Grocery Rewards Cards Often Aren't Worth It

SUPERMARKETS HAVE long employed tricks aimed at luring shoppers into spending more, such as doling out free samples or stationing the most expensive sugar cereals right at a toddler's eye level. Now, as shoppers struggle to get their escalating grocery bills under control, the credit-card companies are throwing one more temptation their way: grocery store rewards cards.

Credit-card companies have a captive audience. According to the U.S. Bureau of Labor Statistics' latest consumer price index, food prices overall rose 5.3% in 2007, while prices for basic staples such as milk, bread and eggs soared by double-digit percentages. And there's more to come: Similar increases are expected to continue this year.

With offers of bonus points and cash-back rebates, grocery rewards credit cards may seem to answer the call of cash-strapped consumers. But shoppers should think twice before signing up for one.

Like gas rewards credit cards, reaping the full benefit of these cards is no easy feat. Not only have the rewards become decidedly less generous, but there's also more fine print to contend with, explains Curtis Arnold, founder of CardRatings.com, a credit card information site. A prime example: Card issuers have narrowed their definition of a "grocery store," limiting the number of stores shoppers can go to and actually reap rewards from. Card companies have also lowered their rebate amounts from 5% to a maximum of 3% (many cards offer even less). Charge $120 on groceries and your rebate is a mere $3.60 — a savings you could easily surpass by clipping a few coupons.

Here are the three things you should consider before applying for a grocery rewards card:

Points Systems

Rather than cash back, many supermarket credit cards award you points. Once you do the math, though, you'll discover that points are even less rewarding, says Scott Bilker, founder of DebtSmart.com. The Kroger 1-2-3 Rewards card, for example, offers three points per dollar spent on Kroger-brand items, two points per dollar spent on other items at its stores (or affiliated chains) and one point per dollar spent everywhere else. Earn 1,000 points and you receive a $5 store gift certificate. Even if everything you bought was a Kroger-brand product, the points still amount to just 1.5% cash back (most consumers would earn about 1% if they shopped only at Kroger but bought no store label items). You could easily do better with a cash-back card. Kroger did not respond to calls for comment.

Merchant Restrictions

Just because you're buying food with your rewards credit card doesn't mean the purchase qualifies for bonus points. Credit cards dole out rebates based on where, not what, you buy — and they typically only recognize standalone stores whose primary business is selling groceries, says Arnold. That excludes convenience stores (WaWa, 7-Eleven), warehouse clubs (BJ's, Sam's Club, Costco), drugstores (Rite Aid, Walgreen's) and superstores (Target, Super Kmart, Wal-Mart), as well as some individual proprietors and specialty stores (Whole Foods, Dean & DeLuca). Buy from an excluded store and you'll earn the low "all other purchases" rewards rate. Before applying for a card, call to find out which category the stores you frequent fall into.

High Interest Rates

Neglect to pay off your grocery rewards card's balance every month and you could find yourself living hand to mouth. Rewards cards usually have interest rates that are a percentage point or two above standard credit cards (currently averaging 12.71% variable), says Emily Davidson, a finance expert for Credit.com, a debt management site. Store-branded cards are even worse. "They're basically retail credit cards, which are more limited, with higher rates and fees than a traditional card," she explains. ShopRite's store card, for example, carries a whopping 21.24% variable APR. Its MasterCard co-branded option, meanwhile, offers rates as low as 12.24% variable. ShopRite did not respond to calls for comment.

Rewards Cards Worth Swiping

Not all rewards cards are created equal. While many grocery rewards cards are lacking, there are some that can help you save. Just beware of those high interest rates and make sure to pay them off each month — or they won't be worth it. Our experts, CardRatings.com's Curtis Arnold and DebtSmart.com's Scott Bilker, like these three cards:

Card	Interest Rate	Rewards
American Express Blue Cash	10.99% to 15.99% variable	If you use this as your primary card, it offers the best grocery rewards around. Once you've spent $6,500 on the card, you'll earn 5% cash back on "Everyday Purchases" at supermarkets, gas stations and drugstores, and 1.5% everywhere else. (Before that threshold is reached, you'll earn 1% back on everyday purchase categories, and 0.5% everywhere else.) Purchases made at superstores and warehouse clubs are not eligible for the bonus rebate. There is no monthly spending cap or maximum rebate.
Chase Freedom	15.24% variable	Earn a 1% rebate on all types of purchases. Earn a 2% bonus (for 3% total) on grocery purchases so long as "grocery stores" is one of the three types of places where you spend the most each month. Purchases made at superstores, warehouse clubs and discount stores are not eligible for the bonus rebate. There's no monthly spending cap or maximum rebate for the standard 1% reward. But for bonus-rate purchases at grocery stores, the spending cap is $600 a month for a total maximum rebate of $12. Spend more than that, and you'll get the regular 1% rebate, but not the 2% bonus.
Citi Dividend Platinum Select	9.74% to 14.74% variable	Earn 5% on supermarket purchases for six months; 2% thereafter. (Rates also apply for purchases made at drugstores and convenience stores.) All other purchases earn 1%. Purchases made at warehouse clubs, discount stores and department stores are not eligible for the bonus rebate. The maximum annual rebate is $300, which equates to $6,000 to $15,000 in bonus-rate purchases.