Credit Cards That Let You Invest Cash Back

I have heard some rumors that Chase no longer gives 3% cash back to Freedom Card holders for shopping at gas stations and grocery stores. I haven’t got the notice from Chase myself yet and my latest statement on May 13 still shows 3% cash back for every $1 of eligible purchases made at gas stations, grocery stores and fast food restaurants. So I assume I can still enjoy the *generous* reward, for now. But if Chase is sending the letter to every cardholder, sooner or later I will get mine.

Of course, Chase won’t be alone in changing the terms (for example, Bank of America also plans to hike card interest rate next month)  and what Chase did didn’t surprise me at all. After the CARD Act of 2009 was signed into law last week, more and more banks will adjust their practices, not to really protect their customers, but make up their losses from other areas. There are predictions that, under the new rule, card issuers will not only tighten the standard on credit card applications, but also cancel card reward programs and impose annual fees on cards that are currently free.

As for the Chase Freedom Card, if the cash back is slashed to just 1%, then I will abandon the card and start to use my Fidelity 529 College Rewards card exclusively because it gives me 2% cash back on every dollar spent, no category restriction and no cash back limit. It’s one of my favorite cash back rewards cards. Actually, if I can choose between cards that give me the rewards as cash and cards that let me invest the cash back, I will go with the latter. The reason is simple: $20 invested today could mean a lot more 5 or 10 years later. If I get the cash, I could just spend it without notice If you agree with my argument, then there are a few choices that let you invest your cash back from credit cards.

Fidelity Rewards American Express Cards

This program currently offers three cards from American Express, all allowing to earn 2% cash back on every dollar spent (when the program was first launched a few years ago, the cash back was only 1.5%) on any purchases and there’s no annual fee. The three cards are:

• Fidelity Investment Rewards American Express Card: Rewards are invested in a Fidelity brokerage account;
• Fidelity Retirement Rewards American Express Card: Rewards are invested in a Fidelity IRA account;
• Fidelity Investments 529 College Rewards American Express Card: Rewards are invested in a Fidelity managed 529 account.

Besides, there’s no limit on how much rewards you can earn with these cards. The only requirement for these cards is that you need a Fidelity account so you can invest your rewards. Every time you earn $50 in rewards, the money will be automatically invested. If you don’t want to invest your cash back, you can also redeem for travel, gift certificate, or other items, but you can’t take out the cash.

Schwab Bank Invest First Visa Credit Card

The Schwab Invest First Visa Card is relatively new, but it generated quite some interests when the card was launched last december. Similar to the Fidelity Rewards cards, the Schwad card also let you earn 2% cash back on everything, but requires a Schwab brokerage account in order to get the cash back. This card has no annual fee and there’s no limit on how much cash back you can earn. However, one drawback of the card is that there’s no pre-set spending limit. When a credit card has no pre-set spending limit, the credit line on credit report will appear as zero, which may not be a good thing as far as your credit score is concerned.

UPromise Credit Card from Bank of America

The UPromise Credit Card is the most flexible card among cards mentioned here in terms of how you can get the rewards you earned. You can link the card to a UPromise 529 College Savings Account and invest the cash back if you choose to do so (I use this card to invest in my daughter’s 529 account), but unlike other cards, this is not required. Probably because a brokerage account is not necessary, the rebate from the UPromise card isn’t as good as cards listed above: You only get 1% rebate for most of your purchases and there are some categories that let you earn a little more.

One more thing. There are a lot of unhappy customers since Bank of America took over the UPromise card from Citibank early this year because their payments were messed up during the transition. Otherwise, I still think this is a good option.

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