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The 3 types of cashback credit cards, explained
Depending on your unique spending habits, one card type might offer you more cash back.
There are tons of cashback credit cards out there. Needless to say, narrowing your options can be tough. Cards offer different reward rates. Some offer 3% cash back for groceries, while others offer 2% cash back for gas. Which card should you pick? Luckily, cashback cards can be neatly categorized into three types — flat rate, tiered and rotating bonus.
Compare two cashback cards: Flat-rate vs tiered
HSBC Cash Rewards Mastercard® credit card
HSBC Cash Rewards Mastercard® credit card
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Blue Cash Preferred® Card from American Express
Blue Cash Preferred® Card from American Express
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What are the 3 types of cashback credit cards?
The three types of cashback credit cards are flat-rate, tiered and rotating-bonus-category. The rate that you earn cash back depends on your spending and card type. These terms are a fancy way to describe simple reward structures.
What is a flat-rate cashback credit card?
Quick look
- Single cashback rate for all purchases.
- Typically has no annual fee.
- The simplest option among the three types of cashback cards
With a flat-rate cashback credit card, you get a single cashback rate for all purchases, regardless of category. This might be helpful if your spending is distributed evenly throughout many categories or you don’t want to deal with multiple reward rates.
The Chase Freedom Unlimited® credit card is a good example of this kind of card. It offers a bonus 3% cash back for the first year on up to $20,000, then unlimited 1.5% cash back after that.
Here’s a sample budget and the rewards you might earn with the card in the first year:
| Purchase category | Annual spending | Reward rate | Cash back |
|---|---|---|---|
| Dining | $2,000 | 3% | $60 |
| Grocery | $3,000 | 3% | $90 |
| Gas | $1,000 | 3% | $30 |
| Other | $6,000 | 3% | $180 |
| Total | $12,000 | – | $360 |
Here are the rewards you might earn after the first year based on the same budget:
| Purchase category | Annual spending | Reward rate | Cash back |
|---|---|---|---|
| Dining | $2,000 | 1.5% | $30 |
| Grocery | $3,000 | 1.5% | $45 |
| Gas | $1,000 | 1.5% | $15 |
| Other | $6,000 | 1.5% | $90 |
| Total | $12,000 | – | $180 |
How do I maximize my flat-rate card cash back?
The beauty of a flat-rate cashback card is you don’t have to worry about maximizing your rewards. With one reward rate, your card offers steady cash back for everything you buy.
What is a tiered-cashback credit card?
Quick look
- Multiple cashback rates.
- Many options have annual fees.
- Common elevated-rewards categories include gas, groceries, dining, entertainment and travel.
What are elevated rewards?
Elevated rewards are cash back, points or miles you earn above the base reward rate.
Let’s say a card offers 3% cash back on groceries and 2% on gas, and 1% cash back on all other purchases. The cash back you earn on groceries and dining are considered elevated rewards.
With a tiered-cashback credit card, you’ll receive different cashback rates for different categories. This might be helpful if you spend big in certain categories.
For example, if you’re a foodie and dine out often, you might want a card that rewards you more for eating out. If you have a long commute and spend a lot on gas, you might consider a card that offers great cash back on gas.
Let’s say you rack up big bills for groceries and gas. Here’s how much cash back you might earn with a tiered-cashback product.
| Purchase category | Annual spending | Reward rate | Cash back |
|---|---|---|---|
| US supermarkets | $3,000 | 3% | $90 |
| US gas stations | $6,000 | 2% | $120 |
| Other purchases | $3,000 | 1% | $30 |
| Total | $12,000 | – | $240 |
On the same $12,000 of spending, you’d only earn $180 cash back with a card that offered a flat 1.5% reward rate on all purchases.
How do I maximize my tiered-cashback rewards?
Check which categories your card offers elevated rewards for, then use your card for spending in those categories. For example, if your card offers 3% for gas and 2% for groceries, then put more gas and grocery purchases on it.
If the card offers 1% for all purchases outside of gas and groceries, find a flat-rate rewards card with a higher cashback reward like 1.5% or higher.
What is a rotating-bonus-category cashback credit card?
Quick look
- Elevated rewards for bonus categories that changes quarterly.
- Common bonus categories include gas, groceries, wholesale clubs and dining.
- Relatively fewer card options.
- You’ll usually pay no annual fee.
A rotating-bonus-category cashback credit card offers a higher reward rate for certain categories during certain times. Rates typically rotate and need to be activated quarterly. This card type isn’t for everyone. To maximize your rewards, you’ll need to keep an eye on your card’s cashback calendar.
How do I maximize my rotating-bonus-category cashback rewards?
Keep track of your rotating-cashback calendar and spend accordingly.
For example, in January through March your card might offer 5% cash back at gas stations and wholesale clubs. This could be a good time to take a road trip, or make your big purchase to stock up on supplies at Costco. By spending more in the bonus categories during these months, you’ll get more cash back.
Once your bonus category is up, maximize your cash back by using another card with a higher flat rate. Check out the American Express Cash Magnet® Card, which offers a 1.5% reward rate on all purchases (All information about this card has been collected independently by Finder).
Compare cashback credit cards
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Which cashback card type has the best value?
Here’s a quick comparison of the cash back you might earn from the different card types based on our sample budget:
- $3,000 per year on dining and entertainment.
- $6,000 per year on groceries.
- $5,000 per year on other purchases.
Pros and cons: Which cashback card type is best for you?
Bottom line
There are many cashback credit cards, making it easier to find a card that meets your spending needs. Analyze your spending and gauge your willingness to track different reward rates. With some research, you could find the right cashback card that’ll reward you handsomely.
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