Are flexible earning cards the new normal?

We haven’t seen many new credit cards hit the market during the COVID-19 pandemic but two of the most interesting options are pioneering a new era in rotating category rewards.

The Venmo Credit Card, which launched late last year, gives 3% cash back on your top eligible spending category each month and 2% on your second-highest eligible category. All other purchases earn 1% cash back. After your first year, there’s a $10,000 combined annual spending cap.

And Citi recently introduced the Citi Custom Cash℠ Card. Its central feature is 5% cash back in your top eligible spending category each billing cycle (up to $500 in purchases, then 1% cash back after that).

The most attractive elements of these cards are that you don’t need to pre-select your top category or categories (which was previously the norm among flexible earning cards), and these can change every month.

The main drawbacks, however, are that you earn a subpar 1% cash back when you spend in non-bonus categories, and the bonus categories are capped at fairly low levels.

The best way to make these cards work for you is as part of a multi-card strategy that covers as many bases as possible.

Otherwise, you should just stick with a no annual fee card that gives 2% cash back on all purchases, such as the Citi® Double Cash Card (1% when you buy something and 1% when you pay it off), the Fidelity Rewards Visa Signature Credit Card or the PayPal Cashback Mastercard. If you spend more than $2,000 per month on the card, the Citi Custom Cash trails a flat-rate 2% cash back card.

I especially like the idea of using the Venmo card or the Citi Custom Cash to earn extra rewards on niche categories such as utilities, home improvements, clothing and sporting goods. Those bonus categories don’t show up much elsewhere.

Check out all the answers from our credit card experts.

Ask Ted a question.

Other types of flexible earning cards

The concept began with rotating quarterly categories selected by the card issuer. Examples include the Chase Freedom Flex℠ and the Discover it® Cash Back card.

Both cards require activation and give 5% cash back on up to $1,500 in spending each quarter in the pre-announced categories (beyond that, cardholders earn 1% cash back).

Chase’s current categories are gas stations and home improvement stores. Discover’s are gas stations, wholesale clubs and select streaming services.

The main drawback of these (besides the cap) is the lack of control. And while the selections are usually pretty broad, Chase, in particular, has been going after more niche options lately. But at least Chase added some strong year-round (and uncapped) bonus rewards categories to the Freedom Flex: 5% cash back on travel booked through Chase Ultimate Rewards, 5% on Lyft rides (through March 2022) and 3% on dining and at drugstores.

Some cards let you choose your own adventure

The Bank of America® Customized Cash Rewards credit card and the US Bank Cash+™ Visa Signature Card both give cardholders more control over their top bonus category or categories. But unlike the Venmo card and the Citi Custom Cash, you need to plan your top categories in advance.

The Bank of America offering has six options to choose from – gas, travel, dining, home improvements and furnishings, online shopping and drugstores – and cardholders can change their selection every month.

The chosen category earns 3% cash back, and cardholders also get 2% cash back on grocery store and wholesale club purchases. Combined, there’s a $2,500 quarterly spending limit on the 3% and 2% categories (beyond that, cardholders earn 1%).

The U.S. Bank Cash+ card allows users to select two 5% cash back categories each quarter from a list including TV/internet/streaming services, home utilities, ground transportation, select clothing stores, cellphone providers, electronics stores, gyms/fitness centers, fast food, sporting goods stores, department stores, furniture stores and movie theaters.

You can change your selections each quarter, and the 5% rate is capped at $2,000 in quarterly spending. You can also choose one 2% quarterly cash back category (either gas stations, grocery stores or restaurants), which is uncapped.

Bottom line

Flexible earning cards sound good in theory, but one probably shouldn’t be your only card. You’ll get the most overall value by playing different options off one another – using various cards for specific types of purchases.

And beware of merchant category codes. For instance, car repairs often don’t count as gas stations even if the repair shop also sells gas. And bakeries, concession stands and convenience stores often don’t count as dining.

Especially if you’re making a big purchase or a frequent series of purchases, you need the transactions to show up under the right categories in order to maximize your rewards.

I can see the appeal of flexible earning cards, especially for people who enjoy mixing and matching different cards to maximize their rewards. It can be complicated, though. If you value simplicity, check out one of our best flat-rate cash back credit cards instead.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.

All information about the Fidelity Rewards Visa Signature Credit Card, PayPal Cashback Mastercard and Venmo Credit Card has been collected independently by CreditCards.com and has not been reviewed or approved by the issuer.