Why are earning credit card rewards often tied to groceries and gas?
Every reward program has to have a funding source. If the card gives you x percent back on all purchases. That means that their business is structured to entice you to pump more transactions through the system. Either their other costs are lower, or the increased business allows them to make more money off of late fees, and interest. If the card has you earn extra points for buying a type of item or from a type of store (home stores improvement in the Spring), they are trying to make sure you use their card for what can be a significant amount of business during a small window of time. Sometimes they cap it by saying 5% cash back at home improvement stores during the spring but only on the first $1500 of purchases. That limits it to $75 maximum. Adding more business for them, makes more money for them. Groceries and gas are a good year round purchase categories. Yes there is some variation depending on the season, and the weather, but overall there is not an annual cliff once the season ends. Gas and groceries account for thousands of dollars a year these are not insignificant categories, for many families are recession proof. If they perceive a value from this type of offer they will change their buying behavior.  My local grocery store has a deal with a specific gas station. This means that they made a monetary deal. Because you earn points at the grocery store and spend points at the gas station, the grocery store is paying some compensation to the gas station every time you use points. The gas station must be seeing an increase in business so theoretically they don't get 100% compensation from the grocery store.  In cases where credit cards give airline miles, the credit card company buys the miles from the airline at a discount because they know that a significant number of miles will never be used. "There absolutely is a specific model that makes this so popular with so many credit card companies, and that model is ""per transaction fees"". Card companies also receive cost-sharing incentives from certain merchants. There is also a psychological reasoning as an additional incentive. When you want to accept credit cards as a source of payment as a business, you generally have three kinds of fees to pay: monthly/yearly subscription fees, percentage of transaction fee, and per transaction fee.  The subscription fees can be waived and sometimes are expressed as a ""minimum cost"", so the business pays a certain amount whether you actually have people use credit cards or not. Many of these fees don't actually make it to the credit card companies, as they just pay the service providers and middle-men processing companies. The percentage of transaction fee means that the business accepting payment via credit card must pay a percentage usually ranging from 1-3% of the total transactions they accept. So if they get paid $10,000 a month by customers in the form of credit cards, the business pays out $100-300 a month to the credit card processor - a good portion of which will make it back to the credit card issuing company, and is a major source of income for them. The per transaction fee means that every time a transaction is run involving a card, a set fee is incurred by the business (which is commonly anywhere from $0.05 to $0.30 per transaction). If that $10,000 a month business mentioned previously had 10 customers paying $1,000 each at $0.10 a transaction, that's only $1 in fees to the credit card processors/companies. But if instead that business was a grocery store with an average transaction of $40, that's $25 in fees.  This system means that if you are a credit card company and want to encourage people to make a specific kind of purchase, you should encourage purchases that people make many times for relatively small amounts of money. In a perfect world you'd want them to buy $1 bottles of water 5 times a day with their credit card. If the card company had 50,000 card holders doing this, at the end of 1 year the company would have $91,250,000 spread across 91,250,000 transactions. The card company might reasonably make $0.05 per transaction and %1 of the purchase total. The Get Rewarded For Drinking More campaign might earn the card company $912,500 in percentage fees and over $4.5 million in transaction fees. Yet the company would only have to pay 3% in rewards from the percentage fees, or $2.7 million, back to customers. If the card company had encouraged using your credit card for large once-yearly purchases, they would actually pay out more money in rewards than they collect in card-use fees. Yet by encouraging people to make small transactions very often the card company earns a nice net-income even if absolutely every customer pays their balance in full, on time, and pays no annual/monthly fees for their card - which obviously does not happen in the real world. No wonder companies try so hard to encourage you to use your card all the time! For card companies to make real money they need you to use your credit card. As discussed above, the more often you use the card the better (for them), and there can be a built-in preference for small repeated transactions. But no matter what the size of transaction, they can't make the big bucks if you don't use the card at all! Selling your personal information isn't as profitable if they don't have in-depth info on you to sell, either. So how do they get you to make that plastic sing? Gas and groceries are a habit. Most people buy one or the other at least once a weak, and a very large number of us make such purchases multiple times a week. Some people even make such purchases multiple times a day! So how do people pay for such transactions? The goal of the card companies is to have you use their product to pay as much as possible. If you pay for something regularly you'll keep that card in your wallet with you, rather than it getting lost in a drawer at home. So the card companies want you to use your card as a matter of habit, too. If you use a card to buy for gas and groceries, why wouldn't you use it for other things too? Lunch, dinner, buying online? If the card company pays out more and makes less for large, less-regular purchases, then the ideal for them is to have you use the card for small regular purchase and yet still have you use the card for larger infrequent purchases even if you get reduced/no rewards. What better way to achieve all these goals than to offer special rewards on gas and groceries? And because it's not a one-time purchase, you aren't so likely to game the system; no getting that special 5% cash-back card, booking your once-per-decade dream vacation, then paying it off and cancelling it soon after - which would actually make the card company lose money on the deal. In the end, credit card companies as a whole have a business model that almost universally prefers customers who use their products regularly and preferably for small amounts a maximum number of times. They want to reduce their expenses (like rewards paid out) while maximizing their revenue. They haven't figured out a better way to do all of this so well as to encourage people to use their cards for gas and groceries - everything else seems like a losing proposition in comparison. The only time this preference differs is when they can avoid paying some or all of the cost of rewards, such as when the merchants themselves honor the rewards in exchange for reduced or zero payment from the card companies. So if you use an airline card that seems to give you 10% back in airline rewards? Well, that's probably a great deal for the card company if the airline provides that reward at their own expense to try to boost business. The card company keeps the transaction-related fees and pays out almost nothing in rewards - the perfect offer (for them)!  And this assumes no shenanigans like black-out periods, ""not valid with any other offers"" rewards like on cars where only a fool pays full MSRP (and sometimes the rewards are tagged in this sort of way, like not valid on sale/clearance items, etc), expiring rewards, the fact that they know not everyone uses their rewards, annual fees that are greater than the rewards you'll actually be obtaining after accounting for all the other issues, etc. And credit card industries are known for their shenanigans!"
I got a Capital One credit card because they don't charge a fee for transactions in foreign currencies. So I only use it when I travel abroad. At home, I use 3 different credit cards, each offering different types of rewards (cash back on gas, movies, restaurants, online shopping etc). The percentage fee often depends on the type of card. Amex and rewards cards like aeroplan cards often charge 2.5-4% whereas cashback cards will charge less. That's why most places (specifically in Canada which is where I'm from) don't take Amex because they charge way too much. "Some features to be aware of are: How you prioritize these features will depend on your specific circumstances.  For instance, if your credit score is poor, you may have to choose among cards you can get with that score, and not have much choice on other dimensions.  If you frequently travel abroad, a low or zero foreign transaction fee may be important; if you never do, it probably doesn't matter.  If you always pay the balance in full, interest rate is less important than it is if you carry a balance.  If you frequently travel by air, an airline card may be useful to you; if you don't, you may prefer some other kind of rewards, or cash back. Cards differ along numerous dimensions, especially in the ""extra benefits"" area, which is often the most difficult area to assess, because in many cases you can't get a full description of these extra benefits until after you get the card.  A lot of the choice depends on your personal preferences (e.g., whether you want airline miles, rewards points of some sort, or cash back).  Lower fees and interest rates are always better, but it's up to you to decide if a higher fee of some sort outweighs the accompanying benefits (e.g., a better rewards rate).  A useful site for finding good offers is NerdWallet." "Yup. It's totally legit and it is not a money market account. Though interest rates are so low across the board, this is about as high as savings accounts get and so it is called a ""high-yield savings account"". A number of banks offer these. There are different offerings nation-wide versus local/state. I would use this compare tool at DepositAccounts.com to find them and the blog is very good with updates and trends. Here are some well advertised accounts: If you don't already have a rewards checking account, get one of those first. DepositAccounts.com will direct you to these as well. A reasonable interest rate on rewards checking is 2.5% and up. So much better. The only catches are reasonable - online statements, direct deposit or autopay, and use your debit card 10 or 12 times a month for any transaction amount (groceries, coffee, gas - easy). The other major thing I would consider when opening any account is where you live and the current accounts you have. If you have an AMEX card already, just use their savings account. That way you have unified accounts, faster transfers, your personal information isn't spread thinly around all different banks, you have more leverage with the company as a ""long-standing customer"", etc. As far as using a bank in the state where you live, it simplifies taxes. Two more things: I would always choose a credit union over a bank (and many have excellent rewards checking accounts). If you use Mint, Yodlee, or other financial software, make sure the potential new bank integrates with that service." These two categories ensure you will carry the card in your wallet (since they only work for physical locations), but don't tend to have excessive spending (most people maxing out at $200 or so per month, so $2 for the bonus).  You then use the same card for other purchases, because you have it on you, where you only get the 1%. It worked for me, I started carrying the Amazon card when I found out it had a higher percentage for gas purchases.  I only use it for gas though. "So what is preventing people from racking up as much credit card debt as possible in cash advances or consumer goods or whatnot, and then walking away from it?  Then rinse and repeat once the debt is ""gone forever""?  It seems too good to be true - either there's something missing there, or people would be getting tens of thousands of dollars for free every half decade..." "There are two fundamentally different reasons merchants will give cash discounts. One is that they will not have to pay interchange fees on cash (or pay much lower fees on no-reward debit cards).  Gas stations in my home state of NJ already universally offer different cash and credit prices.  Costco will not even take Visa and MasterCard credit cards (debit only) for this reason. The second reason, not often talked about but widely known amongst smaller merchants, is that they can fail to declare the sale (or claim a smaller portion of the sale) to the authorities in order to reduce their tax liability.  Obviously the larger stores will not risk their jobs for this, but smaller owner-operated (""mom and pop"") stores often will.  This applies to both reduced sales tax liability and income tax liability.  This used to be more limited per sale (but more widespread overall), since tax authorities would look closely for a mismatch between declared income and spending, but with an ever-larger proportion of customers paying by credit card, merchants can take a bigger chunk of their cash sales off the books without drawing too much suspicion. Both of the above are more applicable to TVs than cars, since (1) car salesmen make substantial money from offering financing and (2) all cars must be registered with the state, so alternative records of sales abound.  Also, car prices tend to be at or near the credit limit of most cards, so it is not as common to pay for them in this way." Everyone else seems to have focused (rightly so) on the negatives of credit cards (high interest rates) and why it is important to pay them off before interest starts accruing. Only Marin's answer briefly touched on rewards.  To me, this is the real purpose of credit cards in today's age.  Most good rewards cards can get you anywhere from 1-2% cash back on ALL purchases, and sometimes more on other categories.  Again, assuming you can pay the balance in full each month, and you are good at budgeting money, using a credit card is an easy way to basically discount 1-2% of all of the spending you put on your card.  AGAIN - this only works to your advantage if you pay off the credit card in full; using the above example of 20% interest, that's about 1.6% interest if the interest compounds monthly, which wipes out your return on rewards if you just go one month without paying off the balance.