Reviewing the Discover Open Road card...

In my recent search for a credit card with a rewards program that would offer cash back with gasoline purchases, I came across the Discover Open Road card. This card, after reviewing all the terms and conditions, came out on top. But it was still not what it seemed, and awfully confusing.

Many cards are offering 1-3% cash back for purchases. The open road card is different because it offers 5%. Wow, I thought. At my gas spending rate I could earn $250 back every year.

Well, like most credit card offers, the good deal fizzles in the fine print. What some news sources seem to have missed is that there are several tricks to bring down that rate (in my case spending $4,800 a year in gas, my effective rate ends up being 3.3% - how? read on). There is a ridiculously low cap on the amount I can earn 5% on, $1,200 in fact. Then for the next $300 I spend, I earn a pathetic .25%. That's right, a quarter of a percent. Then from $1,500 to $3,000 it doubles, earning me .50%, and after $3,000 it doubles again, but back to 1%.

It gets worse, after October of this year, they are changing how your rewards are given. Only your first $100 each month qualifies for the reward, then it goes back to earning 1%.

Spend any money at a discount store? Don't expect any rewards. Despite other purchases falling into the 1% category, there is an exclusion for "select warehouse clubs, discount stores and their affiliates".

Confused? Me too. Basically, if you spend $4,800 in fuel every year on this card, you will get a reward of $160. If you spend $3,000 you would end up with $140 (in case you are wondering, I'm rounding down because you can only claim your rewards in $20 increments, so anything above that rounded twenty you can't get).

Let's compare this to the Citibank Driver's Edge card, which offers a small 3% (6% for first year but lets look at the long term rewards). But the only restriction is that we can only earn $1,000 a year. We're not in any danger of spending that much on gas (I hope!) so it's a good flat 3%. They also offer miles-driven rewards, but you need to have your vehicle serviced by someone else to qualify, so the DIYers are out of luck there. Anyway, with this card we spend $4,800 and earn $144. If we spend $3,000 we earn $90. But here's the first year deal, 6%, with which we earn $288.

Long-term the Discover is best. But if we had both cards, spending equally $4,800 a year on gas, the Discover rewards would not exceed the Citibank rewards for 3 years, thanks to the Citibank initial high reward rate. After 3 years, Discover pulls ahead. Depending on how long you intend to hold the card, either may be better.

As always, you need to read all the conditions in the fine print. 5% on gas wouldn't really get you 5% on all your gas, and 6% dropping to 3% after the first year really isn't a bad deal.