Groceries. One of the biggest expenses in any family’s financial world. According to the USDA, a family of four spends, on average, over $200 per week on groceries. In some months, that’s over $1000! Wouldn’t it be nice if you could easily get some of that back? Well, of course you can, but how much? That answer can vary wildly depending on whether you use a card that gives cash back or one that gives points/miles back. Let’s take a closer look, and in the process I will tell you about my favorite grocery credit card. the Blue Cash Preferred..
Citi Double Cash: Easy 2%, But Not The Best
Let’s start with an easy one. Suppose you have the Citi Double Cash Credit Card, which pays 2% on all purchases (1% when you make the purchase, 1% when you pay). If you spend the aforementioned average of $200 a week, then that’s 52 weeks *$200 per week *2%, or $208 a year. Since it’s a no annual fee card, you keep all $208.
AMEX Blue Cash Preferred: A Whopping 6% Back!
By comparison, let’s look at the Blue Cash Preferred from American Express. This card carries a $95 annual fee, but it pays a whopping 6% cash back on groceries…but only on the first $6,000 per year. After that, it goes to a melancholy 1% cash back. So, in our case, that would be $6000 * 6% plus $4400 * 1%, for a total of $404 in a year. After subtracting the $95 annual fee, we are left with $309. That’s a big jump over the Citi Double Cash.
Two Cards Are Better Than One
But, you should know if you have been reading this blog for a while that one card will not change your life. What if we combine the two? Suppose we use the Blue Cash Preferred for the first $6000 and then put the rest on the Double Cash? Then we get $6000 * 6% + $4400 * 2%, or $448. Once we pay the $95 annual fee (note: there is still only one annual fee), we keep $353. That’s a rate of return of about 3.6% after the annual fee, and that is outstanding. Better yet, it’s cash so you can use it any way you like.
Now, it wouldn’t be fair of me to show you only cash back options. Some people want to earn points or miles, especially when they want to fly international business class. My blog is really geared more toward families, so I don’t obsess over the international business class thing when I have four people to pay for! But some of you do, so here goes.
American Express also has a card called the Everyday Preferred. This is the card Tina Fey advertises by the way. With this card, you earn 3 American Express Membership Rewards points per dollar on groceries, but again, only on the first $6,000 per year (after that, it’s one point per dollar). If you have 30 transactions in the month, however, you get a 50% bonus on your points. So, instead of 3 points per dollar, your grocery spend earns 4.5 points per dollar. Now, at this point, I am hoping you are asking “6% cash back vs. 4.5 Membership Rewards points…which is better?” Answer: it all depends on what your goal is. If you want domestic coach airfare, I’d say you are better off with the cash back. Your rate of return is about the same and you aren’t forced into looking for award seats. If you want to fly international, especially in business class, then take the points option instead (i.e. sign up for the Everyday Preferred, not the Blue Cash Preferred).
In another post, I explain why people save their points up for international business class travel. It’s truly fascinating how valuable your points become, but you will need a lot of them to do it.
Back to the grocery discussion, I hope I have made my case for the American Express Blue Cash Preferred. It’s a tremendous rate of return on a big spend category for most families. In case you are wondering, yes, two members of the same household can each own this card, thus allowing you to earn 6% on your first $12,000 in groceries per year rather than just $6,000. It means double the annual fee, but for some families, it’s totally worth it. I got that information from a rep at AMEX, so before you both sign up, double check with them first.
Another thing to point out. Warehouse clubs sell groceries, and lots of you buy lots of those groceries. BUT you will NOT get 6% cash back on those purchases. AMEX excludes these clubs from the grocery category.
What are your favorite grocery cards?
I hope you found this enlightening. If you enjoyed the post, please pass it on! Let’s help as many people as we can.