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Adieu to the 2% Charles Schwab Credit Card

Aug. 30, 2011
Cash Back Credit Cards, Credit Cards
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Holders of the Charles Schwab credit card will receive some unhappy news in the mail this week. The fantastic 2% credit card (which I love, and consider to be one of the top cards in the business) will be discontinued, and the replacement Bank of America® credit cards simply don’t compare. The Schwab Bank Invest First has been my one and only credit card, and it pains me to lay it to rest. While the replacements haven’t impressed me, the Capital One® Venture® Rewards Credit Card and the Chase Freedom® retain some of the Schwab card’s better qualities.

For Schwab cardholders

While the letter reveals little more than the fact that the Schwab card is being replaced with a Bank of America®-branded card, we were able to get a bit more information out of a customer service rep. In an email brief, reps were told that starting later this month, cardholders will have a choice between two cards: the Bank of America® Travel Rewards credit card and the Bank of America® Cash Rewards credit card.

Details are still up in the air on both of these cards, and could change again before cardholders are informed, but full details are to come in a letter that will be sent out on September 23rd. Below we’ll go through the little we were able to determine, some of which is admittedly hearsay.

And while these presumed rewards programs certainly aren’t terrible, they don’t exactly fare well against either the hallowed memory of the Schwab card or our best rewards credit cards.

Bank of America® Cash Rewards credit card

This card has a 0% on Purchases and Balance Transfers for 15 billing cycles, and then the ongoing APR of 16.24% - 26.24% Variable APR. Its annual fee is $0 and its rewards program is as follows:

  • 3% on a bonus spending category of your choice, and 2% on purchases at grocery stores and wholesale clubs, up to a combined spending of $2,500 a quarter
  • Unlimited 1% elsewhere
  • $200 online cash rewards bonus after you make at least $1,000 in purchases in the first 90 days of account opening

So it’s not a terrible rewards program. But it’s a pretty big step down from 2% on all purchases. Compared to no-fee rewards cards like the Chase Freedom® and Citi Forward® Card (both of which give 5% back in bonus categories), the Bank of America® Cash Rewards credit card is the runt of the litter. Our verdict? Not worth it.

Bank of America® Travel Rewards credit card

The Bank of America® Travel Rewards credit card gives 1.5% back on all purchases. Plus, you get up to 75% more cash back if you deposit your rewards into a Bank of America® checking account or have a Merrill Edge or Merrill Lynch account with an eligible balance. If you have a Merrill Lynch account, that’s great, but Bank of America® doesn’t offer straight-up free checking. You have to meet certain qualifications in order to avoid the monthly fee: minimum balance requirements, direct deposits or steering clear of brick-and-mortar locations, depending on the checking account. It’s a bit of an inconvenience, especially if you don’t already bank with Bank of America®.

In addition to a pared-down rewards program, the Bank of America® Travel Rewards credit card has way more fees than the departing Schwab Bank Invest First. It’s annual fee is $0. Plus, the card charges a 3% foreign transaction fee, where the Schwab Bank Invest First charged 0% on overseas transactions. I loved the Schwab card because it gave a simple, flat 2% back and didn’t have an annual fee. I’m not in love with this new guy.

Substitutes for the Schwab Bank Invest First

I’m not sold on the Bank of America® Travel Rewards credit card, and I’m really not sold on the Bank of America® Cash Rewards credit card. Thankfully, the hunt for credit cards that can hold their own against the Schwab Bank Invest First was pretty successful. Depending on your favorite features of the Schwab card, you can find some pretty good alternatives.

No foreign transaction fee: See our blog post for a list of credit cards with no foreign transaction fee.

No annual fee, part 1: We mentioned that the Chase Freedom® is comparable to (in fact, superior to) the Bank of America® Cash Rewards credit card. Here’s why. It comes with a signup bonus: Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening. It also gives 5% back on bonus categories (up to $1,500 in spending a quarter) that rotate quarterly and can include gas stations, restaurants, select grocery stores, and wholesale clubs. This quarter’s categories are gas, hotels and airlines. The Chase Freedom®’s rewards program beats out the Bank of America® Cash Rewards credit card’s for a couple of reasons:

  • You probably spend more on the Chase Freedom®’s bonus categories cumulatively than you do on gas and groceries, so you’re getting 5% on more spending.
  • Essentially, the Chase Freedom® gives 2% back on all its bonus categories, throughout the entire year. This is because you earn 1% for 3 quarters and 5% for 1, averaging out to 2%. You’re earning 2% back on gas, groceries, hotels, airfare, clothing…the list goes on. Much better than getting bonuses on just gas, groceries and wholesale clubs.

Technically the Bank of America® Cash Rewards credit card gives 1.1%, 2.2% and 3.3% if you deposit your rewards into a Bank of America® checking account. But the difference is pretty negligible. In any case, the Chase Freedom® rewards program is much broader and much better.

No annual fee, part 2: One of my favorite aspects of the Schwab card was that it has no annual fee. Now, while the card’s cousin, the Fidelity American Express, gives a flat 2% back and also has no annual fee, it suffers in a few different ways.

  • It’s an American Express, so it doesn’t have the same acceptance as Visa and MasterCard, especially in Europe.
  • It charges a foreign transaction fee of 1%.
  • It has no signup bonus.
  • It deposits your rewards into a Fidelity account (investment, retirement or 529), so they aren’t as easy to redeem as cash dumped into a checking account.

The Fidelity American Express is a decent card for those who a) want a 2% card, b) don’t want to pay annual fees, c) don’t travel all that often and d) have Fidelity accounts. But if you don’t meet all of those criteria, a more flexible card might be in order. The Chase Freedom® also has an annual fee of $0, but it’s a cash back credit card, so its rewards are far easier to use.  Plus, it has a signup bonus: Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening. Compare that to the Fidelity American Express’s signup bonus: None.

While the Schwab 2% Visa’s demise is a loss for cardholders everywhere, thankfully, there are other credit cards to fill the void left in our hearts. Goodbye, Schwab Bank Invest First. You will be missed.