How to earn more with Discover’s 2021 categories

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Discover recently announced next year’s 5% cash back categories for the Discover it® Cash Back card, the Discover it® Student Cash Back card and the NHL Discover it® card. They are:

January – March: Grocery stores (including Walmart grocery pickup and delivery but excluding other Walmart and all Target purchases), along with Walgreens and CVS

April – June: Gas stations, wholesale clubs and select streaming services

July – September: Restaurants and PayPal

October – December: Amazon.com, Target.com and Walmart.com

The 5% payout applies after activation on up to $1,500 in purchases per quarter (cardholders earn 1% cash back after that). If you’re a new cardholder, Discover will match all of the cash back you accumulated at the end of your first year.

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Discover’s 2021 calendar is almost the same as its 2020 version. The only changes are adding streaming services in Q2, replacing Uber and Lyft (which were available for all of Q2 2020) and The Home Depot (which was available in June 2020).

Quarter by quarter analysis

Q1 should be easy for most households to maximize at the grocery store alone. You’d only have to spend an average of $115 per week to hit the $1,500 cap from January through March. You could supplement with gift card purchases if you fall short – not to mention that Walgreens and CVS are additional possibilities.

Q3 is another easy one, mostly because of PayPal. That service is accepted very widely, and if you’re shopping somewhere that doesn’t take PayPal, you can use PayPal Key. That’s a virtual card number that you can type into any website’s payment form. Discover cardholders can set that card as their underlying source of funds to maximize their Q3 rewards. PayPal Key is currently available to some PayPal customers, with more on the way.

Restaurants are also a worthy Q3 inclusion – the Bureau of Labor Statistics found the average household spent almost $300 per month on “food away from home” in 2019. My only regret about Discover’s Q3 categories is that restaurants and PayPal are both good ones. It would be even better if they separated them, since spending for both categories could easily amount to $1,500 for the right cardholder.

Finally, it shouldn’t be hard to take full advantage of the Q4 list, given holiday shopping and all of the everyday items that Amazon.com, Target.com and Walmart.com offer.

Q2 probably isn’t as lucrative

Q2 is the only quarter that I think will be difficult for most households to maximize in 2021. I suspect that Discover dropped Uber and Lyft because their ridership is way down due to the coronavirus pandemic. Hopefully the travel industry will be doing better by next spring.

But even if it’s not, Uber Eats would have been a solid category given the pandemic-induced surge in food delivery. The Home Depot also surged thanks in part to the pandemic, so it’s too bad that 2020 addition isn’t on the 2021 calendar.

The three categories that are on Discover’s Q2 2021 calendar all sound better than they really are. Streaming services have caught several card issuers’ eyes over the past few years. But while most people subscribe to at least one, it doesn’t add up to that much money (which, of course, is a big part of what people love about streaming).

Even if you’re a hardcore streamer with several subscriptions, there’s a good chance you spend less than $100 per month, which would bring you to less than a fifth of Discover’s quarterly spending cap. Card companies love it when they’re your preferred streaming payment method because many of these are recurring payments that cardholders set and forget, so it’s more money for them (in interchange and other fees), but not many rewards for you.

Wholesale clubs could be a winner if you spend a lot of money there, but most people don’t. And if Costco is your club of choice, you can’t use your Discover card in-store because they only accept Visa credit cards in-person (you can use a Discover card at Costco.com).

Gas is also a bit of a mirage. The average American household spent just $175 per month on gas in 2019, according to the BLS. And the pandemic has cut into that. While Q2 might be a bit of a dud, there are a few tricks you could potentially play (like buying gift cards at a gas station).

Bottom line

If you maximize all four quarters, that’s $300 in cash back in exchange for spending $6,000 – with no annual fee. In fact, many cardholders would be well served by also using Discover’s main rival, the Chase Freedom Flex℠, because Chase typically has many of the same 5% categories but in a different order. That effectively allows cardholders to double their eligible 5% spending on key categories such as groceries, PayPal, Amazon.com and more.

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