Wednesday, December 5, 2012

Who Wants 50% More Misrepresentations of Numbers? (Capital One Cash Rewards Card)

Well folks, you asked for it via vote.  Bad TV commercials.  Luckily there is no shortage.  

There is nothing that makes me lose respect for an actor or actress than when they get trapped in a series of commercials for a product and are basically the frontman (or woman) for a ridiculous campaign of misrepresentation.  If we're making a list, Luke Wilson for AT&T would have to top it, but that's already a few years gone.

The commercial that haunts my dreams at the moment is Jimmy Fallon and his awful 50% more cash commercials.

I've done a bit of research on this one to try to find out what some of the more popular credit cards are and how much the average person spends on different categories of goods, and came across a number of "independent studies" which have looked at what credit cards might be the best for people.  The problem is often that there is no one credit card that is the best for everyone, but the deeper problem is that almost all of these studies make claims based on what the data would look like for very specific people.

I don't want to dwell too much on it, because it's really a post in and of itself to debunk some of these pretty shoddy "studies", but if you want to take a look for yourself they're pretty easy to find with a quick Google search.

Back to the card at hand.  There's a lot here, and it's really easy to get bogged down in a whole lot of math and assumptions, so I'd like to keep things as concrete and objective as possible.  Let's start here:

Okay, okay - you can say all you want that "oh, this is obviously a fake graph and it's not important", but let's remember the bait and switch from earlier posts.  It's really easy to say "who doesn't like more cash?" - it's actually the driving idea of the entire series of commercials: everyone likes more cash except the baby.

By the way, quick sidebar.  I hadn't noticed it during the commercials, but check out the awesome child scientist working diligently in the background.  He's wearing a lab coat because HE'S DOING SCIENCE.

A) You like more cash.
B) The Capital One Cash Reward card can get you 50% more cash.
Hence: You like the Capital One Cash Reward card and should get one.

Again, there's a reason why they don't just have a chart that says "People Who Can Earn More Cash with the Capital One Cash Reward Card", and it's not just because it's so long.  It's because A) it would be a lot less than 100%, and B) they don't want to actually do any research (the kid in the background is probably making ranch dressing).

The biggest trick here is that the Capital One Cash Reward card *CAN* get you 50% more cash.  Who can get 50% more cash?  People who are using credit cards that give 1% cash back.  Wait, there's more.

This is from the Capital One website as of the writing of this post.  You see, there's two versions of this card.  This should start to sound familiar: Jimmy Fallon isn't talking to you unless you currently have a card that gives 1% cash back AND you have excellent credit.  If you simply have "average credit", you can have your 50% more cash, but you also have to give Capital One $39 a year to do it.  Who has "average credit" you ask?  Probably the average person, and probably the kind of person who takes financial advice from Jimmy Fallon and a baby.   

With cash earning of 1% + 50% more cash, the first $2600 you spend on the card in any given year is just to cover the $39 fee.  What this means at a deeper level is that your rewards for using this card are actually variable, based on the amount spent in any given year. 

This graph takes into account those who apply for this card but don't make it into the "excellent credit" category and end up with the "average credit" card, complete with $39 fee.  You can see that no person using this card will ever get to the level of 1.5%, as the graph is a simple asymptote right at that value.

Keep in mind, this is not how much you make in a year, but rather how much you spend on this credit card each year.  You hopefully spend less money using credit than what you make in any year, but I suppose it could also go the other way.
There's another important point here in that Capital One is throwing around 50% a lot.  Why?  Because it sounds a lot better than 1.5%.  It's very easy to make things sound better when you start talking about percents of percents, and it's something to watch out for.

Anyway, the above is the worst case scenario.  Let's say you have excellent credit and end up with the other card.  What are some of your options that could serve you better? 
Before I move to comparisons, there's something else really useful to point out here.  All of the sites I went to that ranked cards using important research had links to those cards.  Surprise - those links went through affiliate sites and earned that referring site some nice cash (50% more, perhaps).  So, if you find a site that recommends a card but it seems like it might not actually be the best you might begin to wonder to yourself if that card is the best in other ways, such as affiliate referral payout. 

I've asked around a bit about what cards people use to get the best rewards, and there are a few that seem pretty common.  I'll list out a few here for comparison.

Chase Freedom Card:
1% cash back on any purchases throughout the year, no cap
5% cash back on purchases in rotating rewards categories up to $1500 in purchases each quarter
10% cashback on online merchants through Chase
No annual fee

2012 Rotating Schedule:
Q1: Gas Stations,
Q2: Grocery Stores, Movie Theaters
Q3: Gas Stations, Restaurants
Q4: Hotels, Airlines, Best Buy, Kohl's

If you have a Chase checking account, additionally:
10 points ($0.10 cash back) on every transaction, regardless of size
10% extra points (cash back) whenever points are earned

Chase Sapphire Card:
1% cash back on any purchases throughout the year, no cap
2% cash back on Dining
No annual fee

Discover More Card:
5% cash back on purchases in rotating rewards categories up to $1500 in purchases each quarter
1% back on everything else after you spend $3000 a year (not really worth factoring in)
No annual fee

2012 Rotating Schedule:
Q1: Gas Stations, Museums, Movies
Q2: Restaurants, Movies
Q3: Gas Stations, Theme Parks, Movies
Q4: Department Stores, All Online Shopping

Bank of America Cash Rewards Card (the 1-2-3 card):
1% cash back on any purchases throughout the year, no cap
2% cash back on groceries, up to $1500 in purchases each quarter (for groceries and gas combined)
3% cash back on gas stations, up to $1500 in purchases each quarter (for groceries and gas combined)
No annual fee

If you have a Bank of America account, additionally:
10% extra cash back whenever cash back is earned

I'm not telling you that you should have four credit cards (why would you only have four credit cards?), but you can see how you can easily pair up a few of these cards to put together a pretty all around 2-5% cash back system.  The Sapphire, for example, isn't really good for anything other than restaurants, but if you only use it for restaurants you're still earning 33% more cash back than the Capital One Cash Rewards Card (who likes 33% more cash?) - or, if you're using Jimmy Fallon's logic, 100% more cash back.

The Freedom and BoA cards are pretty strong, especially if you don't mind opening up even a small account at one or both of them.  At that point you're well above 1% with either card, so Jimmy Fallon is again no longer talking to you.  Discover is nice as a backup card to supplement categories that don't match with other cards, or also good if you're only using it and you hit that $3000 annual minimum.  Either way you're again well above 1% cash back.  You'll also be safe at all those places that only accept Discover.  Like...nowhere ever.

Looking through some cards online, it's actually hard to find a card that simply gives 1% cash back.  You either run into these cards that give more than that (and well more than 50% more than that), or cards that don't give cash back at all (including those that give less tangible rewards like airline points).  If you're finding that you're only eligible for credit cards that don't give you anything back it might be time to revisit the notion that you need a credit card at this stage of your life.   

The bottom line is that the only way that you're going to earn 50% more cash while using the Capital One Cash Rewards Card is if you're DOING IT WRONG.

Turns out that the baby is actually the smartest person in the Capital One Cash Rewards Card commercials, even including the child scientist (who might be feeding Jimmy Fallon his poor research).


There's a point here, though.  While it's not necessarily statistics (I promise I'll get back to something much more statistical next week - you guys did request bad commercials), the use of percentages of percentages is probably the thing that gets under my skin here.  Of course it's easy to give people 50% more of something if you're not giving them much of it to begin with.  The base number is important, much more important than the 'bonus' percentage.

In fact, why stop at 50% more cash?  All you have to do is lower your regular rewards for this card to 0.75% instead of 1%, and then make the bonus 100% more cash instead of just 50% more cash.  Duh, who doesn't want 100% more cash?  Probably that stupid baby, right?

Why stop at just 100%, though?  Make your standard reward 0.00015%, and then ask people if they want 1,000,000% more cash.  Who doesn't want a million percent more cash?  Ugh. 

Should we go to scientific notation to really drive the point home?  Who wants 1e30% more cash?

Jimmy Fallon, please stop.  Just...stop.     

1 comment:

  1. When you said "bad commercials" two came to mind. Neither of them were the Jimmy Fallon ones. The first was the old commercials for Comcast home phone service. "Comcast has the fastest growing nationwide phone service." Oh, you don't say? A company that went from not having phones at all to having phones is growing faster than established companies! Golly! The other commercial is the Verizon commercial where the guy shows people the same meaningless bar graph over and over again in different formats with different colors and asks them "which is the best." They are trying to get you to think that "any way you look at it" they are the best. The problem is that only an idiot with a cursory knowledge of Excel would think that changing the colors and orientation of the graph are "different ways of looking at it." Furthermore, the y axis isn't even properly labeled or it's labeled "coverage." What the hell does that mean? Nothing. Absolutely nothing.