Cash back credit cards are the most basic type of rewards card, and if you know how to use a cash back card to your advantage, you can see fantastic rewards. Learn more about the benefits of cash back credit cards in our expert guide below.
Purchase interest rate
Tangerine Money-Back Credit Card
Apply today and earn 2% cash back in up to three spending categories of your choice.
- Purchase interest rate: 19.95%
- Cash advance rate: 19.95%
- Balance transfer rate: 1.95% for the first 6 months, 19.95% thereafter
- Annual fee: $0
- Credit score: 680
Compare cash back credit cards
What's in this guide?
- Compare cash back credit cards
- How do cash back credit cards work?
- Types of cash back rewards programs
- How to maximize your rewards
- What are the pros and cons of cash back credit cards?
- How to choose the best cash back credit card for your needs
- Who are cash back credit cards best for?
- Compare cash back apps to help you earn even more rewards
- What to watch out for with cash back credit cards
- Frequently asked questions
Cash back credit cards are a type of rewards credit card that pays cash rewards on purchases. With a cash back credit card, cash is rewarded as a percentage of each purchase made. If your cash back credit card paid 1% cash back on all purchases, for example, you would earn $1 for every $100 in credit card purchases you make.
If you use a credit card for everyday purchases, such as groceries, gas, dining or online shopping, you may as well get a little something back. With the right rewards credit card, you could even earn cash back on those purchases. But that’s not the only cool perk that comes with cash back credit cards: often, you’ll get a long intro APR period on balance transfers, purchases, or both, and you likely won’t pay an annual fee.
Most providers will automatically send your cash back to you – either monthly or annually – by making a direct deposit into your bank account or by sending you a cheque in the mail. This means you can typically use your cash back however you please.
Types of cash back rewards programs
Cash back rewards programs are set up in three basic ways:
- Flat rate rewards. With flat rate rewards, the credit card pays a flat percentage as a reward on all purchases. This kind of reward program is easy to understand and earning rewards is almost effortless.
- Tiered rewards. This type of program pays different percentages of rewards on different categories of purchases. This type of rewards program will require a little more calculation and strategy in using your credit card if you want to earn the maximum amount of rewards.
- Rotating categories. A rotating categories cash back credit card offers a higher reward rate for certain categories. With these cards, you may even be able to choose the spending categories yourself and change them monthly. Much like tiered rewards, you’ll need to analyze your spending and choose categories accordingly.
Is a cash back credit card right for you?
While the opportunity to earn cash back may sound appealing, cash back credit cards aren’t for everyone. A cash rewards credit card is ideal for you if you:
- Pay your balance in full every month. Paying interest on a cash back credit card can add up quickly. Spending money on interest negates the rewards you’ve earned on your credit card.
- Can responsibly use a credit card often. Earning the maximum amount of cash back rewards means using your credit card as frequently as possible. However, you should spend only what you can afford to pay back and to use your income to pay off your credit card balance rather than to make additional purchases.
How to maximize your rewards
- Spend enough to earn the signup bonus. You may need to make purchases more aggressively to reach the spending requirement by the bonus’s expiration date. The clock starts ticking the day you open your account, which may be a few days before you receive your card in the mail. If your credit limit isn’t high enough, you may have to pay off your balance a few times to make room for additional spending.
- Sign up for special categories in advance. If you choose a rotating-bonus-category cash back card, you may need to activate your categories before you earn elevated rewards.
- Spend more in categories that earn more rewards. If you won’t earn elevated rewards for certain purchases, consider using a different card.
- Pay your balance in full each month. Paying interest on a cash back credit card eats into your rewards. Avoid late fees by setting up automatic payments.
- Use your credit card for purchases only. Cash advances and balance transfers don’t earn rewards. In fact they can cost you a lot more in interest and fees and they usually start accruing interest immediately.
What are the pros and cons of cash back credit cards?
Cash back credit cards can come with many benefits, but there are also some drawbacks you need to consider.
- High rewards rate.
Earn up to 5% cash back when you use certain credit cards on select categories. Generally, you can find cash back rates between 1% – 5%.
- Variety of cash back categories.
Earn accelerated rewards on almost every category of purchases, including groceries, gas, dining, online purchases and streaming services.
- Simple rewards structure.
Enjoy a simple rewards structure that doesn’t require you to calculate how many points each redemption option requires. You always know how much you get from your purchases.
- Signup bonus.
Depending on the card, you could earn a decent signup bonus if you meet certain spend requirements.
- Intro APR period.
Get a long intro APR period offer on balance transfers, on purchases, or both with some cash back cards.
- No annual fee.
Pay a $0 annual fee for most cash back credit cards. Of course, there are exceptions, but it’s unlikely that you’ll find a cash back card with a higher annual fee than $99.
- High APR.
Watch out for high APR that applies after your intro APR period ends. To make the most of your card’s rewards, pay your balance in full each month before it’s due.
- Foreign transaction fee.
Pay foreign transaction fees between 1% and 3% on all purchases made abroad or online with foreign merchants. This makes cash back cards poor international traveling companions.
- cash back limitations.
Watch out for cash back caps as some cash back cards that offer high reward rates limit the amount of cash back you can earn.
How to choose the best cash back credit card for your needs
While the opportunity to earn cash back may sound appealing, cash back credit cards aren’t for everyone. Still, this type of card can serve you well if you carefully choose the right product.
- Decide whether a cash back card is the right choice.
A cash back credit card may be a good fit if you want rewards that are easy to redeem and you’re okay with not having top-of-the-line perks such as travel credits and elite status in loyalty programs. If you want a card with more features, consider a premium travel card.
- Decide if you want to pay an annual fee.
Cards with the highest cash back rates may have annual fees. However, you can find many excellent cash back cards with no annual fees. If you decide to pay this cost, consider whether you’ll earn enough rewards to cover what you pay.
- Analyze your spending and find a rewards structure that fits.
Think about what you typically spend on. If your spending is concentrated in certain categories, you might like a card that offers bonus rewards for those purchases. If you spend relatively evenly throughout many categories, a flat rate cash back card might fit the bill. This is a card that offers the same cash back rate on all purchases, no matter the category.
- Look at other benefits.
When you’ve narrowed your potential picks, look into other features such as signup bonuses, balance transfer offers and travel insurance coverage. You may be able to easily pick a winner among cards that are seemingly identical.
Who are cash back credit cards best for?
cash back credit cards could be worth considering if you want to save money on interest payments with a long 0% intro APR period on purchases, balance transfers or both; or if you want to earn accelerated cash back on categories, such as:
- Online purchases
- Streaming services
- Department store purchases
- Home improvements purchases
- Drugstore purchases
Most credit cards let you earn accelerated cash back on multiple categories. But if you can’t pinpoint an exact category where you spend most of your money, consider a cash back credit card with unlimited cash back on all purchases. Most such cards have a flat reward rate around 1% or 2%.
Compare cash back apps to help you earn even more rewards
What to watch out for with cash back credit cards
- Reward expiration. Check the fine print to find out whether your cash back rewards will expire. Remember to use your rewards before they expire otherwise you lose out on all your hard earned cash.
- Excluded purchases. Knowing the ins and outs of your rewards program can keep you from being surprised at your rewards earnings. Cash back is rewarded based on a merchant code and on the merchant’s business type, so some purchases with a merchant may not earn rewards the way you would assume. For example, books purchased at a warehouse store won’t count toward cash rewards for bookstore purchases.
Frequently asked questions
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