Credit Cards

7 Reasons the New Starbucks Credit Card is for True Java Junkies Only

Starbucks launched its much-anticipated credit card, and it’s geared more to loyal customers of the chain—and less to mere casual Starbucks types—than even might have been expected. The early verdict from ValuePenguin’s credit card analysts: This is a card for people who spend, essentially, more than they probably should on fancy coffee, and want to use their rewards to buy yet more fancy coffee.

You receive 2,500 Starbucks points, or Stars, for signing on and paying the card’s fee provided you spend $500 within the first three months of receiving the card. The company says that those points can be redeemed for 20 food or drink rewards in Starbucks locations. The rewards can be any item on the menu, which could range from a $6 latte, loaded with extras, or a $7 sandwich.

That $49 investment could earn you as much as $150 or so in Starbucks merchandise—a 300% return—which is alluring to avid Starbucks customers. You could also decide to take the card and cancel after a year. However, our analysis turned up reasons to pause before doing so.

In the long run, you’d need to spend a lot on coffee. Our analysis has concluded that, after the first year, the new co-branded card—launched with Chase—will only pay off for people who spend close to $30 a week at Starbucks.

One caveat: The card also comes with eight Barista Picks a year—bonus items that are sent to the app on your phone, which you then redeem. Our calculation didn’t reflect the value of these. It isn’t clear what these items may be, their worth, or whether you may like them. If you prefer a plain cup of coffee, and the barista bestows upon you a sweet seasonal coffee drink, you might opt to pass up the offer.

Here are other reasons we think you should pause before signing on for this card, trendy as it may be:

Rewards are redeemable only at Starbucks. While the points earned on other co-branded cards can be used towards cash back and other redemption options, purchases from the Starbucks card can only be used to buy the lattes and other items sold at the ubiquitous chain.

You must use the Starbucks app, is a hassle. Using the Starbucks credit card to earn rewards is not as simple as swiping or inserting the card for the transaction—all transactions have to be done through the loyalty program. That requires charging money, in advance, from a card to your account, which you then use to make the purchase. If you forget, and your account is empty, you’ll need to make two transactions at the counter—refilling your account, and purchasing your item(s).

An annual fee is an unusual feature. Generally, the only co-branded cards with annual fees are those issued by airlines and hotel chains. The presence of the charge means if you decide after year one that the card isn’t for you, you’ll need either to continue paying the fee or cancel, which could deliver a hit—albeit modest—to your credit score.

The points expire in six months. The Stars, or points, in your account—whether from the bonus offer or from buying Starbucks—expire, which is another unusual drawback for a co-branded card. Stars expire a mere six months after they post to your account. A dedicated Starbucks customer might use up those 20 items earned from their signup bonus within the 26 weeks after they’re earned, but a less frequent visitor might see some of them expire before they were used.

You may be better off using a cash back credit card. When we crunched the numbers, this cards perks provide a healthy 4.8% rewards rate, which is well above the 1.5% expected from a typical cash back card. But how much do you have to spend at Starbucks to make paying $49 per year worth the extra 3.3% (4.8% - 1.5%) you get in rewards at your favorite coffee shop? The answer—if you divide $49 by 3.3%—is some $1,500, or around $29 a week.

The loyalty program alone gets you two-thirds of the points per transaction. Be wary of the Starbucks pitch that the card allows you to earn 3 points per every dollar spent at the chain. While true, technically anyone—Starbucks card holder or not—can earn 2 of those points per dollar by merely being in the loyalty program. It’s only that final 1 point per dollar spent that accrues specifically from the use of the card.

Starbucks purchases aside, the rewards are paltry. Outside of Starbucks, you earn only 1 point for every $4 you spend elsewhere. Translated into rewards, that translates to 1 cent per dollar spent, or a 1% return. In contrast, it’s easy to get 1-1.5% from a typical cash back card. Limited-time or category-specific purchases may earn you 2% to 4%. That’s in cash you can use for any purpose, not points that are redeemable only for coffee and the like.

Co-branded cards from buzzy brands may seem enticing, but the new Starbucks card underlines that they may not make sense for you, even if you’re a fan of the co-issuing vendor. Unless you're a real sucker for Starbucks—and spending upwards of $100 or more a month there—it probably doesn't make sense to add this card to your wallet. You might be better off with another high-profile co-branded card, such as the Uber Visa, which offers a hefty 4% cash back on dining, including purchases at Starbucks.

Paul Reynolds is a former Editor at ValuePenguin. He previously worked as an editor at Consumer Reports and Purch.

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

Advertiser Disclosure: The products that appear on this site may be from companies from which ValuePenguin receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). ValuePenguin does not include all financial institutions or all products offered available in the marketplace.

How We Calculate Rewards: ValuePenguin calculates the value of rewards by estimating the dollar value of any points, miles or bonuses earned using the card less any associated annual fees. These estimates here are ValuePenguin's alone, not those of the card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer.

Example of how we calculate the rewards rates: When redeemed for travel through Ultimate Rewards, Chase Sapphire Preferred points are worth $0.0125 each. The card awards 2 points on travel and dining and 1 point on everything else. Therefore, we say the card has a 2.5% rewards rate on dining and travel (2 x $0.0125) and a 1.25% rewards rate on everything else (1 x $0.0125).