Move the bills and purchases you already pay onto a no-annual-fee cash back card, set autopay for the full statement balance, and send the rewards to savings. At 2% back, $2,000 a month of normal spending adds $480 a year. Carry a balance instead, and interest averaging over 20% cancels most or all of it.
The groceries, gas, phone bill, and streaming charges get paid either way. Paid straight from checking, they earn nothing. Paid with a card that returns 2%, the same spending sends $2 of every $100 back to you.
That’s savings without a budget cut, as long as the card never costs you interest or fees. The Federal Reserve’s latest figures put the average credit card rate at about 21%, and above 22% on accounts that pay interest. At 22%, carrying a $2,000 balance for a year costs about $440, nearly all of the $480 the card paid back.
The other way to lose is spending more to earn more. A $100 purchase you’d have skipped, made to earn $2 back, is a $98 loss.
Four steps make most of it automatic.
- Use a card with no annual fee and one flat rate. Wells Fargo’s Active Cash and Citi’s Double Cash both pay 2% on every purchase.
- Move recurring bills onto it, such as your phone, internet, streaming, and insurance. Skip any biller that adds a card fee bigger than your cash back.
- Turn on autopay for the full statement balance, not the minimum payment.
- Send the rewards to savings. Schedule a monthly automatic transfer from checking to savings equal to your average reward, about $40 on $2,000 of spending, and redeem the cash back as statement credits so each one shrinks the next autopay. Capital One can pay out cash back automatically once your balance reaches a level you set.
Once a quarter, compare the cash back earned with the interest charged on your statement. The card saves you money only while the interest line reads zero.
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