Grocery prices have gone up, and you can blame the coronavirus. Shoppers are shelling out more for everything from eggs to fresh vegetables and cereals, according to new data from the Bureau of Economic Analysis.
Part of the reason is demand as consumers embrace home cooking.
If the pandemic means you’re skipping meals out as well as travel plans, a grocery credit card could make more sense than other types of rewards cards. Cards that earn cash back for restaurant, hotel and airline spending simply might not offer as much value in the COVID-19 era.
“With spending on travel down significantly, a grocery store card can be more attractive to some families,” says Stephen Newland, financial coach with Qoins, a financial wellness app.
Here is what to consider before getting a grocery credit card and how to best use a credit card for groceries.
[Read: Best Rewards Credit Cards.]
How Do Grocery Credit Cards Work?
Grocery credit cards earn cash back for your supermarket spending. If you pay off your card balance each month to avoid interest, you can apply your earnings to other purchases.
Just make sure you can earn rewards at your favorite stores by reading the fine print before signing up for a card. Some cards may define retailers such as Costco as wholesale clubs rather than grocery stores, and purchases there will not earn rewards.
Cards may also limit how much cash back you can earn monthly or quarterly. The best credit cards for groceries earn rewards at stores where you shop often, charge no annual fees, and set few or no limits on cash back rewards.
“Be sure to understand the details of the program,” Newland says.
Details can vary considerably. Here are a few examples:
— The Bank of America Cash Rewards credit card offers 2% cash back at grocery stores and wholesale clubs but excludes both from its “choose your own rewards category” that pays back 3%.
— The Blue Cash Preferred Card from American Express earns 6% cash back on the first $6,000 you spend annually at U.S. grocery stores and then 1% back.
— The Capital One Savor Cash Rewards Credit Card earns 2% cash back at grocery stores with no cap on rewards, but superstores such as Walmart and Target are not eligible for bonus rewards.
[Read: Best Cash Back Credit Cards.]
Are Grocery Credit Cards a Good Idea?
A grocery credit card is a good idea to earn cash back and other rewards if you are making more food at home during the coronavirus pandemic.
Even if your shopping habits haven’t shifted, a grocery credit card can pay you for what amounts to an essential purchase: groceries. That said, a grocery card isn’t necessarily a good fit for everyone.
Your grocery spending should align with a card’s rewards program, Newland says.
“First, understand your spending pattern,” he says. “If you have a large family and expensive grocery bills, there are cards that will offer two or three times rewards on groceries.”
Make sure you look at the pros and cons before you apply for a grocery credit card.
— You can save on groceries by getting cash back. Focus on earning cash back by buying staples rather than splurging on meals out or weekend trips.
— You can use cash back from your grocery purchases toward other household expenses.
— Many cards have spending caps that limit your cash back earnings.
— Annual card fees can eat into grocery store rewards.
— Grocery store cards might exclude purchases from popular retailers such as Walmart, Target and Costco, as well as convenience stores and specialty food stores.
Another perhaps lesser-known downside to grocery credit cards is that they can drive up prices.
“When it comes to credit cards, they are not free,” says Melaina Lewis, senior manager of communications for The Food Industry Association, which represents retailers, producers and other companies in the food chain.
Retailers pay swipe fees to issuing banks that finance rewards cards, Lewis says. Credit card swipe fees carry a higher cost for retailers than other payment options, including debit cards, checks and cash.
Credit card swipe fees are 2% to 3% for some merchants, which can exceed grocery profit margins, Lewis says. Higher payment processing costs mean grocery retailers may charge more to consumers.
[Read: Best Store Credit Cards.]
How Should You Use a Grocery Credit Card?
A grocery credit card, as with any other type of rewards card, will only help when you spend responsibly. Falling into a trap of spending just to earn rewards can be all too easy to do.
“The idea of, ‘If I spend, I know I will get something back,’ makes the purchase feel less bad and makes you want to spend more,” Newland says. “It’s a natural thing.”
Here are a couple of smart ways to use a grocery credit card:
— Be aware of the urge to overspend. You might find yourself trying to justify a purchase based on the carrot of getting dollars back. “If I ask you to give me $10 and I give you back 10 cents, that’s not a good deal,” Newland says. “Essentially, that can happen with rewards cards when we rationalize purchases just because of the rewards.”
— Set a budget, and stick to it. Try a budgeting app that itemizes your expenses, or record everything you buy on a spreadsheet or in a notebook. “That way, you’ll see how many times you went to Starbucks vs. the grocery store,” Newland says. Spending tools that provide a bigger-picture look can hide these expenses in a single food category.
— Shop with a list to help you stick with your budget. Plan your meals before you shop, and never go to the grocery store without a list. Only use your card at stores where you know you will earn rewards.
Learn more about using credit cards for groceries in the U.S. News guide to the best grocery credit cards.
Kristen Hampshire is a freelance journalist and author who has contributed to Fortune, Consumers Digest, HGTVRemodels.com and a range of consumer and trade publications focused on home, business, health and education.