Math Question -- which credit card reward program to use?

[TimJim]

I have two credit cards with two very different rewards programs. Could you help me figure out which is the best to use for groceries and gas?

CARD A (AMEX Blue Cash Preferred)
6% back on all grocery store purchases up to $6,000, then 1% after that. (grocery bill is about $6,000 per year)
3% back on all fuel purchases (~$750 per year)
3% on department stores purchases, but who cares, right?
$75 annual fee

CARD B (VISA from local credit union)
1% back on ALL purchases, but every February, the 1% in rewards is placed in a savings account earning 10% APY.
No annual fee.

The answer will probably seem obvious to some of you out there, but I dont know which way to go. Last year we used Card A for groceries and gas both, figuring that the rewards there would be better than the 1% rewards. But am I wrong here? Should we be using CARD B for everything because of the ridiculous savings account interest?

The savings account is serving as our cash holdings for our retirement fund right now, so no plans to withdraw or spend it, obv.

Hope I provided enough details, and thank you for your help!

[GueroKC]

I suspect there's some sort of cap on either the annual contributions or the balance of that savings account after which the interest rate drops to something much less spectacular. Can you look into that?

[neo von retorch]

Companies love to advertise a bonus on the bonus... like "25% bonus interest!" But you see...

Spend $100.
Get 1% back = $1.
Get 10% interest = $0.10.

With the Amex Blue...
Spend $100.
Get 6% back = $6.
Put your $6 in your own 1% interest account = $0.06

After one year, you are $6.06 - $1.10 = $4.94 ahead with Amex Blue for every $100 you spend... minus the $75 that gets split amongst your spending. Do you spend enough on groceries to offset that?

[TimJim]

Thank you for the quick responses!

I suspect there's some sort of cap on either the annual contributions or the balance of that savings account after which the interest rate drops to something much less spectacular. Can you look into that?

I thought there would be some sort of cap, too, but I've had it four years and as long as I make 10 transactions a month (direct deposit, ATM withdrawal, etc.), they keep putting the money in there. It's up over $1,000 now so we are starting to talk about some really money.

It's a credit union, so they've been good to me so far: https://www.kemba.org/personal/credit-cards/

After one year, you are $6.06 - $1.10 = $4.94 ahead with Amex Blue for every $100 you spend... minus the $75 that gets split amongst your spending. Do you spend enough on groceries to offset that?

I easily spend the $6k on groceries to reach the bonus limit. Figured I would continue to use the card for groceries because of the math you quoted above, unless there is some long-term benefit of the 10% interest that I havent calculated.

So I plan to continue to use it for groceries for the 6%, but what about gas for the 3%? Is it better to take the 1% plus 10% interest instead? Again, we are talking about $750 per year.

[neo von retorch]

Well I prefer the Sallie Mae card that gives me 5% for gas, no annual fee, though I don't know that they are still accepting applications for that card. Once you've paid the $75 annual fee, you want to get as much out of it as possible. Take the 3%.

Since interest compounds, over a long enough timeline, everything else being equal, you might come out ahead with that plan... if you don't take your rewards cash and invest it (which you will.)