Stacking Cash Back

Sep 28, 2009 by Adam C. Powell, Ph.D.

No matter how much we save, we often must at times spend money. When doing so, the damage can be reduced through the use of multiple cash back programs.  Thus, I present to you

Adam’s Three Layer Cash Recovery Plan

Layer 1: The Credit Card

At the heart of any cash recovery plan lies a cash back credit card. I personally use the Chase Freedom Card, which provides 1% cash back. However, if you wait to redeem your cash until you have spent $20,000, you can get $250 back instead of $200, effectively giving you 1.25% cash back. The rate is in fact a bit higher, as 3% cash back is awarded for quick service restaurant and gas station purchases.

Layer 2: The Intermediary

Several websites, including Bing.com, FatWallet.com, and the discount store offered by Chase Freedom. Employers often also offer cash back discounts through their own intermediary websites. Savings can range from 2% to 15%, depending on the deal.

Layer 3: The Seller

No matter how many dollars you receive through cash back programs, if you over-pay for your purchase, it will not do you much good. If two sellers have the same price, go for the one that lacks a presence in your state to avoid sales tax. Comparison shop, and consider discounters like eBay.

Putting it into action

Let’s say that you wish to purchase Apple’s 32GB iPod Touch, which has a suggested retail price of $299. An impulsive person might simply buy it from Apple. Unfortunately, as Apple has retail stores in Pennsylvania, Apple must charge 7% PA sales tax, adding approximately $21 to the cost of the purchase. Buying it for $299 on eBay enables you to avoid the sales tax if the seller is from outside of your home state. To make things better, Bing offers cash back on “Buy It Now” purchases on eBay, so long as you pay through PayPal. Once you reach PayPal, the default setting is for PayPal to whisk money out of your bank account. PayPal does this so that it doesn’t have to pay fees to credit card companies. Well, this behavior can be avoided if you are careful. Whenever making a purchase through PayPal, I always choose the preference for PayPal to bill my credit card. That way, I get 1.25% cash back from the credit card company.

Here is a comparison

Apple Store iPod Touch:  $299 + $21 (tax) = $320

Discounted iPod Touch: $299 – (8% * 299 = $24 Bing cash back) – (1.25% * 299 = $3.75 Chase cash back) = $271.25

Thus, through careful purchasing, it is possible to save nearly $50 off of the cost of an iPod Touch. Impulsive people buy from stores and pay sales tax, while patient people stack discounts and save. While the cost of the iPod was the same through both sources, the ultimate amount paid differed by about 1/6th the cost of the item!