choose from that offer enhanced dining, grocery, travel and gas rewards.

Or if you really want simplicity, then a 2 percent cash back card is a solid choice. If you’re only going to use one card for all of your spending, chances are a card that gives 2 percent cash back on everything would outpace one that only offers a better return on a single category.

Have a question about credit cards? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.