The promise of 5% gas cash back credit card is false. Via Shutterstock.
Would using a credit card that earns 5% cash back on gas earn more money back than a credit card that earns 1% cash back on every single purchase?
Reader Diane and I have been chewing on this question in the comments section of my post on a reader’s credit card bill. I decided to do the math and figure it out once and for all.
Is a 5% cash back credit card worth it?
I’m going to use my own spending numbers to do the math. In the past three months, Hubs and I spent $972.74 on gasoline. That’s an average of $324.25 a month. Our gas tab climbed permanently in October when Hubs started a new job that doubled his drive to work.
How much would a 5% gas credit card have earned us?
$972.74 x .05 = $48.637.
Just under $50 in cash back. That’s not bad. But the 5% gas reward isn’t year round. On Diane’s Chase card, the 5% gas reward is valid for 6 months of the year. During the other months the 5% discount is for drugstores, Starbucks, Amazon, or restaurants. (There are at least three rewards categories each quarter on Diane’s card.) The rewards categories change every quarter and you have to opt into them online (you can set up an email reminder).
Yep, that’s right. The categories change AND you have to opt in to earn the 5% reward. Diane keeps a sticky in her wallet as a reminder of which credit card is earning what percent back on each category.
Yeesh! Sounds like a lot to remember, right? Maybe. But I would commit to spending 15 minutes each quarter to tracking the categories (and get a new credit card) if it meant earning more cash back. On our current credit cards (we have two) we earn 1% on EVERY SINGLE PURCHASE. Does a 5% gas card out earn a 1% on everything card?
How much did our 1% cash back card earn us?
In the same three month period, we earned $90.234 from our two 1% cash back credit cards. That’s nearly double the gas rewards cash back. So the 1% card easily wins out, right?
Not so quick. The 5% rewards card earns 1% back on ALL OTHER PURCHASES. So the rewards stack up faster.
So what’s the catch with the 5% card?
Get this. You can’t earn more than $75 per quarter in rewards, no matter what the categories are and no matter if your rewards are stacking up at 5% or 1%.
This one limitation makes a 5% card a bad deal if Hubs and I put more than $3,500 on our credit card OVER THREE MONTHS. Here’s why.
We spend roughly $1,000 every three months (one quarter) on gas. At 5% back, that adds up to $50 cash back. In that same quarter, we’d earn 1% back on the rest of our purchases. But we only have $25 left to earn because of the $75 per quarter rewards limit.
At 1% back, we’d only have to spend $2,500 over three months to earn $25 in cash back, maxing out our $75 reward.
Hubs and I recently agreed to limit our monthly credit card spending to $2,000, and while we have been successful so far, it’s been tight. Which means that every month quarter we’d hit the $75 rewards limit, losing out on additional rewards that we could earn with a no-limit 1% cash back card.
So why do so many people sign up for a 5% gas credit card?
The allure of 5% cash back on gas is huge. Where else can you get such a huge discount on gas? (Ahem, by earning gas points through grocery stores, that’s how). Still, the card offers 1% back on all other purchases. I wonder how many people read the fine print and find out about the $75 rewards limit?
Because of this limit, I’m against 5% cash back cards.
I’m also annoyed that the 5% reward jumps from one spending category to the next. It’s a game that credit card companies play with us consumers that makes the cash back earnings seem greater than they truly are because a good number of folks are bound to forget to opt in every quarter.
There are two exceptions to my stance.
1. If you spend much less on your credit card than I do, and rarely max out the $75 quarterly reward.
2. If you have a second rewards credit card that you can use when you max out your $75 reward. So you’d keep earning rewards, just on a different card.
Note: Years ago I had a credit card that gave me 5% cash back on gas with NO LIMIT! Guess what happened? The bank canceled the card. I’m guessing they were losing money because it was a no-brainer way to make money back. I’ve never seen a card with this same benefit since!
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price.
We opted for an American Express Costco card. We can earn 3% on gas up to $4,000 per year, and 1% spent in the Costco warehouse and anywhere else American Express is accepted. Since we spend about $300 -$400 a month in gas, and I hit Costco about once a month or so, that $4,000 limit should last us about 9 -10 months. I think that’s a good deal. Also, the first 6 months are interest free, and after that 11.99%, but we will pay off monthly, so it doesn’t matter how much the interest rate is.
@Michelle Ventresca Have you considered another card that had a higher limit on the gas rebate? You could always use your Costco AmEx just for Costco purchases, outside of the gas.
What kind of rewards do you earn on non-Costco purchases? Or do you only have one credit card?
On non-Costco purchases we earn 1%. On restaurants we earn 2%. After the $4,000 in gas purchases, we earn 2% on gas. I still think it’s a great deal. I have one other card with Thank You points, but basically the most important thing to me is to have a card with a 0% interest rate. We were just approved for 21 months at 0%. That’s good enough for me! We budget monthly what we have to pay depending on the balance, to reach 21 months and no further to avoid interest charges. It works for us!
@Michelle Ventresca I’m intrigued! Do you pay off the balance after 21 months, or do you transfer the balance to another card?
The way we work it usually, is to pay it off by the time the 21 months is over. If not, then we would transfer the balance to another 0% credit card for balance transfers and purchases..and pay off the balance transfers first before we start charging again.
@BB ~ First, let me say I am mathematically dyslexic. (Yes, I made up that term.) Even though I got as far as calculus and balance our checkbook to the penny, there are certain math concepts I just don’t grasp without a struggle. I got stuck on your statement: “You can’t earn more than $75 per quarter in rewards, no matter what the categories are and no matter if your rewards are stacking up at 5% or 1%.” While there are no calculations necessary to understand that, it didn’t sound right to me. So I called Visa and was told that there IS a $75 cap on the bonus categories, BUT THERE IS ABSOLUTELY NO CAP ON THE 1% REWARDS. I had the poor Visa representative repeat that for me ad nauseam. If that’s true for Visa, it’s probably also true for Mastercard, but I am not taking the time to check that out.
Also, it really ISN’T a big deal to sign up each quarter. Both cards send me an e-mail reminder to do just that. Because I don’t have to think about it, I can’t recall if I am able to sign up by merely clicking a link within that e-mail reminder.
Does any of this alter your opinion?
@Diane Yes, it certainly does! I did not see the no-limit on the 1% back. This means that Hubs and I would rack up $50 in rewards in a 5% gas quarter, plus about $50 in rewards through the 1% cash back perk. So that would bring us to about $100 per quarter, compared to about $90 from our 1% cards. Guess I’ll start looking for a credit card offer.
@BB ~ Even earning gas points via grocery stores does not guarantee the best deal. Of course, it depends on the price per gallon of the gas. I know that Coscos with gas stations are not available to many consumers. But with Costco’s typically less expensive gas AND the 3 or 4% rewards, that will beat most grocery stores/gas deals. Nevertheless, I am not looking forward to July when we in CA are going to be paying the highest gas prices in the country.
I keep getting an email saying that there is another comment, and there isn’t! My last comment was on March 6Th!
@Michelle ~ If I’m understanding you correctly, those comment notifications are for the comments of others, not when our own comments are included. For example, you should be notified of THIS comment in response to your March 7 comment.
I know it’s for other people’s comments,,,,thanks anyway!!!
@Michelle Ventresca Maybe the email alert is because we’ve been chatting on the tax post. Or, it could be because others are leaving comments on a post you commented on. I wrote a post on how to turn email notification off, but now I can’t find it. Arg!
The only reason I mention it is because even when there is nothing new written by ANBODY, I was getting an email saying there are new comments by others!! HA! Oh well,,,,worse things can happen than getting an incorrect email! Have a good weekend!
@Michelle Ventresca Sorry, Michelle. Didn’t mean to condescend. Maybe it’s tied to our spam filter. A lot more spam comments have been getting through – though I haven’t published any. They’re always a few waiting for me to approve when I log in. I’ll ask my tech guy – who is just starting a week long vacation – if they could be connected. Thanks for your patience.
No problem whatsoever!!!