Key takeaways
- The ongoing impact of inflation in recent years has left many Americans tightening their wallets.
- One surprising solution for combating the negative impacts of inflation may be opening a new credit card that allows you to offset higher costs with cash back savings and other rewards.
- But while welcome bonuses, rewards and miles can all help take the sting out of spending, it’s important to use these cards responsibly and limit the balance you carry.
Inflation has left many Americans paying more at the gas pump, the grocery store and a lot of other places. And while this isn’t great news, Americans have weathered these storms before. From coupon clipping to discount shopping, we know there are ways to soften the blow of inflation — even as it returns to normal levels.
By using your credit cards strategically, you may be able to earn discounts in common spending categories where prices are rising. Plus, a new credit card that fits your spending patterns — especially one offering hefty rewards and an attractive interest rate — could be another useful weapon in the fight against higher costs.
Here are tips on how you can use your credit card — especially a new one — to fight inflation no matter its level.
The impact of inflation on credit card debt
After rising for more than a year, the Consumer Price Index (CPI) — one of the most widely used measures of inflation, which takes into account consumer prices for everything from groceries to gas — peaked at 9.1 percent in June 2022, according to the U.S. Bureau of Labor Statistics. Although this rate has since fallen to 2.9 percent as of July 2024, it’s still higher than the 2 percent inflation rate typically targeted by the Federal Reserve.
Translation: in the past few years, Americans’ purchasing power has eroded, meaning it takes more of our money to buy goods and services.
In an effort to curb inflation, the Federal Reserve has maintained the target federal funds rate to a range of 5.25 percent to 5.50 percent — up from 0.75 percent to 1.00 percent at the start of June 2022. When the Fed bumps up that rate, that action tends to trickle down to interest rates for credit cards. How? If the federal funds rate climbs, then the prime rate climbs, and the interest rates for credit cards are likely to climb as well.
As of August 2024, the average credit card interest rate stands at 20.78 percent, according to Bankrate. This increase — up from an average of 16.17 percent in 2022 — is making it more expensive for many consumers to carry a balance on their credit cards.
Unfortunately, even though there has been progress in the Federal Reserve’s fight to lower inflation, Americans may not see immediate relief. That’s because the higher prices driven by past inflation continue to diminish individuals’ ability to save. A credit card can help bridge that gap and put money back into your pocket.
How the right card can lessen the sting of inflation
Just as inflation nibbles away at the spending power of cash, it also can nibble away at the spending power of credit cards. However, a credit card with robust rewards, bonuses and benefits can help you offset that inflation. Here’s how:
It can provide lucrative rewards
Credit card rewards can save you money on your everyday spending, especially if the rewards come in the form of cash back. You could get anywhere from 1 percent to 5 percent back or more, depending on what you’re buying and what card you have. If you have a travel credit card that earns points or miles, you could stretch your savings even further by having your rewards offset some of the costs of an upcoming trip.
On top of that, the sign-up bonus you receive when opening a new rewards card can help cushion the blow of rising prices, especially if you’re planning a large purchase.
Keep in mind:
These rewards will only offset the costs of inflation if you don’t carry a balance on your card. If you do, you’ll be charged interest, which will likely cancel out the value of any rewards you earn.
It can help you save on essentials like gas and groceries
The cost of food increased an average of 2.2 percent from July 2023 to July 2024, according to data from the U.S. Bureau of Labor and Statistics, while energy prices appear to have increased by just 1.1 percent for the same time frame.
This slowing rate of inflation is a good sign, but consumers are still facing high costs on essentials. The average family of four with two adults and two kids ages 8 and 10 is now spending $1,321 per month on a moderate food spending plan, according to July 2024 data from the U.S. Department of Agriculture.
The good news is that credit cards can help you out. Plenty of cards offer rewards on groceries and food delivery, dining out, gas at the pump and other common spending categories.
In some cases, you can find a credit card that covers multiple categories— such as a flat-rate cash back card that rewards you with the same rate of cash back on all spending. No matter which credit card you choose, you’re able to earn rewards on the food and fuel spending you would’ve done anyway.
What to consider when picking a credit card
If you’re considering credit cards that deliver inflation-fighting rewards, take these factors into consideration before deciding:
- Your overall spending patterns: Examine your spending over the past few months so you can find a card that rewards your everyday expenses.
- What kinds of rewards you want to earn: You may benefit from a credit card that provides an attractive amount of cash back on grocery purchases. Or maybe you’re traveling a lot now and would find an airline or hotel credit card that earns points or miles more rewarding.
- How easy it is to earn the card’s welcome bonus: A welcome bonus can offset your spending, but not if you’re going to go into debt to reach the minimum spending requirement. Find a card with a welcome bonus that will easily fit into your budget.
- What interest rate you’re comfortable with: Many rewards credit cards extend a 0 percent intro APR for at least 12 months to further maximize their value, although the best 0 percent APR cards offer up to 21 months — but it’s the regular variable APR that you really need to pay attention to. There may come a time where you have to carry a balance on your card, so choosing one with an APR that’s lower than average could save you some serious dough when it comes to long-term charges.
Bankrate’s top choices for fighting inflation with credit card rewards
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If you’re looking to earn rewards on your grocery and gas spending, the Blue Cash Preferred® Card from American Express is a great option for both categories. This card has a $0 annual fee for the first year of card ownership, then a $95 fee after that. You’ll earn:
- 6 percent cash back at U.S. supermarkets on up to $6,000 per year (then 1 percent back)
- 6 percent back on select U.S. streaming subscriptions
- 3 percent back on U.S. gas station and transit spending
- 1 percent back on all other purchases
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The Amex Blue Cash Preferred is ideal if you have a moderate grocery budget, since there’s a $6,000 cap on grocery spending each year — meaning a maximum of $360 in cash back earnings within that category. Not only can you save on gas, but if you use public transportation, you’ll earn 3 percent back on that spending as well. Plus, you can get a welcome bonus of $250 when you spend $3,000 within the first 6 months from account opening.
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The Chase Sapphire Preferred® Card has an annual fee of $95. But, you can offset this fee pretty easily depending on how you use it. With the Chase Sapphire Preferred you’ll get:
- 5X points on travel booked through Chase Travel℠
- 5X points total on Lyft rides (2X on general travel and 3X-point bonus through March 2025)
- 3X points on online grocery purchases (excluding Target, Walmart and wholesale clubs)
- 3X points on dining (including takeout and eligible delivery services)
- 3X points on select streaming services
- 2X points on general travel
- 1X points on everything else
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This Chase card comes with other great benefits and credits, like a 10 percent anniversary point bonus and the ability to redeem your points for 25 percent more value when booking travel through the Ultimate Rewards portal.
However, the fact that you can earn more rewards on both groceries and dining with this card is a big deal. Plus, you could be eligible for a free 12-month DoorDash DashPass membership if you don’t already have one (must activate by Dec. 31, 2024). Plus, any order you place for delivery will still earn 3X points.
Since this card lets you use your rewards for statement credits at a rate of one cent per point, you could ultimately redeem points to knock down your credit card bill after you shop if you don’t want to save up for travel.
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The Bank of America® Customized Cash Rewards credit card has no annual fee and earns:
- 3 percent cash back on purchases in your category of choice
- 2 percent cash back at grocery stores and wholesale clubs
- 1 percent cash back on everything else
The card has a spending cap of $2,500 in combined 3 and 2 percent category purchases each quarter before dropping those reward category rates to 1 percent.
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This card is a great choice for those who need more flexibility on spending categories, as it comes with 3 percent back in one category of your choice that you can change once per month. With this strategy, you can pair your grocery earnings with rewards on purchases based on what matches your anticipated spending for the month. Some categories include:
- General travel
- Home improvement
- Gas & EV charging stations
- Online shopping (including Cable, Streaming, Internet and Phone services)
- Drugstores
- Dining
New cardmembers can also earn a $200 cash bonus after spending $1,000 on purchases in the first 90 days of account opening. If you’re a Bank of America Preferred Rewards member, you can earn up to 75 percent more cash back on all purchases, depending on your membership tier level.
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The Citi Custom Cash® Card doesn’t have a bonus category for groceries or gas, per se, but it does deliver 5 percent cash back on your top eligible spending category (up to $500 per billing cycle) out of 10 top spending category options. Gas stations, select travel costs and select transit expenses are three of these top 10 categories — and even if you hit the $500 limit, you’ll still earn 1 percent back.
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Since many consumers’ top spending categories naturally fall under food or fuel, it can be relatively easy to hit $500 each month and earn 5 percent back (which you’ll receive in the form of basic Citi ThankYou points, despite this card being marketed as a cash back card). These points can be redeemed for cash with a direct deposit, check or statement credit. You can also redeem your points for gift cards, travel through Citi or eligible purchases on Amazon with Shop with Points.
The Citi Custom Cash also allows you to earn $200 by spending $1,500 within the first 6 months from account opening.
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The Costco Anywhere Visa® Card by Citi* has no annual fee but requires a $60 Costco membership to carry. It offers:
- 4 percent cash back on eligible gas and EV charging purchases, including gas at Costco (for the first $7,000 per year, then 1 percent)
- 3 percent cash back at restaurants and on eligible travel purchases
- 2 percent cash back on all Costco and Costco.com purchases
- 1 percent cash back on everything else
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This card is ideal for die-hard Costco customers only, because redeeming rewards is pretty strict. You’ll receive your rewards as a single credit card reward certificate that must be used in-store only. This certificate can be redeemed once a year after your February billing statement. If you frequent Costco enough, this card might still be worth it.
If you’re into wholesale clubs but are more of a Sam’s Club fan, for example, the Sam’s Club® Mastercard®* might be worth considering as it offers a similar rewards structure and redemption options.
Other money-saving strategies
Here are some additional tips that could help you stretch your savings further:
- Consider a rotating bonus category card: If you aren’t particularly sold on any of the cards above, you might be interested in a rotating bonus category card like the Discover it® Cash Back, which offers 5 percent cash back on activated rotating bonus categories each quarter (on up to $1,500 in spending per quarter, then 1 percent). At a cash back rate of 5 percent, this card can definitely help you against inflation on category purchases.
- Double dip with cash back apps: You’ll find a number of cash back apps you can use to deepen your grocery and gas discounts. Ibotta and Fetch Rewards are just two that allow you to save money on groceries while still earning credit card rewards on those purchases. For gas, there’s the app Upside, as well as plenty of loyalty programs to help you save at the pump while still earning credit card rewards on your fuel spending.
- Put together a solid budget: Setting up a spending plan doesn’t always require you to cut something out. You may be able to move expenses around or find ways to earn extra money to make up for the shortfall. The point is to take stock of your spending and figure out what you can change to fare better even as prices rise.
- Avoid credit card interest at all costs: You won’t benefit from rewards if you’re carrying a balance on your card from month to month, so you should only try out the rewards strategies on this list if you can pay your balance in full every billing cycle. If you have credit card debt to consolidate, consider transferring your high-interest debt to a card that offers 0 percent interest for a limited time.
The bottom line
Past inflation has triggered higher prices for everything from milk to Maseratis. As Americans continue to cope with the impacts of inflation (even as inflation itself slows), some are finding that a new credit card — particularly one that offers lucrative rewards and a welcome bonus — can help.
But before you start shopping for the best rewards credit card to add to your inflation-fighting arsenal, consider whether cash back, points or miles will bring the most bang for your buck. Also, strive to pay off your card in full so credit card interest charges don’t cancel out the value of your rewards in the fight against high prices.
*Information about the Costco Anywhere Visa Card by Citi and Sams Club Mastercard has been collected independently by Bankrate. The card details have not been approved or reviewed by the issuer. The Bank of America content in this post was last updated on September 5, 2024.
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