Discover It Review: Rotating 5% Categories

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Earlier this week I wrote about the top 5 credit card deals out there and while some have huge bonuses of up to 100,000 miles, they also all have annual fees ranging up to $450 a year. Today I’m taking a closer look at the Discover It card, which is a no-annual fee product that offers rotating 5% cash back categories. While there is no signup bonus at present, getting up to 5% cash back in popular categories can be a smart play to build up cash to put towards the ancillary costs of your next trip (or even paying for award ticket fuel surcharges or hotel resort fees that are sadly becoming more prevalent).

I’m Still a Transferrable Points Guy
While I generally prefer to rack up valuable points that can be transferred into frequent flyer/guest programs, I understand that in this world of fuel surcharges, resort fees and loyalty program devaluations, traditional miles can only get you so far in reducing the cost of travel. I know family members and friends who are switching to cash back cards because in order to get the most value per mile/point, you often need to be flexible and that isn’t n option for a lot of travelers.  This is especially true for those traveling with a family- when you have a family and need to take vacation when the kids are out of school- and you need multiple seats on the same flights it can be hard to book saver flights and when you get into peak award territory, you might be better off using credit card points/cash back cards to pay for flights.

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I still consider cards like the Arrival as well as those like the Chase Freedom and Sapphire Preferred among the top options when you want to accrue points specifically for travel redemptions, I thought I’d take another look at the Discover It card, which has great potential to earn a decent return on your spending, and you can redeem your points for cash back on pretty much any purchase. Let me be clear – the Discover card is not meant to replace these others, I am just putting it out there as a great option for folks looking for a solid cash back card.

I usually prefer to earn airline miles and hotel points – and above all transferable points like Chase Ultimate Rewards or Amex Membership Rewards because they allow me the maximum flexibility to transfer to a number of airlines and hotels – but I’ve been considering getting another cash back card to round out my credit card portfolio and be able to redeem points for various incidentals that other points and miles might not cover.

Now, I already have the Chase Freedom card and I maximize it by taking advantage of its quarterly rotating 5X categories, but those are capped at $1,500 per quarter for a total potential of 30,000 points per year. I also usually leverage my Freedom points by transferring to my premium Ultimate Rewards accounts linked to my Sapphire Preferred and Ink Plus cards so that I can transfer them to Chase’s 10 travel transfer partners. You can also redeem your Freedom Ultimate Rewards points for 1 cent per point towards travel, though you can actually get a value of up to 1.34 cents per mile with this feature.

The Discover It card currently comes with no signup bonus, which looks bad at face value compared to other cards, but it isn’t terrible considering there’s no annual fee. 

However, Discover also added some great new features to the card back in August including waiving foreign transaction fees, no annual fee, no over limit fee, and no fees on your first late payment. Plus, like Barclaycard also announced as a cardholder benefit recently, you get a free FICO Credit Score on your monthly statement to help you stay on top of your credit, which is a really valuable benefit and one that makes it easy to keep an eye on your financial wellbeing.

Discover It cardholders get their FICO score on their monthly statement.
Discover It cardholders get their FICO score on their monthly statement.

Like the Freedom card, the Discover It also has quarterly 5% cash back categories where you can earn 5X points per $1 on up to $1,500 of purchases per quarter at a rotating selection of merchants. For this year, they include:

Quarter 1, January – March: Restaurants and Movies
Quarter 2, April – June: Home Improvement Stores (including furniture stores and Bed, Bath & Beyond)
Quarter 3, July – September: Summer Break (details to come, but this usually includes amusement parks and gas stations)
Quarter 4, October – December: Holiday Shopping (details to come, but this usually includes pretty much all online shopping)

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You can earn up to 5 points per $1 at a rotating selection of merchants throughout the year.

So those bonus categories can be pretty broad, making hitting those bonus caps quick and easy. Also contributing to the lucrative points-earning structure of the Discover It is its ShopDiscover online shopping portal, where you can browse over 200 merchants and earn 5-20% cash back bonuses at retailers such as Apple, Best Buy, Macy’s and Nike.

Get bonus cash back for referring friends.
Get bonus cash back for referring friends.

Discover also has a referral program where, when you refer friends who then sign up for the card, you get $50 in cash back for up to 10 friends per year, and they get $50 cash back with their first purchase. You can refer them on Facebook, LinkedIn, Twitter or via e-mail.

The one downside is that Discover isn’t accepted in as many places as some of the other major issuers like Visa or Mastercard, but it’s still pretty widely accepted, and one savvy strategy I’d encourage cardholders to use is to max out the quarterly, online shopping portal and referral bonuses rather than using it on everyday purchases.

Then once you earn those points, you can then redeem them for cash back in the following ways:

So in that way, Discover points are a bit more flexible than other kinds of cash back since you’re getting a straight-up 1 cent per point rate and you can redeem for pretty much any purchase you put on your card, meaning you can use it to pay for all kinds of travel expenses like taxis, parking, ski lift tickets, award ticket fees, etc., that you might not otherwise be able to use points for, and you’re getting at least a 1% return on your spending – and potentially much higher if you max out the ShopDiscover portal and the quarterly 5X categories.

All in all, the Discover It card and its convenient new features like the FICO score and waived forex fees has given me a lot to think about and it might just be the next new card in my wallet for strictly cash back purposes. As I said, I don’t have the card yet personally, but if any of you do, let me know if there are other features about it that you personally like and why.

For more information, see these posts:

Comparing the 5% Categories on the Chase Freedom and Discover It Cards

Maximizing Cash Back Credit Cards

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