Discover Card

I have more than 20 credit cards, but I only carry three or four in my wallet at any given time. Most of the time, those include my “Discover it” cash rewards card. My Discover card is my fallback card when I don’t have a reason to use any of the others.

Usually I get a new credit card only because a signup bonus is offered. But in this case I applied because the card itself is so good. In fact, I’ll make over $700 with it the first year. Before I explain how in more detail, here here’s a summary of what I like about this card:

  • No annual fee
  • No interest on purchases for the first year
  • 5% cash back in select categories
  • 1% cash back on all other purchases
  • All cash back is doubled after your first year
  • Redeem cash back easily (any amount any time)
  • Freeze your account with a click any time
  • No foreign transaction fee

There are other nice features that don’t matter as much, like no late fee for your first late payment, and no increase in the interest rate for paying late. I’ve never had a late payment on anything, so these features don’t give me any advantage.




The three things offered that you can use to make hundreds of dollars are the 5% cash back categories, the doubling of all cash back the first year, and the 0% interest rate the first year. Here’s how to maximize those benefits.

Who Else Offers 10% Cash Back?

The 5% cash back categories change every three months and are limited to the first $1,500 in purchases. Of course, because Discover is doubling all cash back after the first year, you’re really getting 10% cash back. No other card does that.

When I first got the card the categories included home improvement stores. I actually needed quite a few things from Home Depot and Lowes at the time, so I made sure I used my Discover card in those stores.

Of course, to maximize your cash back you need to spend the whole $1,500 allowed for the category, and you don’t want to buy anything you don’t need. In my case, I finished up my allowance by buying gift cards, and this is a key strategy for making the most of that 10% cash back.

Home Depot sells a hundred different gift cards on a big display. Since my wife and I had been regularly going to Chili’s to eat, I bought a few $25 gift cards for that restaurant at Home Depot, earning that 10% (5% at the time, the other 5% when my first year is up).

Then I loaded up on a few hundred dollars of Shell gas cards. The Shell stations that are co-branded with Circle K already have the cheapest gas prices around here, so these cards were the perfect way to finish off my “spend.”

Usually every quarter’s categories include some stores that sell retail gift cards. So when you are near the end of the quarter, tally up how much you’ve spent on the bonus category purchases and then finish off your $1,500 “spend” on gift cards for places you normally shop.




During some quarters it’s easier to max out that 5% cash back. For example, Discover’s 5% cashback bonus categories have included Amazon for the last two quarters, so if you do a lot of shopping online you could just buy Amazon gift certificates to finish off the $1,500.

Sometimes the category is clear — if it’s drugstores any CVS or Walgreens will qualify. But sometimes you’ll have to do a test purchases and wait to see if you get the 5%. For example, a Walmart Supercenter is not coded as a “grocery store,” and some gas stations may have a different classification for purchases made inside rather than at the pump.

If you max out every quarter you’ll have $6,000 in bonus category spending the first year, which will get you $300 in cash back as you go and another $300 when it gets doubled after the year is up. And that’s just the 5% category purchases. You might put another $3,000 on the card and earn 2% on that (1% plus the year-end doubling), adding $60 to your profit.

Then there is that 0% interest…

Using Their Money

I normally pay off every credit card balance every month, and recommend the practice. Why pay interest? It just means paying more for everything you buy.

But when the rate is 0%, why pay off the credit card? Run that balance up and pay only the minimum. Then take the money that would have gone to paying the balance each month and put it in the bank. That’s right; you’ll be collecting interest on the credit card company’s money.

I figure for the first year I’ll have an average balance of $3,000 on the card. The payoff money wouldn’t make much in my usual savings account, which pays just 1.1% interest. But I opened an account associated with a NetSpend prepaid card that pays 5% interest on the first $5,000. I fully funded the account, but the $3,000 in payoff money for the Discover card will by itself earn $150 in interest before I use it to pay the card in full when the 0% offer expires.

Note: If you do this, stick to the default no-fee plan, and use this referral code to open your account: 2930369592 . That way you’ll get a $20 bonus (and I will too). You have to have at least one direct deposit of $500 or more to qualify for the savings account, and you have to have some activity every 90 days to avoid fees.

Putting It All Together

Here’s what you might make if you do this right:

Cash back on bonus categories (10% x $6,000): $600

Cash back on additional purchases (2% x $3,000): $60

Interest earned on balance payoff money (average balance $3,000 x 5%): $150

Total: $810

That’s a worthy goal, but I figure I’ll be closer to a $700 profit for the year. I incurred some expenses finishing off the category spend limit the first quarter (I bought Visa gift cards in a category store to get 10% cash back, but paid a fee of $6.95 for each $200 card). I also don’t think I’ll have $3,000 in additional charges because I have to use so many other credit cards for purchases to earn various credit card signup bonuses.

Your Thoughts: Do you have a Discover card, and are you maximizing your cash back and 0% interest features?

Photo Credit: Philip Taylor on Flickr.com