Why Gas Credit Cards Can't Compare to Travel Rewards
Update: Some offers mentioned below are no longer available. View the current offers here – The Amex EveryDay Preferred Credit Card from American Express, Chase Sapphire Preferred, Barclaycard Arrival Plus World Elite Mastercard
Most airlines and hotels have co-branded credit cards that offer a good (or sometimes great) return on spending within the brand. Many gas brands have similar card offerings, but today TPG Contributor Jason Steele explains why the value of these cards just doesn't measure up.
Gas isn't cheap, and it's a product that most Americans need regularly, so gas stations would seem like a great fit for co-branded credit cards that offer bonus rewards on fuel purchases. But a closer look reveals that co-branded gas credit cards aren't really that compelling, especially compared to the savings offered by travel rewards cards.
In this post I'll discuss the value offered by gas cards, and show you why in almost all cases they're not your best option.
How much can you save with a gasoline credit card?
The amount you can save with a co-branded gasoline card depends on how much you drive, so I'll look at the following three scenarios, assuming a price per gallon of $3.50 (which is the approximate national average over the last three years):
- Low consumption, 286 gallons per year: Driving a compact car that gets 35 miles to the gallon, driving 10,000 miles a year, spending $1,000 on gas annually.
- Medium consumption, 480 gallons per year: Driving a mid-size car that gets 25 miles per gallon, 12,000 miles a year, spending $1,680 on gas.
- High consumption, 833 gallons a year: Driving a sports car, pickup truck, or SUV that gets 18 miles to the gallon, 15,000 miles a year, spending $2,915 on gas.
Naturally, the numbers will vary if you drive much more or much less than these amounts, or if you live in an area with much higher or much lower prices, Regardless, I think the end result remains the same, as the rest of this analysis will demonstrate.
There are several different gas branded credit cards available. Here's a sampling of the rewards they offer you:
BP Visa with Pump Rewards from Chase
This card offers a rebate of 15 cents per gallon for every $100 in purchases made at BP. The rebate is good for a single fill-up of up to 20 gallons. So if you can add 15 gallons, you're looking at a rebate of $2.25, or 2.25% of your spending at BP.
In the scenarios above, cardholders can save as much as $87.47 (for a high consumption driver with a vehicle that holds 20 gallons) or as little as $15.02 (for a low consumption driver who can only add 10 gallons per fill up).
True Earnings card from Costco and American Express
This card offers 3% cash back at US gas stations on up to $4,000 in eligible purchases each year. This equals an annual savings of $30 for low consumers, just over $50 for medium consumers, and about $87 for high consumers. To max out the savings on this card at $120, you'd have to use about 1,143 gallons annually at $3.50 per gallon.
True Earnings Business card from Costco and American Express
The business version of this card offer 4% cash back at US gas stations on up to $7,000 in eligible purchases each year. This means an annual savings of $40 for low consumers, just over $60 for medium consumers, and about $117 for high consumers. To max out the savings on this card at $280, you'd need to buy 2,000 gallons annually at $3.50 per gallon.
Gulf Platinum MasterCard from Barclaysbank
Like the consumer version of the Costco True Earnings card, the Gulf card offers 3% cash back at US gas stations. This means an annual savings of $30 for low consumers, just over $50 for medium consumers, and about $87 for high consumers. However, unlike the Costco True Earnings card, this card has no cap on rewards.
PenFed Platinum Cash Rewards Visa Card
This card is probably the best gas card offered, and features a savings of up to 5% on gas purchases. To get the full 5%, cardholders must also have another account with PenFed credit union, such as a an active checking account with direct deposit, a mortgage, or a money market savings account (otherwise you save 3%). With the full 5%, cardholders could earn $50 cash back for low consumers, $84 for medium consumers, and nearly $146 for high consumers.
5 reasons that gas cards are inferior to travel cards
1. Little or no sign-up bonuses. The maximum savings offered by the best gas cards are still just a fraction of the value of a decent sign-up bonus, even in the high consumption scenario. For example, the 4% offered by the True Earnings Business card from Costco and American Express might be worth around $117 annually for the least frugal consumers of gasoline, or even $234 if two members of a household are both heavy drivers of inefficient cars. A more typical two car family is likely to see savings of less than $100 a year. That's real money, but it isn't much in the context of current travel credit card sign-up bonuses.
In contrast, the current offer for the Chase Sapphire Preferred is for 40,000 Ultimate Rewards points after you spend $3,000 within three months. These 40,000 points are worth $500 toward travel reservations booked through Chase, or potentially much more when transferred to hotels, airlines, or Amtrak Guest Rewards. According to TPG's latest monthly valuations, Ultimate Rewards points are worth 2.1 cents each, meaning those 40,000 points are worth $840.
2. Scant rewards for spending. The best case return for cardholders is 5% for the PenFed Platinum Cash Rewards card. Don't get me wrong, 5% is a great rate of return, but drivers won't save much more than they would with a great travel rewards card. For instance, the Barclaycard Arrival Plus has an effective return of 2.22%. A medium consumer would lose out on about $50 annually by using the Arrival Plus instead of the PenFed Platinum. However, the Arrival Plus currently offers a 40,000 mile sign-up bonus worth $444 in statement credits, so you'd need to wait several years before you'd come out ahead with the PenFed Platinum.
3. Every credit card application counts. One could argue in favor of getting both a gas card and a travel rewards card. Certainly this is possible, but credit card users must realize that their potential applications are finite- you can't apply for every card offered. The rational course of action is to only apply for cards that feature the most valuable rewards. Once you accept this premise, you must conclude that gas credit cards are so far from being the most valuable, that they're hardly worth considering by those who can use travel rewards.
4. Gas credit cards are the least effective way to save money on gas. If you drive 15,000 miles in a year getting 18 miles per gallon, you're looking at spending about $3,000 per year in gas purchases. Saving $150 a year by using a gasoline credit card is nice, but you're looking in the wrong direction if you're trying to be frugal. If you switched to a vehicle that got 25 miles per gallon instead of 18, you'd save $815 each year over the same 15,000 miles. Considering a hybrid or an electric car could boost the annual savings into the thousands of dollars.
5. Travel rewards cards can offer strong rewards for gasoline purchases. Y0u don't need a gas card to earn bonuses on gasoline. For instance, the Chase Ink Bold and Ink Plus cards offer double points at gas stations, so if each point is worth 2.1 cents, cardholders are only missing out on 0.8 cents per dollar from the PenFed card that offers 5% cash back. That's a difference of about $13 each year for medium consumption drivers. Considering the potential to realize much more than 2.1 cents in value per point when redeeming Ultimate Rewards, I have to stick with the Ink cards.
Other great travel reward cards for gas purchases include the Mercedes-Benz Platinum card from American Express, which offers triple Membership Rewards points for gas purchases. The new Amex Everyday Preferred offers double points on gas (at US standalone stations), but that becomes three points per dollar when cardholders make 30 transactions or more during their statement period in order to receive the 50% bonus on points earned. For further details, see the gas section of Eric Rosen's post from last week on maximizing category spending bonuses, as well as this post I put together last year on maximizing miles and points in gas purchases.
Do you have a co-branded gas card? Please share your thoughts in the comments below.
[card card-name='The Amex EveryDay® Preferred Credit Card from American Express' card-id='220310489' type='javascript' bullet-id='1']