In the credit card rewards game, it is not uncommon for players to have a number of credit cards in their wallet. Each has its own points or miles rewards based on spending categories. The top two banks offering credit card rewards are American Express and JP Morgan Chase. Wouldn't it be ideal to just have one credit card that rewards you for all your spending?
If you live outside the USA, this post may not make sense. The EU and UK, for example, have limits on how high credit card processing fees are for merchants. As a result, credit cards there don't offer much in rewards. There is not much available to the banks to offer to consumers. In the USA, on the other hand, credit cards processing fees are much higher, which benefit consumers with higher rewards.
The rewards are in the form of points or cash back. However, in order to limit their costs, the categories that earn the largest rewards are rather limited. For example, American Express has the Blue Cash Preferred credit card, which offers 6% cash back on groceries and streaming services. In addition, they offer 3% cash back on gas and transit expenses. Everything else is 1% cash back. One doesn't actually realize anywhere near 6% cash back as there is a $95 annual fee. And, spending in other categories lowers your average cash back rate.
The points rewards offers are different in that they are worth different amounts depending on how you use them. If you redeem them for gift cards or towards statement credit, points are often valued at $0.01 each. However, when transferred to airlines or hotels, they can be worth up to $0.02 each, or more. Hotel points and airline miles are more difficult to price. They have a tendency to be periodically devalued. But, they also make it quite easy to earn those points.
Which is Better?
Is it better to get cash back or points? That will largely depend on your situation. If you travel frequently, earning points or miles is better as you can redeem them for more travel. If you don't travel often, you may be better served with cash back. But, this assumes that you do all of your spending on credit cards. Unless you put almost all of your spending on the cards, you won't get much in rewards.
The credit card companies are relying on you to swipe your card as frequently as possible. Interest charges are icing on the cake for credit card companies. Their main source of revenue are the merchant fees. Similarly, your main source of rewards comes from spending. Obviously, you shouldn't spend more than you can afford. But, certainly it is advantageous to maximize your rewards.
This desire to maximize rewards is what often leads people to have multiple credit cards that reward in different spending categories, or often overlapping categories. You could use one card for grocery shopping and gas, another for streaming services, and another for flights and hotels. It becomes a bit much to always carry multiple cards to deal with varying purchase situations.
One Card to Rule Them All
It would be nice to have one card that can accommodate all spending regardless of category. Those exist. They often pay 1.5 to 2% cash back on all spending. You will find that if you use the other cards with highly rewarded spending categories for all of your shopping, you might very well average about 2% as well.
One advantage that travel cards have over cash back cards is that they often can get better pricing on travel expenses than you could with cash. So, there is some added value to points. But, between the high point spending categories and the 1 point spending categories, you might average down to about 2 or 3 points per dollar of spend.
Unless you are walking around with a library of credit cards, it is unlikely that you will maximize your purchases. It is reasonable to pick one credit card with a spending category that fits a majority of your spending. And, you can simply accept that other expenses aren't going to earn as much. But, you'll know that on average, you'll get between 2% and 3% back.
The beauty of having one reward credit card that fits your lifestyle is that you don't have to think about every transaction to select the card with the best rewards. You can simply rely on the statistical probability that you'll revert to the mean.
Credit card companies have done the maths. They craft their rewards programs such that they always come out ahead. You'll slip up somewhere. Even if you only use the one card for very specific spending categories, you're still paying an annual fee. The less you use your card for other spending, the less the annual fee is offset.
In short, choosing one rewards credit card for all of your spending is likely sufficient. You don't need to succumb to pressure to have different credit cards for each potential purchase situation. The only exception is for the frequent traveler who can redeem points for better prices than paying cash. But, if you're not a frequent traveler, having the option to redeem your rewards for cash is a good use of points.
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The one card to rule them all does sound ideal. But then there would be no competition. What incentive would they have to reward you? The competition between cards is what makes the points, miles, rewards game complex and yet valuable IF you know how to play the game.
I think it works if you are very clear on what you are trying to achieve with the rewards. If the goal is simply to maximize rewards, then a broad spectrum approach works.
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