Don’t sleep on the “online shopping” rewards category

One of the first lessons I learned when I was getting into cash back credit cards still holds true today: not all bonus categories are created equal.

While a card’s value potential also depends on its rewards rate and your personal spending habits, some bonus categories are likely to offer a much stronger return than others. For example, a grocery rewards category will almost always be more lucrative than a category like streaming services or rental cars — even if your rewards rate is only average.

But one valuable bonus category is overlooked far too often: online shopping.

It may seem like mostly a niche, supplemental category, but online shopping actually covers such a wide variety of purchases it can function almost like a flat rewards rate — with a bit of strategy, of course.

Here’s my take on why the online shopping category holds so much value potential and how you can make the most of it.

How an online shopping category can help you maximize rewards

It all comes down to variety.

Credit card networks categorize businesses using merchant category codes (MCCs), which determine which purchases fall into certain bonus categories like groceries, dining and gas.

But there isn’t a specific MCC for online purchases. Instead, issuers typically treat “online shopping” either as a general category that covers any purchase made online — with a few exclusions (usually non-retail purchases) — or limit rewards to a specific group of eligible online retailers.

This wide scope of eligible purchases and retailers is what makes online shopping categories so valuable and versatile.

Online retailers like Amazon and superstore websites carry an unmatched variety of products and services, many of which normally would be classified with a specific MCC if you made the purchase in person (like home improvement stores, electronics stores and department stores). Without an online shopping category, these purchases would likely earn just 1 percent back since only a few cards feature these bonus categories.

But with the right credit card for online shopping, those same purchases, if made online, could earn 3 percent to 6 percent back. So why leave those rewards on the table by paying with another card?

That said, where and how much cash back you’ll earn via online shopping depends on the card’s terms. Some cards only offer this high rate with specific online retailers (like Amazon.com, Walmart.com, or Target.com), while others include purchases made with digital wallets (like PayPal) or on nearly any other online purchase.

Here’s a look at some of the different rewards frameworks you’ll see with the “online shopping” category, along with the key pros and cons of each. By picking the best rewards program for you, you’ll be able to maximize your rewards where you spend most online.

• Rotating categories for online retailers
  

  Pros:

  Rotating category cards like the Discover it® Cash Back and Chase Freedom Flex®* can offer the highest rewards rates available at several major online retailers, assuming that retailer is included in the card’s quarterly bonus category.

  Since these categories are rotating throughout the year, there’s no guarantee online retailers will appear on the cash back calendar, but in the past these cards have offered rewards on online purchases at Amazon.com, Walmart.com and Target.com.

  The quarterly categories sometimes include digital wallets as well, which could earn you boosted cash back through almost any online or in-person store that accepts digital wallet payments.

  Cons:

  Rotating category cards often earn an impressive 5 percent cash back in a given category, but this rate usually only applies to the first $1,500 in combined purchases made in a given category each quarter. After that, you’ll earn just 1 percent. That means large purchases may yield far less in rewards than you’d hope.

  Also, these cards won’t offer online shopping-related categories year-round, so even if online shopping pops up on the rewards calendar, you’ll only have a small window to take advantage of the high rewards rate.

  Online shopping categories usually appear toward the end of the year, but there’s no guarantee that a rotating rewards card will offer an online shopping category each year either (or at least in a quarter that aligns with most of your online spending).

• Digital wallet rewards cards
  

  Pros:

  It’s safer to pay with a digital wallet to begin with, and cards tied to specific digital wallets or payment services often 2 percent or 3 percent cash back on purchases made with the specified service.

  For example, the PayPal Cashback Mastercard®* and Apple Card* can rack up boosted rewards when you make purchases via PayPal and Apple Pay, respectively (3 percent cash back on purchases made through your PayPal account for the PayPal card and 2 percent back when paying with Apple Pay on the Apple Card).

  Digital wallet categories are also even more flexible than general online shopping categories since typically the only requirement is for the merchant to accept the digital wallet payment. This means even some in-person purchases may qualify for bonus rewards.

  Cons:

  Earning cash back with these categories relies entirely on a merchant accepting your digital wallets or payment service, which is far from a given. Since some digital payment methods aren’t widely accepted in brick-and-mortar stores, this could easily hold back your card’s rewards potential, especially if it doesn’t carry other bonus categories.

  These cards may also tie rewards redemption to your digital wallet, which could at the very least add an annoying extra step to redemption.

Why a general online shopping category is your best bet

Although general “online shopping” categories usually don’t earn 5 percent cash back like rotating category cards, they offer much more flexibility year round, which means more opportunity to rake in cash back.

The Blue Cash Everyday® Card from American Express is the newest addition to my wallet — and its main appeal is its U.S. online retailer bonus category, which covers a wide variety of popular online retailers and specialty merchants.

I tracked my spending over the past year, and I found that I’m losing out on serious rewards value since online shopping is one of my largest spending categories behind rent and utilities, groceries and gas.

Since I shop online year round, a rotating rewards card isn’t the best fit. Plus, a good chunk of my online shopping isn’t through Amazon, Walmart or Target, so I need a general-purpose card that rewards specialty retailers instead of a popular co-branded card like the Prime Visa.

The only two major cards with such comprehensive online shopping categories are the Blue Cash Everyday and the Bank of America® Customized Cash Rewards credit card. I ultimately chose the Blue Cash Everyday since its cash back on groceries and gas would be more lucrative than the Customized Cash card’s full-time grocery store and wholesale club categories. I also seriously considered the Customized Cash card since its online shopping category is even more extensive — covering streaming services, phone service providers, internet service providers and entertainment through sites like Ticketmaster.

Thanks to its flexible online retail category, the Blue Cash Everyday has also been incredibly rewarding for Bankrate senior editor Nouri Zarrugh — sometimes moreso than a flat-rate card.

“Considering how much of my regular spending I do online — everything from household supplies to books — a card with an online shopping bonus category may hold even more value for me than a top flat-rate cash back card. After all, many of the ‘miscellaneous’ items I would otherwise cover with a 2 percent card can just as easily be purchased online. All else being equal, then, it’s a choice between 2 or 3 percent back, and the answer’s obvious.”

Considering how much of my regular spending I do online…a card with an online shopping bonus category may hold even more value for me than a top flat-rate cash back card.

— Nouri Zarrugh
Senior Editor, Credit Cards

Digital wallet categories vs. general online shopping categories

A digital wallet rewards category could potentially be even more lucrative than an online shopping category.

With this category, your rewards rate isn’t tied to particular retailers, and both online and in-person purchases may be eligible. This could include purchases that online shopping categories usually don’t cover, like travel bookings, concert tickets, charitable donations, and potentially even gas and groceries.

However, few cards offer a digital wallet or payment service category year round. This category is usually only found on co-branded cards like the PayPal Cashback card or Apple Card, and only their respective payment services earn a top cash back rate.

Perhaps the biggest drawback of a digital wallet or payment services category is that your rewards opportunities may be limited based on your in-person spending habits and the availability of these payment options on you frequent.

Nouri also has plenty of hands-on experience with the PayPal Cashback Mastercard, and he finds its digital wallet cash back is a valuable and convenient part of his online shopping rewards strategy as well.

“Though it’s a bit less generous than it used to be (it used to offer 2 percent back on general purchases, now it only offers 1.5 percent back), the PayPal card is still a great deal if you do a lot of online shopping. I use PayPal frequently simply because it’s convenient having my card saved in PayPal and being able to check out in just a couple of clicks, versus having to enter my card information from scratch every time. I don’t even have to type in the CVC like I would with some other options like Google Pay.

I also like having cash back added to my PayPal account. That makes it even easier to reimburse friends or pay for a service that requires cash or an equivalent (like some Facebook Marketplace purchases).”

I use PayPal frequently simply because it’s convenient having my card saved in PayPal and being able to check out in just a couple of clicks, versus having to enter my card information from scratch every time. 

— Nouri Zarrugh
Senior Editor, Credit Cards

The bottom line

Online shopping has the potential to be one of the most lucrative credit card bonus categories you can get thanks to the broad mix of purchases and retailers it could cover. But although online shopping has become a major part of many people’s everyday spending, many cardholders still overlook this category.

That said, most card issuers still restrict this category to quarterly rotating categories or a couple of major retailers. Only a few cards carry year-round, general online shopping categories, but those that do — like the Amex Blue Cash Everyday and Bank of America Customized Cash — are definitely worth a look.

*The information about the Chase Freedom Flex®, PayPal Cashback Mastercard® and Apple Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.