Pros and Cons: Flat vs. Rotating Credit Card Rewards

My very first card got me 5% back on gas and groceries. I was a broke student and new to the credit card game, but I figured 5% was a steal. And it was. Until it vanished faster than a professor without tenure. Such goes the carousel ride that is rotating credit card rewards.

Let's attempt to answer the financial nerd's favorite argument starter: which is better, flat-rate or rotating rewards credit cards? The flat-rate vs. rotating credit card rewards debate is a heated one. Some live or die by the edge of their titanium blade (figuratively speaking, of course).

Flat-rate vs. rotating credit card rewards

Let's start by comparing each credit card type based on three main features: rewards rate, ease of use, and flexibility:

Flat-rate credit cards offer lower rates than rotating cards. In exchange, they're simpler to use, offer predictable rewards, and are often less restrictive of spending.

Rotating credit cards are more complicated than flat-rate cards. It takes effort and planning to use them to their fullest potential. But they offer spenders great rates on specific categories.

Flat-rate credit card rewards: Pros

Flat-rate credit card rewards are like longswords: Their edge is their simplicity and ease of use. You don't need fancy footwork or an MBA in finance to spend well. Just pop out your credit card at the cashier counter/Costco website/restaurant and go.

Who are flat-rate credit card rewards suited for: Minimalists, credit card casuals, and folks with a budget. The beauty of flat-rate rewards is they're predictable; if you know what you're buying, you know what you're getting.

One more group: category-specific spenders. Some flat-rate cards limit rewards to one or two categories. So you might benefit from mixing, say, a credit card that offers 6% back on groceries with one that rewards you 2% back on everything.

Rotating credit card rewards: Pros

Rotating credit card rewards are like seasonal sales: you need timing to take advantage, but the gains you reap are high, potentially. So long as you schedule things out right, you can get the most bang for your buck out of any credit card type.

Who are rotating credit card rewards suited for: Deal hunters and credit card enthusiasts. Rotating cards offer market-beating prices on common spending categories. Some offer 5% cash back or more.

Most Americans only have one or two credit cards. But if you're happy to manage more than one, you can mix and match cards to "game the system" even further. Just be sure you're comfortable tracking more than one monthly payment. Late payments are expensive.

How much you could earn

Let's compare two of the best credit cards on our radar. We'll compare how much you could earn by using these cards on three of the biggest categories for typical American household spending: transportation, food, and insurance.

The Wells Fargo Active Cash® Card offers flat 2% cash rewards on all spending. Say you use it to pay for $2,533 worth of transportation, food, and insurance. In a month, you'd earn a predictable $50.66 cash reward.

The Discover it® Cash Back offers a 1%-5% cash back reward, depending on season and spending category. The rotating 5% categories must be activated each quarter and a quarterly spending cap of $1,500 in purchases ($75 in rewards) applies. Other purchases outside of the quarterly categories earn 1%. Say you use this card to pay for $2,533 worth of transportation, food, and insurance. In a month, you'd earn between $25.33 and $85.33 in cash-back rewards, depending on whether you're earning 1% back, or 5% (with the quarterly cap imposed).

Which card type should you choose

Choose credit cards that offer flat-rate rewards if you want to put minimal effort into earning decent cash back. It's easy to spend, and you don't have to think about it much. Plus, you can accurately predict your earnings months ahead of time.

Choose credit cards that offer rotating rewards if you're happy to put effort into maxing. You'll earn a bit extra to pad your bank accounts, assuming you spend on popular categories. If you're spending it all on, I don't know, 18th-century British memorabilia, rewards may be low.

The best rewards cards offer a healthy mix of choices, including options for frequent travelers. Feel free to take your time looking around. A credit card sticks with you for years; how you use it impacts your credit score with the force of a falling meteor, for better or worse.