Are Gas Credit Cards Worth It?

In my most recent post, I talked about getting a new credit card with the main feature for me right now being the 5% cash back on gas that it offered. I’m now doing a follow-up post on that to see if all these different cash back rewards on gas credit cards are worth it. I’m not sure if this pricing is similar everywhere in the United States (or even worldwide for anyone reading outside the US!) but many gas stations charge a premium price for paying with credit, and the ones that don’t charge a premium are usually the more expensive gas stations. Technically charging more for someone paying with credit card is illegal, but they get around this by calling it a “cash discount” price but it basically means the same thing. So now I’m going to see if these cash back rewards are actually worth it, or if you are better off just sticking to cash.

I think that this is the sort of explanation will be best supported by going straight to looking at the numbers first. Let’s say that we find a gas station with a cash price of $3.50 and a credit price of $3.55 and we are going to get 5 gallons of gas, which is cheaper?

At a 5% cash back rate and only a 5 cent increase in the credit price, we come out ahead with the credit price after our cash back, awesome! But what happens if the gas price happens to be 10 cents higher?

Even with a 10 cent greater price, we still come out ahead. Another particular case that could happen is that if you always go to the more expensive gas station in town, maybe the Exxon instead of the off brand gas station. There are times when the gas at those stations can be 20 cents higher than the cash price at an off brand gas station.

If you aren’t going to one of the cheapest gas stations, you end up coming out behind when the gas price is around $3.50 at the cheapest station. So it definitely pays to go to the cheapest gas station and even if they do have a higher credit price, you will come out on top with your 5% cash back.

The only problem with this analysis is that gas prices have tended to trend closer to $4, so what would be the case if that was more of the base case? I present to you the same three cases at a higher price:

You can see that the trend continues with the cash back card being superior at 5 and 10 cents more, but at 20 cents more the cash back credit card actually comes out on top this time. It’s ALWAYS better to use your card as gas prices approach $4 a gallon and up.

The final two cases I’m going to look at is not having a 5% cash back card. What happens if you are only getting 3% cash back or less? Maybe you have a card that has rotating categories and only gives you 5% cash back during certain months. Should you use that card for gas when it isn’t giving you 5% cash back?

We find the same exact thing happens at 3% cash back with gas at $3.50 a gallon, though are savings are not nearly as nice looking as at 5% cash back. What about at $4.00 a gallon?

You can now see that because of the 3% cash back, you don’t find the jump in savings at $4.00 versus $4.20 that we found at 5% cash back with a gas credit card. Cash becomes more effective when the gap is larger than 10 cents at only 3% cash back.

Now finally, what about the 1% cash back that is the baseline for cash back with most credit cards?

So are gas credit cards worth it?

• At 5% cash back, you will find that gas credit cards are worth it almost all situations. When gas prices are $3.50 a gallon and lower though you will want to find stations where the credit price is within 10-15 cents of the cash price.
• Going to a more expensive gas station that is 20+ cents more expensive you will be better off paying cash, credit will cost more
• When gas is closer to $4.00 a gallon, credit will have the advantage even at larger price differences
• 3% cash back follows the same sort of trends but with less savings. You will not see the credit advantage at 20+ cents at $4.00 a gallon though, it would take even higher prices.
• 1% cash back cards are not worth it, you would be better off paying in cash. It would take $5.00 a gallon gas prices just to start breaking even.

Your overall best bet is grabbing a gas credit card that gives you 5% cash back, and then finding the cheapest gas station in your area. As long as they don’t have a huge difference between the cash and credit prices you will always come out ahead, making your gas credit card definitely worth it!

photo credit: B Tal via photopin cc