Maximizing the Discover Double Cash promo: Which card is best? How many can I get?

June 15, 2015

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Discover is currently pulling out all stops to get people not just to sign up for their cards, but also to use them for all their purchases. At least three Discover cards are currently offering to double all rewards for a year:

Discover It
Discover It Miles
Discover It Chrome

One of the most amazing things about this offer is that Discover allows current cardholders to sign up for this promotion. UPDATE: Discover has stopped allowing existing customers to sign up for this promotion.

Any reason to wait to apply?

If you’re considering applying for the Discover It card, you might be tempted to wait a while. The reason has to do with their 2015 5% cash back calendar:

If we assume that the 2016 calendar will be similar, it may be possible to time your sign-up in order to maximize your favorite category twice. The July-Sept 2015 category is extremely broad: Home Improvement Stores, Department Stores, and Amazon.com. If you like those categories, you might be able to take advantage of it twice in the next 12 months. The trick would be to wait until late July to sign up for a new Discover It card, then take advantage of the category bonus in August and September. Then, if the category is available next year, you can take advantage of it again in July 2016 while the Double Cash Back offer is still in place!

Recommendation: Don’t wait. We don’t know how long Discover will offer this Double Cash Back offer to new applicants. I recommend getting in on it as soon as possible.

Discover cards overview

Here’s a very brief summary of each card’s standard earning rates:

Discover It: 5% cash back in rotating categories, up to $1500 spend per quarter. 1% cash back everywhere else.
Discover It Miles: 1.5 miles per dollar for all spend. Each mile is worth 1 cent, so this is really a 1.5% cash back card.
Discover It Chrome: 2% cash back on up to $1,000 in combined purchases at restaurants and gas stations every quarter. 1% cash back everywhere else.

Here are the doubled earning rates:

Discover It: 10% cash back in rotating categories, up to $1500 spend per quarter. 2% cash back everywhere else.
Discover It Miles: 3 miles per dollar for all spend. Each mile is worth 1 cent, so this is really a 3% cash back card for a year.
Discover It Chrome: 4% cash back on up to $1,000 in combined purchases at restaurants and gas stations every quarter. 2% cash back everywhere else.

Here are each card’s sign-up bonuses and major benefits:

Discover It: $100: $50 cash back after first purchase plus another $50 at the end of 12 months thanks to the double cash back promo.
Discover It Miles: No bonus, but the card offers free in-flight wifi, up to $30 per year.
Discover It Chrome: None.

Which card(s) to get?

Let’s first look at each card individually. If you could have only one Discover card, which one should you get?

First, let’s rule out Discover It Chrome:

Discover It Chrome does offer 2% cash back at restaurants and gas stations every quarter (up to $1000 spend, per quarter, combined), but otherwise doesn’t stand out at all. If you were to maximize use of this card by spending exactly $4,000 within these categories over 12 months, you would earn $80 cash back which would then be doubled to $160. With the Discover It Miles card, that same spend would earn $60, which would be doubled to $120. In other words, going with the inferior Discover It Chrome card would earn at most $40 more than the Discover It Miles card if all spend was within those two categories. That’s not enough upside to get excited about.

Similarly, lets compare to the Discover It card. The Discover It card usually offers 5% cash back for gas in one quarter and 5% cash back for restaurants in another quarter. Let’s assume that our $1000 quarterly spend is evenly split between gas and restaurants. In that case, over a year, a total of $1000 spend will earn 5% cash back and $3000 spend will earn 1%. Total earnings in one year: $80. After doubling: $160. In other words, you would earn exactly the same cash back as with the Discover It Chrome card without taking advantage of any other 5% cash back categories.

Discover It vs. Discover It Miles:

For simplicity, you can’t beat Discover It Miles which offers 1.5% cash back for all purchases. There is no need to sign up for category bonuses or remember when to use this card vs. another card. After doubling, this card averages a straight 3% cash back for the first year of card membership. That’s hard to beat.

I recently added the Discover It card to my Credit Card Analysis spreadsheet. Based on spend assumptions coded in that spreadsheet, the Discover It card would average 1.45 points per dollar. Depending upon how a person makes use of the card’s rotating 5% categories, that average would go up or down.

On the surface, it appears that the earning rates of the two cards are similar: 1.5% cash back with the Discover It Miles card and an average of 1.45% with the Discover It card (if you believe my spreadsheet assumptions). That’s far from the whole story, though…

Category chasing: Those willing to put some effort into the game, can do better than 1.45% cash back with the Discover It card. The spreadsheet assumes $30,000 in annual spend. If you were to maximize the card’s 5% categories, then $6,000 of that spend will earn 5%. Your average earning rate, then, would be: (5% x $6,000 + 1% x $24,000) / $30,000 = 1.8%. Those with lower annual spend would do even better. For example, with $15,000 annual spend, your earning rate would be: (5% x $6,000 + 1% x $9,000) / $15,000 = 2.6%. At the end of the year this would double to an amazing 5.2%.

One way to maximize category bonuses is by buying gift cards. Suppose, for example, that you almost always fill up your gas tank at the same gas station chain. In that case, during the quarter offering 5% cash back for gas, you could simply go to one of these gas stations and buy $1,500 worth of gift cards. Then, use those gift cards throughout the year when filling your tank.

Online shopping: As I’ve written about before, even though both cards have access to “Discover Deals”, most online shopping offers are available only to Discover It cardholders. This is a huge benefit of Discover It over Discover It Miles, especially since shopping portal cash back will also be doubled after 12 months.

Redemption value: Discover It Miles miles are worth exactly 1 cent each. Discover It Cash Back, though, can be worth more than face value when redeemed for discounted gift cards. One of my favorite options, for example, is to get $40 National Car Rental gift certificates for $20 each. Read more about why I like that option here: Discover rental car discounts and upgrades.

Summary:

Get the Discover It Miles card if you want to keep things simple.
Get the Discover It card if you’re willing to take some time to maximize category bonus earnings and shop through the Discover Deals portal.

Two cards: ideal scenario

The ideal combination would be to have both cards: Discover It and Discover It Miles. Use those cards as follows:

Discover It: Use for its 5% cash back categories, and for its online shopping portal.
Discover It Miles: Use everywhere else.

How great would that be? Let’s make a few assumptions:

Total $30,000 annual spend
$25,000 spend on the Discover It Miles card
$5,000 spend within Discover It 5% cash back categories
$2,000 spend through Discover Deals shopping at 10% cash back

Earnings before doubling:

Discover It Miles: $25,000 x .015 = $375
Discover It: $5,000 x .05 = $250
Discover Deals: $2,000 x .1 = $200
Total: $825

Before doubling, with the above assumptions you would earn $825 cash back, or 2.75%.

After doubling, you would earn a total of $1,650, or 5.5% cash back!

Is it possible to have both cards? Hint: yes.

Doctor of Credit found that a person can sign up for a second card, but only after they’ve had the first card for a year. So, if you’ve already been a Discover It card member for a while, you could sign up now for the Discover It Miles card and have both cards. Or, you could sign up for a second Discover It card in order to expand your 5% category bonus limit from $1,500 to $3,000 per quarter.

Another option is for a couple to share cards. Let’s take a husband and wife, for example. The husband can sign up for the Discover It Miles card and add his wife as an authorized user. And, the wife could sign up for the Discover It card and add her husband as an authorized user. Keep in mind, though, that this approach would not increase the capacity for 5% cash back spending. If you think you can do more than $1,500 per quarter of 5% cash back spending, then it may be better for each person to get the regular Discover It card.

Are you sure using the Discover IT to buy gift card for gas will actually work? When they say gas, do they mean actual purchase of gas, or a gift card specifically for gas is also okay? So for example, I can walk into Exxon and buy specifically $1500 of Exxon gas gift card? I guess what I’m asking is that since you are not buying actual gas, and these gift card (although they are from Exxon) can be use to purchase other item at the station, will they be classified as gas and be given the 5% cash back?

Eric

Reply to Jimmy

9 years ago

Are you saying that Exxon takes Apple Pay of was that just a hypothetical?

Eric

Reply to Jimmy

9 years ago

*or

Jimmy

Reply to Eric

9 years ago

I was merely referring to your statement about getting $1500 worth of gas gift card (not using Apple Pay). With that you would get up to 5% which is $75 as you have mentioned in your article. I just don’t know how Discover feels about gift cards in general. Or if a “gas gift card” (e.g., Exxon Mobile Gift Card), is considered as gas purchase giving that you can technically use it for anything else at the gas station.

Eric

Reply to Jimmy

9 years ago

I never wrote that. Discover isn’t even offering 5% on gas this quarter (or next quarter).

Jimmy

Reply to Eric

9 years ago

Okay, let me ask the question this way, and I appreciate your reply.

When and during the quarter when Discover is doing the gas 5% back, do they really mean any and all gas station purchases? As in, if I were to get off, get a cup of coffee and a donut at the gas station that would still count?

Eric

Reply to Jimmy

9 years ago

I’ve never used Discover for anything other than actual gas at the pump in the past for those offers. However, there’s a chance buying in the store would count as a “gas” purchase. Your best best is to make a small purchase in the store in the first month of the promotion. That way you will see if you earned 1% or 5%.

Greg The Frequent Miler

Author

Reply to Jimmy

9 years ago

When Discover offers 5% for gas, I’ve found that it applies to all purchases made at a gas station. So, yes, you should be able to buy $1500 worth of Exxon gift cards (at the gas station) and get 5% back. On gas related promotions watch out for terminology that says something like “pay at the pump only). In those cases, buying gift cards at a gas station most likely won’t work.