Getting a little bit of cash back on all of your spending is nice, but getting a lot of cash back is better, right?

We showed you how great the American Express Blue Cash credit card (read our full review) can be: 3% back on groceries, 2% back on gas and department stores, and 1% on everything else. You can get that card for free: no
annual fee, no catches. Just swipe your card and watch the cash back pile up.

But American Express just upped the ante. AMEX is now offering a preferred version of the Blue Cash card that increases the cash back percentage on the first two categories:

Of course to get the preferred version of the Blue Cash credit card you have to pay an annual fee of $75. This makes the decision of whether to get the normal Everyday Blue Cash card or the Blue
Cash Preferred Card card one of basic math.

Should You Pay an Annual Fee to Get Better Cash Back?

The math is pretty simple. You want to compare your current spending by the two levels of cash back. If the amount of extra cash back you will earn is more than $75, then get the Blue Cash Preferred Card.

Here’s how to run the numbers:

• Let’s assume you spend $400 per month on groceries and $250 per month on gas and department store purchases.
• We will calculate the cash back for these levels of spending for both the Blue Cash Preferred Card and the Everyday Blue Cash Card.
• Then we’ll compare the difference in total cash back between the two.

In this example, switching to the Blue Cash Preferred credit card, even with the $75 annual fee, results in $99 extra cash back for you over an entire year.

But that’s just one example, how do you know how much you need to spend in general for the cash back to pay
for the annual fee?

How Much Do I Need to Spend for the Cash Back to Pay for the Annual Fee?

The easiest way to tell if your specific situation will generate enough extra cash back to make the annual fee worth paying is to plug your own numbers into the chart above. Compare what your average spending is in each category and what that spending would be worth in cash back on both cards.

However, you can also get a general idea of what level of spending is needed to pay for the cash back.

You can take the annual fee of $75 and divide by the cash back percentage. Here’s what you get:

• You’ll earn $75 in cash back at 6% grocery cash back with $1,250 in spending ($104.17/month)
• You’ll earn $75 in cash back at 3% gas/department store spending with $2,500 in spending ($208.33/month)

Most people spend at least $100 per month in groceries which makes the Preferred version of the card seem like a no-brainer. However, you must also calculate what that level of spending would have earned you anyways to see if it really is a better deal.

Compare Grocery Cash Back on American Express Blue Cash

In other words, you would earn $75 in cash back with $1,250 in spending on the Blue Cash Preferred Card, but you have to deduct the $37.50 you would have earned from the no annual fee version of the card that pays 3% cash back on groceries ($1,250 x 3% = $37.50). If you deduct that amount from the $75 you earned with the Preferred card, you are left with just $37.50 in
cash back which means the Preferred version of the card isn’t worth the annual fee at that spending level.

To get the true number you need to spend to not only cover the annual fee but also the cash back you would have earned with the no annual fee version of the card, you divide the $37.50 by 6%. That gives you $625 in additional spending needed for the card to make sense. You need to spend more than $1,875 ($1,250 + $625) in groceries during the year for the card to be worth it. That is still just $156.25 per month in grocery spending, which most families would spend regardless.

Also, this is assuming you are only using the credit card for grocery spending. In reality you are mixing your grocery spending with your gas/department store spending at 3% and all other spending at 1%, which makes reaching the point where paying the annual fee makes sense pretty easy. (How much you would need to spend in each category really depends on what your normal spending looks like.)

Deep Discounts on Groceries and Gas

If this card makes sense for your family, stop waiting and fill out an application. Where else can you get a full 6% back on milk, bacon, and chocolate chip cookies? If you add in ninja-level couponing (like getting $500 worth of stuff for $40!) the amount of cash you will save on groceries is incredible. Even without coupons, 6% is still the highest level of grocery cash back you will find
available.

The same is true for your gas discount. Some credit cards offer a 5% cash back on gas spending, but only up to a certain point. Those cards only apply to gas purchases too so you miss out on the added cash back from department and grocery stores that you’ll get with this card. With gas prices on a steady march up in price, getting 3% cash back every time you fuel up helps take a little bit of the sting out.

This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American
Express Affiliate Program.

Visit the California Institute of Finance’s Website to learn more about our MBA In Financial Planning.

Jeff Rose is a Certified Financial Planner, co-founder of Alliance Investment Planning Group, author of the “Good Financial Cents” blog and a featured contributor here on “Advisor Pages”.

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