Is There Ever An Excuse For Paying A Fee To Hold A Credit Card?

 

Also, it's so pretty!

Also, it’s so pretty!

 

Yes. But for our purposes, no.

In The Greatest Personal Finance Book Ever Written, we tout American Express Blue Cash Everyday® as the best consumer credit card available. It’s been a while. Is our recommendation still valid?

Blue Cash Everyday® was called simply “Blue Cash” at the time, without the “Everyday” qualifier, which we’ll get to in a second. Why did we think this was the best card out there? Let’s explain in handy point form:

  • No annual fee, duh
  • At least 1% cash back on everything (up to 3% on some things)
  • The best protection in the business. No one resolves a customer claim as quickly and efficiently as AmEx does.

That’s it. 3 criteria. We couldn’t be less interested in interest rates, late payment penalties, balance transfer rates or related nonsense. All of that is meaningless, if you pay your bills on time and don’t overextend yourself.

Looking at it now, we realize that the reason most every other personal finance “expert” advocates looking at interest rates first is because doing so means adopting a loser’s mentality. The implicit question is “How can I minimize the damage I will doubtless do to my finances?”, when it should be “How can I capitalize on the plethora of choices I have as a consumer in a diverse marketplace, and come out of this ahead?” Worrying about interest rates means you’re playing too much defense and not enough offense, and thanks to Dave at the dormant 6400 Personal Finance for creating so pithy an analogy.

Today, Blue Cash Everyday® offers 2% discounts at “stand-alone” gas stations and certain retailers*, 3% at stand-alone supermarkets. The latter is valid only for the first $6000 you spend in a given calendar year: beyond the 6001st dollar, you get the standard 1% that Blue Cash Everyday® offers on everything else.

In the past, one disadvantage to Blue Cash was that it reimbursed you with those discounts in inconvenient increments. You had to spend thousands to receive any credit. Today, American Express will reimburse you in increments as little as $25. (Figure out how long would it take you to buy $833 worth of groceries, and act accordingly.)

We used to be Discover devotees. Discover initially offered 1% back on everything, typically in $40 increments. Hey, a decade ago that counted as groundbreaking. Then, capitalism being what it is, some retailers decided it would be worth it to sign exclusive agreements with Discover and thereby give those retailers’ customers even greater discounts. Or maybe Discover initiated the process, it didn’t really matter. Either way, the strategy was the same: What if we, the card issuer, could throw some extra business your company’s way: how much would you pay us? Under such a system, everyone wins. Discover gets more customers, who then carry greater balances. Those retailers (Home Depot and 1-800-Flowers, among many others) get more business for the small price of an extra 1% discount. And oh yeah, the cardholders get the same stuff for less money. What’s not to love about this?

Today, Blue Cash Everyday® gives you money back in $25 increments. We don’t know if American Express offers non-cash rewards, such as discounted magazine subscriptions or sleek pen-and-pencil sets (perfect for the unimaginative Bar Mitzvah guest), and we don’t care. Because nothing beats cash. When you check your account every month, ensure that the refunds make their way to your account as credits, without you ever seeing them in any tangible form.

One more thing. Depending on how much and what you spend, you want to ditch girl-next-door Blue Cash Everyday® for her sluttier uptown friend, Blue Cash Preferred®. The latter costs $75 a year, which is $75 a year more than the former. However, you get an additional 1% at those aforementioned stand-alone gas stations and select department stores, and an additional 3% at stand-alone supermarkets.

A total of 6% savings on groceries? In what’s already one of the smallest-margin businesses in the world? How can they offer that? Not our problem, and we don’t care.

Actually, the 6% comes with the same asterisk that Blue Cash Everyday®’s grocery savings do. The 6% is valid up to only $6000 in a calendar year. So you get an extra $180 if you buy $6000 worth of groceries. If you’re looking for the break-even point, you’re coming out ahead with Blue Cash Preferred® after you’ve spent $2500 on groceries. That’s only $6.85 a day, so it’s a foregone conclusion that you’re better off paying the $75 and getting the Blue Cash Preferred®, right?

Read the fine print. Stand-alone. At CYC World Headquarters, barring unusual circumstances we buy our groceries at 2 stores and 2 stores only – Walmart, which isn’t stand-alone, and Winco, which doesn’t take credit cards. Oops. Narrowly avoided a $75 expense there.

So for us – and your mileage may vary – we’d have to spend $7500 a year on stand-alone gas and designer clothes to make Blue Cash Preferred® worth our while. For us, gas expenses run about $5000 a year per card. Then, considering that one of the CYC principals wears a tie just once a year (during an inevitable speeding ticket court date) and claims to have recently made it 12 months without buying a single article of clothing – not to be hyperfrugal, but because it just never came up – the idea of having to load up on an additional $2500 of cocktail dresses and suits doesn’t seem worth it.

Of course, it might be easy to imagine a scenario in which Blue Cash Preferred® makes sense for you. You might not even have to imagine, because you’re already living it. Either way, we’re holding fast with both Blue Cash variants as our recommended general cards.

EPILOG: Don’t waste your time with American Express Blue (no “Cash”), a weaker variant by which it takes forever to bank discounts and you get them back in $100 increments. Not worth it.

 

*Those are Bealls, Belk, Bloomingdale’s, Bon Ton, Boscov’s, Century 21, Dillard’s, JC Penney, Kohl’s, Lord & Taylor, Macy’s, Neiman-Marcus, Nordstrom, Saks Fifth Avenue, Sears and Stein Mart – at least 2 of which we’d never heard of, one of which we’d only heard of because they sponsor a bowl game, and one of which we thought was a real estate franchise. That last one you can blame on us being unsophisticates from west of the Hudson.

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