Advanced Bonus Category Optimization (2021)

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Pick a category cards
Rotating category cards
Maximizing high reward rates with gift cards

With several credit cards, such as the U.S. Bank Cash+ Card and the BOA Cash Rewards Card, you get to choose your own bonus category(s) from a set of options and earn reward rates as high as 5%. These cards often include bonus categories, such as Online Shopping, Home Utilities, Fitness Centers, or Clothing Stores, which aren't available from other cards.

These cards are a little more complicated and less valuable than the first appear because rewards are capped at $1,500, $2,000, or $2,500 of bonus category per quarter. This places a cap on the upside of any of these cards.

For example, the U.S. Bank Cash Plus card offers 5% cashback and has a limit of $2,000 per quarter. If you spend exactly $2,000 each quarter, you'd earn $400 in rewards each year. But that is only $200 more than what you would have earned by making these same purchases with a good general-purpose reward card.

To earn those extra rewards, you'll have to spend extra effort to make sure you don't spend too much in any quarter (when the reward rate would drop to only 1%) and you might feel compelled to take extra steps to make sure you don't spend too little.

Why these are a little complicated

On the surface these "pick your own category" cards seem straightforward—just more flexible versions of cards that provide bonus rewards on categories like groceries or restaurants.

What makes them more complicated (and also less valuable) than they may first appear is that rewards are capped at

You'll want to make sure you don't spend more than the cap each quarter

Since you can switch categories every one to three months, you can increase your rewards by planning your major purchases

You may be able to use gift cards to shift spending to your chosen bonus category

Pick Your Own Category Cards.

In addition, Getting these cards may make you feel compelled to make extra efforts to try to maximize your rewards and aren't for everyone.

Since you can switch categories every one to three months, you can increase your rewards by planning your major purchases. For example, one of the options for earning 5% from the Cash Plus Card is "Furniture Stores". If you want to buy some furniture, you can delay your purchase, choose Furniture Stores as one of your two categories for the following quarter, and earn 5% on the purchase.

Rotating category cards

With rotating category cards, the categories change every quarter, not based on your choice, but on a schedule determined by the credit card company. Earn 5-10% in Rewards with Rotating Category Cards.

Like the "Pick Your Category" cards, the amount of bonus rewards you can earn each quarter is capped, typically on $1,500 on spending. Reward rates can be very high. For example, the Freedom Flex Card earns 5x Ultimate Rewards points and the Discover it Card earns 10% (during the first year).

Since you don't get to choose your own categories, you're likely to wind up with some quarters where you won't naturally spend very much money on the supported categories or where you already have cards that earn high rewards on most of your qualifying spend.

While you can use Rotating Category cards to boost your rewards, they require extra effort. You have to remember the current set of categories and work it into your shopping routine, and you need to register for the bonus categories each quarter. You need to make sure you don't spend more than the capped amount and you may feel compelled to find ways to spend up to the cap by shifting around purchases or using gift cards.

Maximizing high reward rates with gift cards

There are a several credit cards that earn reward rates of 5% or higher on different bonus categories. But not all of your spending will naturally fit into these categories. Gift cards provide a way to boost your rewards on purchases where you earn a lower reward rate.

You can buy gift cards at stores where you earn high bonus category reward rates and then use them to make a purchase where you would normally get a lower rate. You are effectively converting the purchase into a higher reward rate category. For example, if you spent $500 at BestBuy with a 2% general purpose reward card, you earn $10 in rewards. But if you bought it with $500 worth of gift cards you purchased at the grocery store with an Amex Blue Preferred card, you'd earn $30 for the same purchase.
You can extend this approach to almost any type of purchase by buying Visa or Mastercard gift cards—but they come with extra fees. Unlike gift cards that are limited to specific merchants, general purpose gift cards have an activation fee. Fees are extremely high on smaller denomination cards but can drop to as little as .75 - 1.5% when you buy cards with a $500 balance. This drops the effective reward rate but still typically provides a better return than using your general purpose card.
While gift cards can boost your rewards, they take extra effort to use. It is simpler to just go into a store, or go online, and buy stuff with your credit card, instead of stockpiling gift cards, making sure to bring them to the store, and redeeming them when you check out. In addition, you’ll need to pay money ahead-of-time for things that you won’t be buying until later.
Gift cards sometimes go on sale. This especially happens during the Christmas season. This can be an excellent time to stock up on cards that you can use throughout the year.
Grocery stores aren't the only good option for earning high rates on gift card purchases. With the right card, you can earn high bonus reward rates buying gift cards at office supply stores, many gas stations, and home improvement stores. For example, the Ink Cash card earns 5x Ultimate Reward points, valued at 8.5 cents per dollar, on gift cards bought at Office supply stores.
With some cards, you can maximize your rewards by using gift cards to shift your spending to another part of the year. For example, rotating category cards earn very high reward rates, but change their bonus categories every quarter. If you aren't going to naturally hit one quarter's spending cap, you can often purchase buy cards for the remaining amount. Then, you can spend the gift cards for your purchases during the rest of the year.
If you can take advantage of a lot of gift cards, it changes the credit cards you might want to get. For example, we often recommend getting the Amex Everyday Preferred Card for grocery store (and gas) spending. Assuming you hit 30 transactions per month, it earns 4.5x Membership Rewards points on groceries and has a $95 annual fee. In contrast, the Amex Gold Card "only" offers 4x Membership Rewards points on groceries and has a $250 annual fee. But the Amex Gold Card has a $25,000 per year cap and the Everyday Preferred Card has a $6,000 cap. For many people, that difference is irrelevant. But, if you have the ability to use the entire capped amount via gift cards, the Gold Card is the better deal. To increase your total cap even further, you may even want to get both cards plus potentially other cards that offer high bonus rewards at supermarkets.

Similarly, many people may not be particularly interested in a card that earns high bonus rewards at office supply stores. Their normal amount of office supply spending isn't enough to make it very interesting. But, if you have no problem using gift cards, earning 5x Ultimate Rewards with the Ink Cash Card is an incredible deal.

Be careful with American Express cards. They don't allow gift card purchases to be used to meet the minimum spending requirements to earn signup bonuses. In addition, most of their interesting cards also include terms that exclude the ability to earn any reward points on gift card purchases at any time. These terms are not currently being enforced (except for signup bonuses and purchases from Simon Malls), but Amex may start enforcing them at any time. If they do, they could conceivably take back points that already posted to your account.