Published on March 16th, 2015 | by William Charles19
Does It Make Sense To Utilize Discover’s 5% Categories?
The Discover it credit card offers 5% cash back on $1,500 in purchases each quarter in rotating categories. Most people will put as much spending in those categories as possible (obviously without spending more than they normally would unless it’s for manufactured spending purchases). This makes sense as 5% cash back is more than you’d get on non bonus spending, but one thing that this doesn’t take into account is that Discover often sends out targeted spending bonuses.
Discover Targeted Spending Bonuses
Discover often sends out targeted spending bonuses, typically you need to spend over a certain threshold each month for more than four months in a row. The bonus used to be as follows (slightly reworded):
- Spend $500-$1,500 or more each month for the next three-five months and receive a $250 cash bonus
It looks like most people are now only receiving offers for a $200 cash bonus. Now obviously how good this deal is will depend on how much the spend requirement is and how many months this spend requirement needs to be reached.
Triggering The Deal
If you’re anything like me then chances are you’ve never received an offer like this and you’re also probably wondering what this has to do with the 5% categories. Discover and other credit card issuers use deals like this to make sure their credit card is “front of wallet” meaning that it’s the card you use for the majority of if not all of your purchases.
If you’re already using your Discover card, they can safely assume the card is already at the front of your wallet or it’s at least being used in regular rotation. If you’re not using your card, they know it’s not at the front of your wallet and they will be desperate to change this.
That basically means that you need to put no spend on your Discover card to get targeted for offers like this. The spend requirements and length of promotion will usually be tied to your credit limit and how much you’ve spent with Discover in the past. For example, if you’ve regularly spent $1,000 a month in the past then chances are your offer would require a spend of $1,000+ a month for three-five months.
5% vs Spending Bonuses
This means you have a decision to make, should you continue to maximize the 5% cash back categories or should you forgo them in the hopes of getting a spend bonus? That really depends on how valuable you find each quarters categories and how much you’d spend. Here are the 5% categories for this year:
|Gas & Ground Transportation||Food and Fun||Summer Spruce Up & More||Holiday Shopping & More|
It’ll also depend on what other cards you have, for example if you have a credit card that earns 5% cash back at gas stations year round then Q1 probably wasn’t that useful for you. I spend a lot at Restaurants (reimbursable business lunches and dinners mostly) so I’d easily max out the quarter 2 promotion which would net me $75 (although I would have earned $30 with a 2% cash back card and $45 with a 3% cash back card). Also keep in mind overlap with other 5% cash back cards like the Chase Freedom.
In addition to all this, it depends what type of offer you’re likely to receive. Let’s have a look at the best and worst options:
- Spend $500 or more for three months and receive $200: effective cash back rate of 13.33%
- Spend $1,500 or more for five months and receive $200: effective cash back rate of 2.67%
In the worst case scenario you’d actually be better off with the Discover it miles card.
I did a little testing with a few friends to try and work out how long you needed to put no spending on a card before Discover would target you and honestly the results were pretty much random. Nobody received an offer unless they had no (or very little) spending in the last six months, so you’d really need to forgo at least two full quarters of cash back categories.
I’m personally not going to bother trying to get targeted for the spending bonuses, as I’ve put a lot of spending on my card in the past so I’d need to spend a lot each month to actually receive the bonus. But others might find that they are able to get targeted for bonuses with much lower spending requirements.
What are your experiences with these Discover spending bonuses? Let us know what bonuses you’ve received and what your spending patterns have been in the past. Maybe we can find out what rules Discover uses to target these bonuses and use this information to our advantage.