Cashback credit cards

4 cashback credit card features

There are a few particular features you’ll want look at when comparing cashback credit cards.

• Earning rates. Earning rates on all three types of cashback credit cards can vary wildly, even between two cashback cards of the same type. Keep an eye out for unusual categories or the presence of categories not typically found on a certain type of cashback credit card (like the Chase Freedom Unlimited®).

  Why it matters. Knowing which card offers the highest rewards in a particular category means you can gauge which card best fits your purchasing needs.

• Signup bonus. Signup bonuses are modest if not nonexistent on many cashback cards, so the presence of one is noteworthy.

  Why it matters. A signup bonus can significantly up your rewards, especially if you are planning on using the card to make a large purchase within the first three months of account opening.

• Intro APR. An intro APR on a cashback card offers some great upfront value if you can take advantage of it.

  Why it matters. This will allow you to pay off a large purchase over time without having to worry about interest during the intro period.

• Annual fee. If a cashback card has an annual fee, make sure the rewards or features can make up for the cost of the card.

  Why it matters. If you don’t think you’ll use the card’s perks enough to outweigh the fee, you’ll want a no-annual-fee option.

Cashback cards earn back a percentage of your purchase

A cashback credit card pays you back a small portion of what you spend. For example, if it offers 1% cash back, you’ll receive $1 in rewards for every $100 you spend. This makes cashback cards one of the simplest card types when it comes to earning value on your credit card purchases. Here’s a small breakdown of how it all works.

• Choose your cashback credit card. There are three types of cashback credit cards to choose from, each offering a different method of earning cash back.
• Start making purchases. As you spend on reward categories with your cashback card, you’ll start accruing cashback automatically. This usually comes in the form of a statement credit.
• Redeem your cash. For most credit cards, you won’t have to do anything to redeem your cash: it will post automatically to your account as you earn. Some cards however require you log in to your card account for redemptions.

3 types of cashback cards

There are three types of cashback cards:

1. Flat rate cashback cards

These simple cards earn the same percentage for nearly every type of purchase. The average flat rate cashback card earns 1.5% back on each purchase, though the highest you can find on the market is 2% back.

2. Tiered cashback cards

Tiered cards earn higher cashback on specific categories than you could earn with a flat rate cashback card. Typical categories include everyday spending areas such as gas and groceries. These cards can earn anywhere from 3% to to 6% cashback on the bonus categories, though the most lucrative categories often have annual earning caps. Anything purchased that isn’t included as part of a tiered category will earn you just 1% back.

3. Rotating category cards

These cards earn up to 5% on select categories that change each quarter. These categories also typically feature earning caps, though they refresh during the category change each quarter. Like the tiered cashback cards, you’ll earn 1% on any spending outside the bonus categories.

Pair up your cashback cards to earn more

The secret to really ramping up your cash back is to create a credit card earning strategy. Here’s a simple breakdown of how it works.

1. Apply for several cashback cards of differing types. This means cards that earn on different categories, such as flights, groceries, hotels, dining, entertainment and more.
2. Use the right card for the right purchase. When making eligible category purchases, use whatever card will earn you the biggest cash back on that specific purchase based on your cashback credit card arsenal.
3. Fill in the gaps with a flat rate card. For any purchases that don’t fall into a typical earning category, use an unlimited 1.5% or 2% rewards card to maximize your rewards on those purchases.

Ideally, you’ll have two or three cashback cards that can cover any reward category “gaps” that you might otherwise have with just one or two cards. A great example of this strategy is the Chase Trifecta, though you can create a pairing strategy with a variety of credit cards.

A cashback credit card is almost always worth it

Because they’re so straightforward and easy to use, cashback credit cards are nearly always worth a spot in your wallet. Here’s a quick rundown of whether you might consider adding one to your card collection.

Get a cashback card if…

• You want to earn straightforward rewards on your purchases
• You don’t want to fuss around with rewards programs
• You want a card type that commonly features intro APRs on purchases

Pick something else if…

• You want to redeem your rewards on things other than statement credits
• You want a card that offers a larger set of perks and features
• You’re a heavy traveler – in this case, a travel card will ultimately provide more value

What are the pros and cons of cashback credit cards?

Cashback credit cards can be an excellent financial tool, but there are also some drawbacks you need to consider.

Cashback cards by credit score

Best cards for excellent credit

Cards for fair or bad credit

Rotating category calendars

Chase Freedom Flex℠ cashback calendar

Discover it® Cash Back calendar

U.S. Bank Cash+™ Visa Signature® Card

Ask the experts

• Lee Huffman
• Budget Travel Blog
• BaldThoughts.com

When should you get a cash back card over a rewards card?

If you don’t travel frequently or primarily fly Economy on domestic flights, then a cash back credit card might be a better choice for you than an airline or hotel card. Even then, I usually recommend getting a flexible currency card (like Chase Freedom or Citi Double Cash) whose points give you options. You can redeem for cash to pay for travel or transfer the rewards to airline and hotel partners.

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• Eliot Buchanan
• Co-Founder and CEO
• Plastiq.com

For the average consumer, is flat cash back or tiered/category more valuable?
It’s the perennial debate that flares up on every points and miles blog: whether flat versus category rewards are better. There’s complex math, passionate opinions, and industry insights that get thrown around to prove one reward type is better than another. But one thing is for sure, category cards require you to put some thought into how you spend and where you use the card.

If you’re someone that does not want to put that much thought into maximizing your bonus rewards earning, then a flat cash back card may be a better bet for you. However, there are fewer opportunities to maximize your rewards earning with a flat cash back card than a category card.

There is also a third type of rewards card that has become more popular in recent years, tiered reward cards. Typically, they either provide bonus rewards at various spending thresholds or the rewards earning rate accelerates the more you spend. Typically, these types of cards can be less desirable because they require more of your everyday spending to go on a single card. This behavior forces you into a very undesirable decision: Do you spend more on on a tiered rewards card to achieve the next spending milestone and give up the opportunity for a better earning rate on a flat or category card? Or do you spend on another type of rewards card and give up moving to the next reward tier?

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• Tim and Amy Rutherford
• Award Travel Professionals
• gowithless.com

Is there anything you should avoid when choosing a cashback card?

Avoid the temptation to sign up for a cashback card without reading the fine print. Is there a maximum earning potential allowed in any category? Are there complex redemption requirements? Are there annual fees that erode your savings? Look at all of the details and understand the options. It’s possible to get a no-annual-fee card that provides a 2% return on unlimited spending. This may be better than a card that earns 6% on dining with a limitation of $6,000 in spending and an annual fee.

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• Eric Rosenberg
• Personal Finance Expert
• personalprofitability.com

Should I get a cashback card with tiered rewards or a flat rate for all purchases?

Both types of cards work well, it just depends on your spending habits and preferences. If you are willing to keep track of bonus categories and use the right cards for each purchase, you can get big rewards from categories that go up to 5% cash back or 5 points per dollar spent. However, that is a lot to remember for some people. If that sounds too tough to keep track, you can get some great rewards from flat-rate cards as well.

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• Malcolm Robinson
• Professor and Chairperson of Economics
• Thomas More University

When is it worth getting a cash back credit card?

It is always worth it to get a cash back card. They are popular for good reason. The card essentially offers you a discount every time you make a purchase. Companies are willing to give you a discount each time you use their card because they make a profit every time you use it. The incentive to use the card more than makes up for the fact that their profit margin gets reduced. Also, you don’t have to pay attention to the dollars that get refunded to you — unlike points where you need to track your points to use them.

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• Scott Wysong
• Associate Professor
• University of Dallas

How should a consumer choose between points, miles and cashback?
Of course, consumers should pick what best suits their needs. If they like to travel, then maybe miles are best for them. Having said that, from my own experience and research, I think cash back is the best deal for a consumer. Credit card companies can often disguise the true value of the points and miles. Take for instance my own situation. I had the option to get $500 cash back or use my points to get a TV through their third-party vendor. That same TV was $400 at a national retailer. So, cash back it was (and I bought the TV for $400).

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• Boris Vallee
• Assistant Professor of Finance
• Harvard Business School

Why might credit rewards make you spend more?
Credit rewards might nudge people into spending more as they feel that they are getting something back. What people usually forget however, is that the rewards/cash back is tiny compared to the incremental spending that creates it. It is a form of the balance trap: individuals might equate the “saving” with the spending, whereas the quantity massively differ, as the typical program offers 2 cents back on every dollar spent. No-one would be interested in a 2% sale! So the key is not to have your spending behavior being dictated by whatever credit card reward you might get. You should keep your spending the same, and get cash back as you can.

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