Wednesday, January 15th
What Are the Best Cash Back Credit Cards?
Cash back credit cards are a type of rewards credit card that allows cardholders to earn a percentage of their spending back in cash. This means that the more you use your cash back credit card for purchases, the more cash you will receive as a reward. In this article, we will explore the features and benefits of cash back credit cards in more detail.
How cash back credit cards work
Cash back credit cards typically offer a flat percentage cash back on all purchases or a higher cash back percentage on specific categories, such as gas, groceries, or travel. Some cash back credit cards may also offer rotating bonus categories, where cardholders can earn a higher percentage of cash back for a limited time period.
Cash back rewards are usually calculated as a percentage of the total purchase amount. For example, a cash back credit card that offers 1% cash back would give you $1 for every $100 spent on purchases. The cash back rewards are typically applied to your account as a statement credit or deposited directly into your bank account.
Benefits of cash back credit cards
There are several benefits of using a cash back credit card, including:
- Rewards on everyday spending: Cash back credit cards allow you to earn rewards on everyday purchases, such as groceries, gas, and dining out.
- Flexibility: Cash back rewards can be used for anything you want, from paying off your credit card bill to saving for a vacation.
- No annual fee options: Many cash back credit cards offer no annual fees, which means you can earn rewards without having to pay an additional fee.
- Sign-up bonuses: Some cash back credit cards offer sign-up bonuses, which can be a large lump sum of cash back rewards after you spend a certain amount in the first few months of card ownership.
- Cash flow management: Cash back rewards can help offset the cost of purchases, which can help with cash flow management for your personal or business finances.
Types of cash back credit cards
There are two types of cash back credit cards: flat-rate cash back credit cards and tiered cash back credit cards.
- Flat-rate cash back credit cards: Flat-rate cash back credit cards offer a consistent percentage of cash back on all purchases, typically around 1% to 2%. These cards are a good choice if you want a simple, straightforward rewards program.
- Tiered cash back credit cards: Tiered cash back credit cards offer higher percentages of cash back in specific categories, such as gas, groceries, or dining out. These cards are a good choice if you spend a lot of money in specific categories and want to maximize your rewards.
Considerations when choosing a cash back credit card
When choosing a cash back credit card, it's important to consider the following factors:
- Rewards program: Look for a cash back credit card with a rewards program that suits your spending habits and provides the most value for your money.
- Interest rates: Check the interest rates for the card, especially if you plan on carrying a balance on the card. High interest rates can negate the value of the rewards you earn.
- Annual fee: Some cash back credit cards charge an annual fee, so consider if the rewards you can earn justify the fee.
- Sign-up bonus: Consider if the card offers a sign-up bonus and whether you can meet the spending requirements to earn the bonus.
- Redemption options: Look at the redemption options for the cash back rewards, including statement credits, bank deposits, or gift cards, and choose a card that offers the options you prefer.
Cash back credit cards can be a great way to earn rewards on everyday purchases and offset the cost of expenses. When choosing a cash back credit card, consider the rewards program, interest rates, annual fees, sign-up bonus, and redemption
How Cash Back Credit Cards Work
Every time you swipe your card, the store merchant must pay the credit card company a small fee or a percentage of the sale. A portion of this fee is given back to the consumer in the form of a cash back reward. Cash back cards encourage consumers to use their credit cards for everyday purchases and the credit card company benefits from the store fees and passes some of the money back to the consumer.
Every card has a different system for how you redeem and receive your rewards. Some are automatically applied to your statement or are sent in the mail. With other cards, you must manually redeem your rewards (usually on the credit card website). Some offer money back on a monthly basis while others may send the cash back at the end of the year. Some other credit cards require a minimum balance to be released before you earn your rewards. Typically customers will receive the money back as a credit on their account or as a check or cash card in the mail.
Most of credit cards keep track of your cash back rewards with a point system (or something similar). For example, some cards may give you two points for every dollar spent on groceries. 1000 points may equal $10 in cash back. So if you spent $500 dollars on groceries, you would be eligible for $5 back. Often credit card companies have partnerships with other larger companies. Making a purchase from a store that has a partnership with your credit card company would mean a higher percentage of cash back rewards from that purchase. This might mean that different stores offer more or less points for purchases made there.
Another way cash back credit cards are able to offer rewards are from annual fees and interest accrued. While some credit cards have no annual fee, often cash back cards with bigger reward packages have some type of annual fee. Make sure your rewards are going to offset the annual fee you may be required to pay. You want to use the card to your advantage. Cash back rewards cards have higher interest rates than most other cards to help offset the reward costs. It is important to remember to pay off your purchases on a monthly basis to avoid high interest charges. This will allow you to enjoy the benefits and while paying little to no interest on purchases. Those that carry a balance from month to month will end up owing far more in interest charges than what they will receive as rewards
Always pay attention to the fine print. Many customers rush to sign up for a card that offers 5% back on all purchase, but miss the part about it being an introductory offer. While this is a good incentive and one to consider, make sure you think about how the card and its benefits will look for you long term.
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