Discover IT is a great option for maximizing rotating category spend: $600 in year one and $300 for future years…but it’s not for everyone.
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Thanks for joining me for episode 45- Discover IT Credit Card Review! Discover IT is a great option for those maximizing rotating category spend: $600 in year one and $300 for future years…but it’s not for everyone.
My August 2020 credit card approvals continue – more wins in addition to the Bank of America Premium Rewards card, Hilton Surpass card, and US Bank Altitude Reserve card…and I still have some pending applications.
Since I haven’t had much activity on my Experian credit report and now have the maximum of four American Express credit cards, I started a search for a good credit card for my specific situation and found the Discover IT card. I highlight the phrase my specific situation because I think that this card is highly overrated. I’d wager that a very high percentage of Discover IT cardholders don’t maximize returns from rotating categories, so I almost never suggest this card especially for those just starting with this credit card hobby. If you’re not going to gain much from the category return, the appeal of the Discover IT card dramatically drops.
Since I just got this card, I’ll get 10% cashback from PayPal transactions for a maximum of $150 back on $1500 in spend. PayPal is a great category for me because I can easily spend $1500 before September ends…and other cards I have don’t provide bonuses on PayPal spending, so this will give me 8% more than I would get with various 2% everywhere cashback cards.
According to Discover promotional materials, I’ll gain 5% cashback soon after the transactions and, after a year with the card, the cashback match feature will award me another 5%. The delay in returns is a bit of a drag compared to many other cards which usually provide points, cashback, and other rewards at the closing date of every statement, but it’s not a dealbreaker.
Other quarterly categories include wholesale clubs like Sam’s Club, grocery stores, gas stations, dining, and Amazon.com purchases. Those who have few credit cards may be more excited about some of these categories, but those with many credit cards, especially low spenders, won’t have very much to gain when considering competition from other cards. Are most people really spending $1500 a quarter at gas stations or wholesale clubs? I wager not, so 5% return isn’t so great as it’s cracked up to be.
Many credit cards have bonus categories ranging from 2-5% back in many of these categories, so the Discover IT categories aren’t so appealing outside of the first year that offers 10% total through cashback match. Amazon.com is a terrible category, at least for just 5% cashback, because one can save 5% or more on Amazon purchases through buying gift cards. To mention just one trick, use the Venmo debit card at drugstores for a 5% rebate on Amazon gift cards. For more on the Venmo debit card and other ways to save on Amazon, listen to episode 41.
The Discover IT card lacks a signup bonus and benefits which are commonly found in premium credit cards that offer travel rewards. Discover IT, though, is a cashback card, so it may not be fair to compare it with travel cards, but even then various cashback cards offer decent signup bonuses and many travel rewards cards have options to cash-out points.
Consider the Chase Sapphire Preferred card – pay a $95 annual fee to gain 60,000 points from a signup bonus and then cash out at one to 1.25 cents per point for a total profit of $655 or $605 after accounting from the annual fee…and then just downgrade the card to the Chase Freedom card which has 5% cashback rotating categories. Why get Discover IT especially early on if you could get Chase Sapphire Preferred?
Those rebuilding credit or mostly new to credit may not qualify for the Chase Sapphire Preferred, so Discover IT can be a good option especially for those who will gain lots of cashback from rotating category spend. Simply put, as the strength of one’s credit profile increases, appeal of the Discover IT card decreases in most cases.
Cards like the US Bank Harley Davidson Visa, Citi Secured, and State Department Federal Credit Union are very likely better options than Discover IT for those rebuilding or building credit. Listen to episode 31 with Andrew from Secured Credit Academy for more on building and rebuilding credit.
More appeal for the Discover IT card is found because the card has no annual fee. Many new to credit cards, I find, are really averse to paying annual fees and do not see annual fees as good investments. In so many cases, annual fee cards outperform no annual fee cards and in all cases, assuming they use cards well, people are leaving tremendous value on the table if they absolutely avoid annual fee cards. The no annual fee or annual fee discussion, as you might guess, is nonsense to me because it misses the larger point – how much value does a card provide especially in the first year.
I really don’t care if a card has an annual fee and am very happy to get it if it provides great returns. Talk about ‘best no annual fee cards’ or questions like ‘what is the best no annual fee card’ is really missing the larger picture.
No one is obligated to keep annual fee cards for longer than a year and the keep or cancel discussion can be had in the future. I have downgraded or canceled cards after huge wins in year one and that’s not a big problem – my credit card approvals continue. In most cases, though, card issuers have provided me with retention offers which lead me to pay an annual fee for a second time, so I don’t sweat it.
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Back to the Discover IT card! It gives 2% cashback on all spending in year one – at least 1% upfront and then another percent after year one from the cashback match feature. This isn’t bad considering many cards give 1% or 1 point per dollar spent, but also not amazing given other 2% cards and the fact that points can be worth 1.5 to two cents and possibly more.
In year two, Discover IT only gives 1% back on all spend…of course not as exciting. Again, the main value from this card comes from returns on rotating category spend, so the low value on everyday spending in year two isn’t a dealbreaker. Those with other credit cards very likely won’t be using Discover IT for 1% in years two and beyond anyway. The power of having multiple credit cards!
One nice thing about Discover is that they allow you to have two Discover IT cards although only two Discover cards at one time – no third business card even. I have the standard Discover IT cashback card and the Discover IT NHL card with a Pittsburgh Penguins design. The Seattle Kraken design, for those like me who wanted it, is not yet available.
Many issuers do not allow copies of the same card, at least in a short time period, so it’s nice that people can double-dip in the 10% returns from rotating categories although preferably not in a short amount of time especially if they aren’t maximizing the categories.
Discover, from my experience, is a lenient issuer – they’re usually willing to approve those with recent credit inquiries and one doesn’t need credit scores in the high 700s for approval. Discover also offers the Discover IT secured card: 2% Cash Back at gas stations and restaurants up to $1,000 in purchases each quarter and 1% cashback on all other purchases. There are no rotating 5% categories here, but the cashback match feature applies.
In conclusion, Discover IT isn’t an amazing card people make it out to be, but high spenders who will maximize rotating categories have much to gain. Discover can improve this card by adding a healthy signup bonus and until then most savvy credit card users with strong credit profiles will likely avoid this card especially early on when they can prioritize cards, especially those with Chase, providing much more value.
As is usually the case, the value of a card will vary depending on a person’s credit profile, spending habits, goals, and preferences. However, it’s not a wholly subjective game because mathematical arguments can lead to better conclusions than others. I’m here to help you navigate the world of credit cards and help you select cards that work for your specific situation. Complete my credit card questionnaire form at hurdygurdytravel.com for a free consultation and 15-minute call for personalized suggestions! Subscribe on my Patreon or SubscribeStar pages for additional support including monthly hourly discussions.
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