Credit card rewards "transfer wealth" from cash users to credit users. If you select the right credit card and use it responsibly, it can be form of couponing.

By using credit cards (that earn rewards), you get the cash back. For example, let’s say a merchant (Walgreens) pays 2-3% in interchange fees to accept your card. In most states, this amount is the same, so that the merchant will increase the product cost.

Consumers who use credit cards get the rewards back, and cash users foot the bill. Per the Federal Reserve Bank of Boston, cash users pay $149/year into this system. Credit card users get $1,133/year from this same system. Keep reading if you want to learn more about how to be on the receiving end of the money.

Side note: If you don’t want to use credit cards but still want to reap the benefits of rewards, I recommend looking into cash back portals. One of the most competitive rates and payouts right now is Rakuten. Here’s a referral link to check them out: https://www.asksebby.com/rakuten

Tier 5: 1% to 1.5% Credit Cards

These are generally the starting point for people who are new to this channel. They know they should have a credit card for all the reasons we just mentioned, including building credit and getting some rewards back but haven’t looked into it too much beyond this.

You can usually derive 2-3X more value with minimal work. For example, some 1.5% cards tie into other card setups, but this is generally due to something (a premium card) making it worth more.

Tier 4: 2% Credit Cards

These cards are my recommendation for people who want to set it and forget it and use one card for everything.

The Citi Double Cash® Card (1% when you buy and 1% when you pay), Fidelity 2%, and the PayPal 2% Mastercard all fit the bill along with some regional credit union cards. Of these, I recommend the Citi Double Cash because it gives you more optionality.

One of the benefits about Citi is that you can product change between any of their cards when it comes to using it for travel or cash back. For example, the Double Cash can be changed to the Costco credit card.

Regarding travel, the 2% is the baseline value that we use when comparing cards; we want it to pass the 2% hurdle rate.

The Citi Double Cash card is a great example of making a travel card work for you with up to 4% cash back for advanced redemptions like business or first class.

Tier 3: Specialty Credit Cards

These types of cards are for people who spend a lot of money at specific places. Cash back is cash back here, so generally, there are no additional reward options. The goal here is to find cards that offer at least 3% back. You want your cards to work for you.

There are three sub-types of cards in this category:

1. Payment Method

An example of a payment method type of card is Apple Pay. Apple gives you 3% cash back when using Apple Pay at places like Apple, Walgreens, Duane Reade, Nike, Uber and Uber Eats, and Exxon, to name a few.

For people who have expensive medicine, 3% cash back at Walgreens can be huge. By the same token, if you spend a lot of money on Apple products, this is a great option.

2. Vendor or Store

The Amazon Prime card is a great example of an extremely competitive 5% cash back for high Amazon spenders or frequent Whole Foods shoppers.

If you’re someone who buys a lot of electronics or cameras, B&H is worth considering because it can cover the tax amount at 8.5%. That’s a lot of savings on a $1000 camera lens!

Be careful with this; avoid getting cards for places you don’t spend a lot of money or don’t see yourself using in the future.

Specific Categories Examples:

• Costco Anywhere Visa® Card by Citi earns 4% cash back on gas up to $7,000 and 3% cash back on restaurants and travel.
• Capital One Savor earns 3% cash back on dining and entertainment.
• Blue Cash Everyday® Card from American Express earns 3% cash back on U.S. supermarkets, up to $6,000, then 1% after that. Terms apply.

The benefit here is that you are not locked into a specific store. You can go to Trader Joe's, Safeway, and Whole Foods, and any restaurants or gas stations, etc.

For a lot of these cards, there are annual fee versions as well. The American Express Everyday Preferred and the Blue Cash Preferred are good examples of cards with various annual fees.

To see which card is the best for you, do a simple break-even calculation. Ignoring all other multipliers, for example, if your supermarket spending is $3,167, you are impartial to either card. If you spend more than that, the Blue Cash Preferred has the better value.

Lastly, make sure these cards cover the bases that you need covered. If you only cook at home and your restaurant spending is low, or if you don’t have a car, these might not be the best cards for you.

Tier 2: 5% Rotating Credit Cards

This is the setup I recommend for lower spenders using the U.S. Bank Cash Plus and  Chase Freedom Flex® cards. The U.S. Bank Cash Plus lets you pick two categories where you can earn 5% cash back on up to $2,000 spend per quarter.

There are lots of categories to choose from, and I’ve seen this played in two ways.

First, pick a category that you consistently spend a lot of money on. (The same idea as Tier 3 but covers two categories.) Electronics are an easy example here.

Secondly, use this card for items you don’t usually purChase but could have a spike in spending throughout the year.

For example, buying new furniture, a new cell phone, sports equipment, or back to school shopping.

The  Chase Freedom Flex is the other major pick in this category, and this is for the potential upside of earning 5x cash back on up to $1,500 in combined category purchases each quarter you activate.

Similar to the Citi Double Cash, this can be worth twice as much (10% cash back) if you decide to switch to a travel set up. The fact that you have a good 5% baseline and huge optionality with this card is a great benefit.

If this is confusing, or you have a Player 2 that always uses the wrong card, I would invest in a label maker. It takes 30 seconds of work every 3 months to help clarify which card to use and when.

Tier 2 is also the best spot for most cash back people who are low to normal spenders who want to maximize their card's value.

Tier 1: Specialty Setups

The card systems in Tier 1 have the most upside, but almost always have something that makes it hard to justify.

We'll quickly go through these, but I could make a dedicated post for each.

1. American Express Trifecta for Cash Back

Here you’ll earn Membership Rewards (MR) points from the American Express® Green Card, American Express® Gold Card, and the The Blue Business® Plus Credit Card from American Express. Then, cash them out using the Schwab Platinum card for 1.25 cents per point (CPP).

The main disadvantage here is that you generally need a pretty sizeable spend to justify this setup long-term. There are also a lot of annual fees involved; generally $800-$950 per year. But there are also many credits that help subsidize these fees, like the $200 annual travel credit. Terms apply.

This is generally the setup I recommend to people who have a lot of work spending, or for someone who only takes one short vacation per year and they can’t use all of the points anyway.

In this instance you might as well cash out the points into your brokerage account.

2. Bank of America Platinum Honors Setup

The main disadvantage here is that you need $100,000 in your Bank of America account or Merrill Lynch brokerage account. With this setup you get a 75% rewards bonus on Bank of America cards.

That means the 3% Cash Rewards is 5.25% cash back on a pretty wide range of things like gas, online shopping, dining, travel, drug stores, and home improvement.

There are spending caps, but people who run this setup get multiple cards or product change to different cards.

3.  Chase Trifecta

This is new for 2021, mostly because  Chase added the Pay Yourself Back program. With this program, you can redeem your points for additional value; 25% or 50% boost for everyday purchases. This sounds good on the surface, but there are some disadvantages.

The main disadvantage is that  Chase picks the categories, so we don’t know if it will stay as groceries or switch to gas, for example.

You’ll also likely need a decent spend or multiple Freedom or Freedom Flex cards for it to work well. To take advantage of the additional credits, it’s a good idea to commit to a little bit of travel for this setup to be beneficial as well.