What’s better to have from a credit card? A high cash back earn rate, or a high sign-up bonus?
It depends mostly on how often you’ll open credit cards. If you only open one new card a year, cash back is generally a better aim. If you want multiple cards, sign-up bonuses (SUBs) are better than cash back earnings. Earn rates are often more long-term oriented, and SUBs are often more short-term oriented. A sign-up bonus is typically equivalent to getting 10-30% cash back, while credit cards usually give 1-5% cash back.
Example comparison 1:
Let’s say you need a card for groceries and are weighing your options with Citi.
- The Citi Premier earns 3% cash back and has a $800 SUB.
- The Citi Custom Cash (CCCC) can earn 5% back (up to $500/mo in spending) and has a $200 SUB (or $300 in-branch as a temporary offer).
Maxing out the CCCC $500 per month limit is $6,000 spent each year, which earns $300 cash back annually. If you got the $300 in-branch SUB, you earn $600 in your first year of having the card.
With the same level of spending, using the Premier, you’d get just $180 cash back in your first year. Almost half. However, with the SUB, you earn a combined $980 ($885 when including the card’s annual fee).
The Premier gets you almost $300 more than the CCCC would. (Not including any of the Premier’s other benefits.)
Over 5 years, however, the math changes. Assuming the same $6,000 spent per year on groceries ($30,000 over 5 years) then Custom Cash wins out by $575.
- Custom Cash: $300 SUB + $1500 cash back = $1,800 value
- Premier: $800 SUB – $475 in annual fees + $900 cash back = $1,225 value
In the long term, the best option might be to:
- Attain the Premier SUB
- Attain the CCCC SUB
- When the next annual fee hits for the Premier, downgrade the Premier to a Rewards+ card
This should have higher overall value in the long run.
Example comparison 2:
For a general-use card, let’s compare two of the highest earners.
- Alliant Cashback earns 2.5% cash back on everything and doesn’t have a SUB
- SoFi Mastercard earns 2% cash back on everything and has a $100 SUB
If you spend $10,000 per year with an everyday card, that’s $200 at 2% back, or $250 at 2.5% back. In this example, the SoFi card is initially better, because it earns $50 more overall.
Over 3 years though, Alliant nets $750 compared to SoFi giving you $700. This is an easy comparison since both cards don’t have annual fees. To do your own calculations, just compare your spending against the cards you’re interested in. A percentage calculator makes quick work of this.
Conclusion
The bank game depends on how often you intend to open new credit cards. If you don’t want to have a lot of cards or new applications, a high earn rate is important. If you plan to open lots of cards (or even become involved in churning) then SUBs are better in the short-term.
Obviously, it’s ideal to aim for a card which has both high earn rates and a valuable introductory offer. This isn’t always possible though, and certain people weigh certain features more heavily than others.
Credit cards always have an element of subjectivity. Through our reviews and analyses here, we’re aiming to clarify value propositions. Finding your ideal card(s) should be easy. If you have further questions, let us know!