Cash back cards are no longer offering spare change

The number one rule of credit card management is to always pay your balance in full when you get your statement. When I had to watch our cash flow more closely, every time I made a purchase with a credit card I wrote it into the checkbook. That way I didn’t worry if I had enough money to pay the bill in full when it arrived, plus it gave me a high level snapshot of whether we were spending beyond our means.

Thankfully, the latter is no longer an issue, but what has changed is we don’t work for a living, at least not much. I still earn some income from consulting, but it’s gravy. So any extra, unearned income you can bring in is good. We’re retired so the pension plus 401K withdrawals more than amply pay our bills.

Still, the habit that served me well years ago still works fine, and I still subtract credit card debits on our checking account. But now, with cash back credit cards, I’ve discovered that not only do I not have to pay usury interest for charging stuff, but I can make the credit card an income stream as well.

There are lots of cash back credit cards out there, but finding the right one for me had to meet a number of conditions. First, I don’t believe in paying for anything when I don’t have to. So many cards come with nice perks but at the cost of $100 or more a year for the privilege. So a no annual fee cash back credit card was what I wanted. Second, I wanted it to be generous. A lot generous. Fortunately, I found just the card I wanted where I have been banking for more than thirty years. Okay, it’s not a bank. It’s a credit union. Pentagon Federal Credit Union, for short. We get two percent back on every purchase we charge.

At one time you had to work in the Pentagon or be a member of the armed forces to bank at PenFed. I worked there from 1988 to 1998. That’s not true anymore. Pretty much anyone can join. It was easy to bank there because there was an office in the promenade. We’ve had checking, savings and credit cards from PenFed for years and still do. But in truth, most of our savings are now stored at Ally Bank, which offers much more generous interest rates than PenFed.

So as a place to get a good interest rate on your money, PenFed’s not great but better than most banks. But with their Power Cash Rewards card, we get that sweet two percent back for everything we charge. And since we charge at least $2000 a month, and that means we get a rebate of at least $40 a month.

Obviously this won’t be the solution to your financial crisis and you can’t pay the rent on this money, but it does add up. To make it work though, in addition to not carrying a balance every month, you should only charge stuff you were going to buy anyhow. It makes no sense to buy a new sofa to get two percent back if you don’t need one.

To get the two percent though I had to create a redundant checking account, an Access America checking account and put $500 in it. The interest rate on this account is currently .2% per year, which is actually somewhat decent these days. You also have to not let it drop below $500, or you get 1.5 percent cash back rate instead. Since I already have a different checking account there, it was no problem.

Since I applied for the card last October, it has earned us $402.81, or about $57 per month. The amount has varied from $44.64 for the latest month (it’s hard to spend too much money stuck at home during a pandemic) to $89.33 in January (when we paid the balance due for a cruise we took in March). At this rate we should earn close to $700 per year. Even better: this income is tax-free. Generally, the IRS considers it a discount, not real income although that could change.

We also got a $100 sign up bonus after the first month. This income might be taxable but if it is, it obviously won’t amount to a lot of money.

$700 a year tax-free income is not bad for buying stuff I would have bought anyhow. I think this is the best deal out there for most ordinary folks. If so, you might want to join Pentagon Federal Credit Union just to get the card.