CNBC Points Pro: Are Bonus Categories or Flat-Rate Rewards Better?

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Welcome to the Points Pro, where I answer your credit card and travel rewards questions each week. If you have a question you’d like answered, you can submit it here.

To figure out which card or cards will earn you the most rewards, you’ll want to pay close attention to your spending and take an even closer look at the card details. It’s not just a question of which type of card is best, but which specific card is the right fit for you.

Several factors can swing your decision, such as fees, restrictions and different types of rewards (Sarah also has a question about that, which I’ll answer next week). Perhaps the most important question to ask yourself is, “How much effort will I actually put into this?” And that’s why, for most people, a simple flat-rate rewards credit card is likely the best option.

Complicated travel rewards programs and cards with elevated spending categories offer the ability to unlock incredible value, but you can also unknowingly use your points on a redemption that’s worth less than the cash-back redemption rate. To maximize these cards, you have to do the legwork.

That’s why, for most people, it makes sense to get a 2% cash-back credit card or a card that earns at least 1.5X to 2X miles or points everywhere. Earning 2% back or 2X rewards is generally the best you can do without running into spending caps or category restrictions.

My go-to recommendation for friends and family is the Citi Double Cash® Card, which is the credit card I use for most of my everyday purchases. It earns cash back in the form of Citi ThankYou® Points, which allows me to redeem for cash back or transfer to Citi’s travel partners. I like having that option.

A good way to compare a credit card with bonus categories versus a flat-rate option is to calculate how much more you’ll earn than with a card that earns 2X rewards everywhere.

Let’s say you spend $2,000 a month on your credit card. With a 2% cash-back card, that’s $40 a month, or $480 a year, in rewards. That’s the number you’ll want to beat.

If a card earns 3X on dining and groceries and 1X everywhere else, you’d have to spend at least half of your $2,000 monthly spending in the 3X categories just to match what you’d earn with a 2X card.

In reality, the math won’t always be that simple, but it gives you an idea of how to think about your decision. Many cards have several bonus categories and may earn 2X to 6X in a category up to a certain amount of spending. There are also annual fees to consider, which eat into your value.

If you’re choosing a bonus-category credit card, here are three questions that will help you hone in on the best option.

1. Is there a cap on bonus rewards?

The highest rewards rates or bonus categories are typically capped at a certain amount of spending per year, quarter or month. Beware that these limits can put a dent in your earning potential.

The Citi Custom Cash® Card earns 5% back in the category where you spend the most each billing cycle, but the 5% back is limited to up to $500 per billing cycle (then 1% back). The Chase Freedom Flex® Credit Card earns 5% back in activated, rotating categories, but again, that high rate of return is limited to $1,500 per quarter (an average of $500 per month, then 1% back).

Sometimes the category caps are generous. The American Express® Gold Card earns 4X points at restaurants worldwide on up to $50,000 in purchases per calendar year (then 1X points) and 4X points at U.S. supermarkets on up to $25,000 in purchases per calendar year (then 1X points). Unless you have a huge family or an allergy to anything not cooked by a chef with multiple Michelin stars, you probably won’t exceed those limits.

That said, there are usually additional benefits that can offset some or all of a card’s annual fee. For example, the Blue Cash Preferred® Card from American Express could make sense as your grocery card, as it earns 6% cash back* on up to $6,000 at U.S. supermarkets per year (then 1%).

Despite its $95 annual fee ($0 intro annual fee for the first year, see rates and fees), you can earn up to $120 in Disney streaming credits every year (up to $10 back per month for an eligible subscription to Disney+, Hulu or ESPN; subject to auto-renewal). This more than covers the annual fee for the second year.

The real question is, is the Amex Blue Cash Preferred that much better than the no-annual-fee Blue Cash Everyday® Card from American Express (see rates and fees)? This card earns 3% cash back* on up to $6,000 in purchases at U.S. supermarkets per year (then 1% back). Plus, you get up to $84 in Disney streaming credit every year (up to $7 back per month for an eligible subscription to Disney+, Hulu or ESPN; subject to auto-renewal).

In some cases, banks may offer additional incentives to cardholders with deposit accounts. Bank of America has a Preferred Rewards program, which offers a bonus on credit card rewards of up to 75%. If you qualify for the highest bonus (it’s based on your deposits with Bank of America), the Bank of America® Unlimited Cash Rewards Card goes from earning 1.5% cash back on all purchases to an unlimited 2.625% back everywhere.

Certain banks also allow you to move rewards from one card to another or pool the rewards from all of your cards. This allows you to convert cash back into transferable travel rewards or to access better redemption rates. You can use this type of trick with banks such as Wells Fargo, Capital One, Citi and Chase.

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For rates and fees of the Blue Cash Everyday® Card from American Express, click here.

For rates and fees of the Blue Cash Preferred® Card from American Express, click here.

For rates and fees of the American Express® Gold Card, click here.