Optimizing Credit Cards For Everyday Spending Without Annual Fees (2021)
This is a follow-up to: Optimizing Credit Cards For Everyday Spending Without Annual Fees (2019). Bank-related information can change at any time, and nothing is a certainty. Remember to pay off any existing credit debt if you have any. Credit cards should essentially be free money.
To optimize spending, people first need to know where their money is going. Intuit Mint, Personal Capital, and other budgeting tools will give a clearer picture of the next steps to take. Options will always vary depending on personal preferences and spending habits. This post is a starting point. It’s necessary to do your own research, if only a small amount.
In general: start with 5% rotating-category cashback cards, fill in the gaps with 3-4% cards, and use a 2% card for everything else. I try to get 4-5% cashback on all my spending.
Discover It doesn’t change its categories much each year, and they announce all their categories ahead of time, so it’s easy to plan ahead. They also double cashback after the first year, making it a good general-use card for 12 months.
Categories in 2021:
- Q1 Jan-March: Grocery stores, Walgreens, CVS
- Q2 April-June: Gas stations, Wholesale Clubs, Streaming Services
- Q3 July-Sept: Restaurants, Paypal
- Q4 Oct-Dec: Amazon.com, Walmart.com, Target.com
Chase recently replaced their rotating-category card with a big upgrade. The new Chase Freedom Flex not only has rotating categories, it earns 3% at restaurants and drugstores, and earns 5% on travel booked through Chase’s website. Sometimes the travel part is a poor deal (for example, instead buying hotel gift cards at a 10% discount). However, 3% on dining and drugstores is good.
- 5% on Rotating quarterly categories
- 5% on Travel purchased through Chase’s website
- 3% on Dining (including takeout, Doordash, etc.)
- 3% on Drugstores
- 5% on Lyft (through March 2022)
- 1% cash back on everything else
- Cell Phone Insurance
Categories in 2020:
- Q1 Jan-March: Gas, Streaming, Internet, Cable and Phone Services
- Q2 April-June: Grocery Stores, Gym Membership, Fitness Clubs
- Q3 July-Sept: Amazon, Whole Foods
- Q4 Oct-Dec: Paypal & Walmart
A third category card is the Nusenda Federal Credit Union Platinum Cash Rewards Card. It’s an uncommon card, so there isn’t much information compared to the Chase/Discover options. It can still be worth considering, but may only be for people in/near New Mexico. YMMV; DYOR.
Categories have been largely the same over the past 5 years:
- Q1 Grocery, Gas
- Q2 Movies/Streaming, Dining, Home Improvement
- Q3 Gas, Education
- Q4 Dining, Hotels, Airfare
In June 2021, Citi announced a new card: the Citi Custom Cash Card. It earns 5% cash back on your top spending category, up to $500 spent each billing cycle, then 1% back until the next billing cycle begins. This is automatically calculated by the bank (no enrollment like the rotating-category cards) and 10 categories are eligible. The most interesting categories are grocery stores, home improvement stores, fitness clubs, and gas stations. Other categories have strong competition from other banks. Most people will probably use the Custom Cash card for groceries, since it's easier to reach the spending limit compared to other categories. But your final chosen category does depend on personal spending habits. (Note: this card is limited to 1 per person. You can't get multiple cards from Citi for 5% in multiple categories.)
Now that we’ve covered 5% cards, let’s fill in any gaps, starting with grocery stores and supermarkets. This is probably the biggest spending category for most people. The best option (aside from Citi CCC) is likely the Capital One SavorOne card. It seems to be the ONLY 3% grocery card with no earning cap, no foreign transaction fees, no annual fees, and no location/membership restrictions. It also earns 3% cash back on dining, entertainment, and certain streaming services. See their website for more details. Alternatives include the American Express Blue Cash Everyday, Huntington Voice, and Venmo card.
After groceries, the next category is gas and/or transit. The best gas cards are military-based cards, so YMMV in eligibility. The USAA American Express card earns 5% cash back on gas. The Navy Federal Credit Union More Rewards American Express gives 3% cash back for grocery stores, gas, transit, parking, tolls, restaurants, and more. The Penfed Platinum Rewards earns 5x points on gas (4.25% cashback value) and the Penfed Pathfinder Rewards earns up to 4x points on non-gas transit/travel (3.4% cashback value).
For most people, the highest-earning option is the 5% card from Abound Credit Union (formerly Fort Knox Credit Union). Gas station chains like Sunoco also have credit cards, but their usefulness varies. Sunoco for example gives a discount of $0.05 per gallon, but if gas is $3 per gallon, 5% cashback cards give triple the value ($0.15 per gallon). In general for gas/transit, any card earning 3% should do. The best option was the Wells Fargo Propel American Express which gives 3% cashback on gas, airfare, hotels, transit, parking, tolls, car rentals, streaming, and more. Unfortunately, the Propel is currently unavailable for new signups. Hopefully it returns. Alternatives include Bank of America’s Cash Rewards, Huntington Voice, and Venmo card. Regional options (like UMB) also exist, so check around.
For restaurants, the biggest earners are the US Bank Altitude Go (4% cash back on dining) and US Bank Cash+ (5% cash back on fast food and one of 11 other categories). However, US Bank is regionally restricted. Not everyone can get these cards. And it’s probably best to stick with an existing card, for ease of use. Anyone who has the Chase Freedom Flex and/or Capital One SavorOne doesn’t need to get a new card for dining.
For all other spending, there are now many cards which offer 2% cashback on everything (no category restrictions). Because of these options, any card promoting 2% back in a specific category is unnecessarily limiting. And for people seeking simplicity, they can ignore other cards entirely, and only look at the below cards.
These all give 2% cash back on every transaction, and don’t have annual fees:
- Alliant Visa Platinum Rewards Credit Card (requires Alliant Credit Union membership, 2% foreign transaction fee)
- Blispay Visa (3% foreign transaction fee)
- Citi Double Cash (3% foreign transaction fee)
- Fidelity Rewards Visa Signature (requires a Fidelity account, 1% foreign transaction fee)
- Paypal Mastercard issued by Synchrony Bank (requires a Paypal account, 3% foreign transaction fee as of July 2021)
- SoFi Credit Card (requires a SoFi savings/investment/loan account, no foreign transaction fees)
- Wells Fargo Active Cash (3% foreign transaction fee)
2% cards which can be more difficult to get, depending on location/affiliations:
- BBVA Rewards Card (requires direct deposit, may be limited to 7 states, 3% foreign transaction fee)
- Fifth Third Bank Preferred Card (may be limited to certain states, no foreign transaction fees)
- FNBO Evergreen Rewards (limited to “select” states, 3% foreign transaction fee)
- Penfed Power Cash Rewards (requires Penfed membership with checking account or military service, no foreign transaction fee)
- SDFCU Premium Cash+ Card (requires membership, no foreign transaction fees)
- TD Bank Double Up (requires a TD checking account, limited to 16 states, 3% foreign transaction fee)
More options exist, including temporary bonus cashback on everything (varies by location and other factors). For example, the Discover It Miles earns 3% for the first year only. The Discover It earns 2% or 10% on everything for the first year. There are also ways to get higher effective earn rates, like with Bank of America or Chase Bank. I mentioned this in my previous post. For instance, if you can afford the Chase Sapphire Reserve's $550 fee, your "3%" Chase cards can easily turn into 4-6% cashback. And let's not forget credit cards for major retailers like Amazon, Costco, Wal-mart, Target, etc. Store cards are sometimes poor ideas, but something they’re good. Look into your spending habits and see what makes sense.
What are the best no-annual-fee cards for 2021?
Consider the Discover It and Chase Freedom Flex as a starting point. Getting 5% cash back without any fees is tough to beat, especially since the Flex card has extra options. Likewise, the Citi Custom Cash Card is a good pick-up, even if it only works for one category. And the Discover It card doesn’t have foreign transaction fees, making it ok for traveling.
After that, I recommend cards which earn 3% back in 4+ categories, for simplicity: Capital One SavorOne, Wells Fargo Propel, or NFCU More Rewards.
Otherwise, for each category:
Best card for groceries: Capital One SavorOne or Citi Custom Cash
Best card for gas: USAA Cashback Rewards Plus or Abound Visa
Best card for dining: Chase Freedom Flex or Capital One SavorOne
Best card for drugstores: Chase Freedom Flex or Venmo card
Best card for travel/transit: Wells Fargo Propel, Penfed Pathfinder Rewards, NFCU More Rewards
Best card for streaming: Capital One SavorOne or Wells Fargo Propel
Best card for entertainment: Capital One SavorOne or Citi Custom Cash
Best card for utilities: US Bank Cash+ or Venmo card
Best card for home improvement stores: Bank of America Cash Rewards or Citi Custom Cash
Best card for fitness/health clubs: Venmo card or Citi Custom Cash Card
Best card for online shopping: Bank of America Cash Rewards
Best card for general purchases: Any 2% cashback card listed above (Citi Double Cash is probably the easiest to get, but I recommend something without foreign transaction fees)
Most people will be fully covered with a few credit cards: Discover It, Chase Freedom Flex, Wells Fargo Propel, Capital One SavorOne, Citi Custom Cash, and any 2% cash back card. Or, like I mentioned, keep things simple and carry one of these cards plus a 2% card. This can reach hundreds of dollars in cash back every year.
Remember, nothing is one-size-fits all. Certain cards have additional benefits worth considering. For example, some cards offer free cell phone insurance. Some cards with annual fees are also worth the cost compared to the benefits gained. For example, airline and hotel cards can help with free vacations. Read up on the options, and choose what seems like the best fit for you.
Although credit cards can have downsides, it's also possible to squeeze a lot of benefits out them.
This post is an overview of information (not comprehensive) and doesn’t constitute financial advice. Please research based on your personal needs and see a professional financial advisor for more information.
Note: This was post was updated in June 2021 to include new information.