Best Cash Back Credit Cards

Cash Back Credit Cards: Everything You Need to Know

The Basics

Rewards cards offer consumers incentives for using their credit cards to make purchases. A credit card company may reward cardholders by offering them cash back on their purchases. That means you can get paid for just using your credit card.

With a cash back credit card, a small percentage of what you spend is returned to you in the form of cash, points or statement credits. The more you use your cash-back credit card, the more rewards you’ll earn.

Looking for the best cash back credit card for your lifestyle? Read on to learn about the kinds of cash back credit cards that are available to consumers and what to consider before applying for a card.

Redeeming Cash Back Credit Card Rewards

Rewards you earn with a cash back credit card may be redeemed in multiple ways. Typically, it’s on the user to decide. Some cards let you either apply your cash back as a statement credit or simply deposit the amount to your bank account as cash. Both serve essentially the same purpose.

Some cash back credit cards provide cash back that can only be exchanged for statement credits or statement credits to offset specific expenses, like travel. These credits will appear on your credit card statement. You can use them to pay off outstanding balances in your credit card account.

The Benefits of Cash Back Credit Cards

There are many reasons why you should consider applying for a cash back credit card. When it comes to redeeming rewards, cash back cards may offer more flexibility than credit cards that provide airline miles or points. You could use the cash rewards you earn to knock out debt and meet other financial goals. You could even use your cash rewards to pay for travel expenses that you might not be able to cover using the rewards from a travel credit card.

Another great thing about cash back credit cards is the fact that there are usually no surprises. You’re unlikely to have to worry about your rewards losing value. In most cases, they won’t expire as long as your account remains active and is in good standing, though this is also true for most points or miles earning cards.

If you qualify for one of the best cash back credit cards, you could earn as much as 5% or 6% back for purchases within certain categories. You may earn as much as 20% cash back by purchasing products sold by certain stores (especially retailers in online bonus malls).

Not all cash back credit cards come with a sign-up bonus, but lots do. And some cards have a bonus cash back rewards rate that they apply when your account is active for a certain number of consecutive months. Other cash back credit cards offer sign up bonuses when you spend a certain amount of money within three months of opening an account.

How a Cash Back Credit Card Could Save You Money

Saving money can be easy when you have a cash back credit card. If you can redeem the rewards you earn for a statement credit, you can use it to pay off your credit card balance. Then the funds that you would normally use to make credit card payments could cover other bills (or go into a savings account).

Barely managed to sock away any money for retirement? You could use a cash back credit card to boost your savings. Every so often (or whenever your credit card company lets you cash out), you could transfer the cash you’ve earned to a traditional or Roth individual retirement account (IRA). Or you could stick your credit card rewards into an investment account with a decent return rate.

You could also use your cash rewards to lower your tax bill. If you’re itemizing your deductions and you need an extra tax break, you can donate your rewards to a qualifying charity. With many rewards programs, you can make a quick donation online. Your rewards will be deductible in the tax year that you make a contribution. So a donation you make in the middle of December will count toward your tax bill for that year (even if you don’t pay your credit card bill until January of the following tax year). Don’t forget to find out what’s considered a charitable organization in the eyes of the IRS. Contributions made to private foundations and foreign groups, for example, cannot be deducted when filing income taxes.

Finally, cash back could save you money on the purchases you make daily. As your rewards add up, you could use the cash you earn to pay for your morning coffee, the snacks for your kids’ lunches or your weekend getaways.

The Drawbacks of Cash Back Credit Cards

With a cash-back credit card, you can get your finances on track and make room in your budget for splurging. But some of these rewards cards come with annual fees.

Many cash back credit cards have higher interest rates than traditional credit cards. If you carry a balance every month or make late payments every once in a while, the fees and interest payments you have to pay are almost certainly going to surpass the number of rewards you earn. Unless you plan on paying your bill in full and on time every month, you should not get a cash back or any other rewards credit card.

Some credit card issuers place a cap on the amount of cash back you can earn. For example, you may only be able to earn cash back on top of the first $1,500 you spend within a quarter in a certain category. Or your credit card company may say that you can’t earn any more cash back once you spend a certain amount within a year. If this is true, your earning rate is likely to drop to 1x points or 1%.

Cash back rewards rates usually aren’t that high. In most cases, you’ll only be able to earn around 1% to 2% cash back. This means that if you’re allowed to earn 1% cash back on the first $5,000 you spend in a year, you’ll only earn $50 in cash back rewards. Still, that $50 is $50 more than you’d receive using a debit card or cash.

Another thing to keep in mind is that if you spend money just to earn cash back, you could land in hot water. In your attempt to earn as many rewards as possible, you could overspend and end up with too much debt, rendering your credit card rewards essentially useless.

How a Cash-Back Credit Card Could Affect Your Credit Score

Applying for a cash-back credit card can affect your credit score in several different ways. A credit card issuer will have to check your credit report before approving you for new credit. That move is known as a hard inquiry. It will likely lower your score by a small degree. But your credit shouldn’t take a long time to recover.

According to the FICO scoring model - which is widely used among lenders - 10% of your credit score depends on recent credit inquiries and the number of new credit accounts you have (among other things). Adding a single new credit account to the mix should barely affect your credit score. Submitting applications for a series of credit card accounts within a few weeks or months, however, could have an adverse effect on your credit. Even if your credit score is on the higher end of the spectrum, a credit card issuer may reject your application if you have too many recent inquiries. FICO credit scores depend on the number of hard inquiries you’ve had within the past 12 months.

Having a new credit account will also reduce the average age of all of your credit accounts. The length of your credit history accounts for 15% of your FICO credit score. The upside to having new credit is that it’ll increase your total credit line and could improve your credit utilization ratio (or the amount of credit you’ve used in relation to the individual credit limit on each card and your total credit limit across all of your credit cards).

If you manage to qualify for a cash back credit card, your own actions are mainly what will determine what happens to your credit score. If your statements close every month with high balances and you constantly make late credit card payments, your credit score could take a hit. But meeting all of your credit card deadlines and keeping your credit utilization ratio below 30% can raise your credit score. Your credit utilization ratio and the amount of debt you’re carrying account for 30% of your FICO score. Under the same scoring model, 35% of your credit score depends on your payment history.

Avoiding the temptation to spend more money than you should can be tricky when you have a cash back rewards card. But keeping your long-term financial goals in mind may help you keep your credit card spending under control.

Who Should Apply for a Cash Back Credit Card?

Cash back credit cards are usually a good match for cardholders with good financial habits. In order to take full advantage of your rewards, you’ll need to consistently pay off your entire credit card balance. If you only pay the minimum every month - or you can’t pay your credit card bill in full because you have a lot of debt and other financial obligations - you absolutely should not get a cash back credit card. A card with a low interest rate, for example, or a balance transfer credit card could be more useful.

Like other kinds of credit accounts, the best cash back credit cards with the best rates are generally available to the most creditworthy consumers. If your credit score isn’t too hot, you could work on raising your score before applying for a cash back credit card.

However, it’s important to remember that if you can be responsible with a credit card, you may as well be earning rewards when you spend. Provided that you’re not paying unnecessary fees that outweigh the benefits of having a cash back card, there’s no reason not to have one - even if you only use it sparingly.

Bottom line: If you regularly use a credit card, you have little to no debt and you want more freedom when you’re ready to redeem your rewards, a cash back credit card could be perfect for you.

How to Choose the Best Cash Back Credit Card

If you’ve decided that getting a cash back credit card makes sense, you’ll need to do your research and pick a card. The best cash back credit cards have high rewards rates and make it easy to earn cash back on items you buy every day. After all, there’s no point in having a cash back credit card that makes it difficult to redeem your rewards. Great cash back credit cards let you trade in the points you earn for statement credits, actual cash rewards and points that you can apply to purchases through an online bonus mall.

There are some simple steps you’ll need to take if you’re trying to pick the right card. For one thing, you’ll need to think about the kind of credit card you need. The best cash back card for you may not be the best card for your significant other or your friend. Knowing that you want a flat-rate cash back card rather than a card with rotating bonus categories should narrow your list of options substantially.

You’ll also need to check your credit. Your score will affect your odds of getting approved for a credit card. If your score isn’t high enough, your credit card application could be denied. Applying for multiple credit cards that you don’t think you can qualify for (based on your credit score) could be a risky move.

It’s important to consider the fees you’ll have to pay as well. Some cash back cards have annual fees or foreign transaction fees that you should take into account.

As you can see, there are many factors to take into account before signing up for a card. But some of them are more important than others.

What Matters Most When Applying for a Cash Back Credit Card

One of the first things you’ll need to think about before choosing a cash back credit card is the rewards rate (or the earn rate). That’s the amount of cash back you’ll earn with every dollar you spend. A credit card with a 1.5% cash back offer should be more appealing than a card with a 1% cash back offer. You’ll also need to pay attention to whether there’s a limit to the amount of cash back you can earn. Most cash back credit cards let consumers earn an unlimited amount of rewards.

The way you spend your money is something else to consider before applying for a cash back credit card. If you’re dropping hundreds of dollars on groceries each month, getting a credit card that gives you cash back for shopping at the supermarket probably makes sense. Before you choose a card, however, just make sure your favorite retailer is on the credit card company’s list of approved merchants.

The costs associated with carrying a particular credit card should also matter. If you travel frequently, you run the risk of having to pay foreign transaction fees. And at some point, you may slip up and have to pay a late payment fee. Choosing a card with high fees doesn’t make sense for a lot of people. But in some situations, the rewards can make the fees an easier burden to bear. For example, if your annual fee is $50 and you expect to earn more than $50 in cash back each year, the fee may be worth paying.

Assessing the Value of Cash Rewards

Another way to evaluate cash back credit card offers is to examine the value of the rewards you’ll be earning. Let’s take a closer look at what to do when comparing the rewards rates for different cash back rewards cards.

Calculating the value of cash back rewards is a two-step process. The first step involves calculating the earn rate. Again, this is how much cash back you can expect to receive on top of each dollar you spend with your credit card. Ideally, you’ll want the credit card with the highest cash back percentage tied to the purchases you spend the most money on.

Let’s check out an example. Let’s say that Card A gives you a flat rate of 1.5% cash back on all purchases. Card B gives you 3% cash back on department store purchases and 1% cash back on everything else. If you spend a large percentage of your paycheck on shoes, clothing and other items that you purchase at a department store, you might as well apply for Card B. But if your spending across multiple categories is fairly even and you rarely shop at department stores, you might be perfectly fine with Card A.

The second step in assessing the value of a cash back credit card’s rewards is calculating the redemption rate. That’s the monetary value of a single cash back reward. Figuring out the redemption rate for cash back rewards simply involves taking the earn rate and dividing that amount by 100. If your cash back rewards card’s earn rate is 2%, you’ll earn 2 cents for every dollar you spend. If the rewards rate is 5%, you’ll earn 5 cents for every dollar you spend. The higher the rewards rate and the redemption rate, the higher the value of your cash back rewards.

Cash in the form of a check or statement credit may not be the only reward you can earn when you use a cash back credit card. Both standard and rewards credit cards come with various perks, such as free credit scores, roadside assistance, return protection and price matching. Calculating the value of these rewards could also be a good idea. Thinking about how much money those benefits could save could be helpful if you’re not sure whether you should choose one cash back card over another. For example, getting a car towed could cost you more than $100. If a rewards credit card offers this service at a discount, applying for it may be worth considering.

Which Type of Cash Back Credit Card Should You Choose?

Having a cash back credit card with rotating bonus categories may not work for everyone. To make the most of it, you’d have to keep track of which purchases will give you more cash back during certain months. And with these types of cash back credit cards, you often have to opt in to take advantage of the new spending category with the higher rewards rate. If you’re looking for a simple rewards card, you may want to pick a flat-rate cash back card instead.

On the flip side, if you don’t mind putting in more effort in order to earn rewards, you could benefit from having a bonus category cash back card or a card with a tiered rewards structure. A tiered rewards credit card could give you more cash rewards than a flat-rate cash back credit card, particularly if the category with the highest rewards rate is the one you tend to spend the most money on. If you spend a lot of money on a few different types of purchases, you may want a bonus category card instead.

What to Do After Choosing a Cash Back Credit Card

If you’ve found the best cash back credit card for your wallet, you can go ahead and sign up for it. Submitting an online application is normally the fastest way to get approved for a credit card, particularly if you choose a card that you can be instantly approved for. But if you’re in no rush to find out whether you qualify for a cash back credit card, you could fill out a paper application and mail it in. Be prepared to share some personal information about yourself, including your household income, your Social Security number and the amount of money that you’ve socked away in your bank accounts.

Once you’re approved for a credit card, your credit card issuer will mail it to you within seven to 10 business days. You’ll need to activate your account as soon as possible and take a look at your credit card’s terms and conditions.

If a credit card issuer refuses to issue you a cash back credit card, you might want to find out why. Is your credit score too low? Is your debt-to-income ratio (the amount of debt payments you make each month compared to your monthly gross income) too high? Have you applied for too many credit cards in recent months? Or is there a derogatory mark on your credit report that’s making you seem like a risky borrower? Knowing what you need to work on can help you fix your mistakes and prepare to apply for another credit card in the near future.

Should You Apply for More Than One Cash Back Card?

Some credit cardholders have multiple accounts open at one time. But whether you should apply for another cash back credit card depends on your lifestyle and your financial habits. If you can barely remember to pay off the one credit card you have, you probably don’t need a second one. Furthermore, if you can only pay for one annual fee, you may want to stick with just one cash back credit card. Annual fees can cost consumers hundreds of dollars. You wouldn’t want to be stuck paying a high fee you can’t afford.

On the other hand, if you’re good at keeping up with deadlines, you’re willing to pay an annual fee (or you can qualify for a card without an annual fee) and you don’t pay credit card interest, having more than one cash back credit card could be helpful. If you spend a lot of money on restaurant meals and gasoline, you could find two different cash back rewards cards that offer high rewards rates for both of those types of expenses. But if you decide to apply for two (or more) rewards cards, it’s best to protect your credit score by spacing out your applications.

How to Maximize Your Cash Back Credit Card

Making your cash back card your go-to card is a good idea. That way, if your credit card company rewards you for making everyday purchases, you can rack up rewards regardless of whether you’re spending money at the mall, the airport or the movies. But you’ll need to be careful. Going over your credit line could cost you. And spending money just to earn rewards could hurt you if you find yourself with debt that you can’t get rid of.

Of course, the key to making the most of your cash back credit card is making good financial decisions. If you always pay your credit card bill on time and you pay off the entire bill every month, you’ll never spend any money on interest.

Cash back rewards typically don’t have an expiration date. But you’ll need to read your card’s fine print to find out whether that’s true for the card you selected. If your cash rewards will disappear after a certain period of time, it’s best to use them before you lose them.

Keeping track of your cash rewards and setting goals are two other ways to maximize your cash back credit card rewards. Knowing how much you’ve earned and deciding that you want to save up for a gift or earn money to put toward your mortgage payments could motivate you to make earning rewards one of your top priorities.

How to Earn as Many Cash Rewards as Possible

If your goal is to earn as much cash back as you can, you’ll need to read over your cardholder agreement carefully. That’s the only way to fully understand how to earn cash rewards and maximize them. If you can earn rewards by paying bills with your credit card, that’s one way to get extra cash back or statement credits every month.

Cash back cards with sign-up bonuses give extra cash (or higher rewards rates) when you meet a minimum spending requirement within a set period of time. With a card like that, you could earn hundreds of dollars in cash rewards or credits within months of opening your account.

Some cash back cards can be used when making purchases through online bonus malls. Not every credit card company has one. But if yours does, you can earn extra rewards by purchasing merchandise through the online shopping portal. Savvy online shoppers can find ways to claim additional rewards by making purchases through sites that offer cash back.

Frequently Asked Questions

1. Do cash back credit cards always offer cash rewards?

Some credit card companies don’t allow their customers to redeem their cash back rewards for cash. Instead, you may receive a statement credit that you can use to pay off the balances within your credit card account. Or you may be able to earn points that you can trade in for merchandise, gift cards and other items.

If your cash back credit card offers cash rewards, you’ll get a check in the mail or have your rewards deposited directly into your bank account.

2. Is it better to earn cash rewards, points or statement credits?

The answer to that question will vary based on how you plan to use your cash rewards. If you want to redeem your rewards for any kind of expense, you’ll probably want a credit card that mails a check or wires rewards to bank accounts. But if you’re serious about eliminating your credit card debt, you may want to opt for a statement credit.

If you want to easily redeem your cash back (as points) through specific rewards programs, you may have better luck with that than trying to withdraw cash from your checking account and using that money to pay for flights and other travel expenses.

3. Can I donate my cash back credit card rewards to charity?

It depends. Some rewards programs let cardholders donate their cash rewards to qualifying charitable organizations. Your contribution may be deductible. That’s one way to score an extra write-off before tax season arrives.

4. How can I evaluate cash back credit card offers?

If you’re trying to pick a cash back credit card, you’ll need to think about your financial situation and your spending habits. The best cash back cards tend to have low annual fees (or no annual fee), high rewards rates and an opportunity to earn an unlimited amount of rewards. Just make sure that the earn rate is high for the spending categories that you care most about.

You’ll also need to pay attention to the rewards structure and the way that cash back rewards can be redeemed. A cash back credit card with rotating bonus categories may not appeal to you if you’re looking for an easy way to earn cash back. But a cash back card with a flat rate that applies to all purchases may not have a high cash back percentage.

Cash back cards tend to have higher interest rates than regular credit cards. If you think you’ll eventually carry a balance, you’ll need to look at cash back credit card APRs to make sure you can afford the interest payments.

5. What’s the typical rewards rate for cash back credit cards?

Most cash back credit cards let cardholders earn between 1% and 2% cash back. The best cash back credit cards have higher earn rates for at least one or two spending categories.

6. Do cash back credit cards come with sign-up bonuses?

There are some cash back credit cards that offer a sign-up bonus. If you can qualify for one of these cards, you’ll earn cash back at a faster rate. Just remember that you’ll need to meet some sort of requirement in order to earn the bonus cash back (or the bonus rewards rate). You may have 90 days to spend a certain amount of money and claim your prize. Or you may have to wait an entire year before you can get any additional rewards.

7. Do I have to shop at specific stores in order to earn cash back rewards?

You’ll need to read your credit card’s terms and conditions to find out the answer to that question. If a cash back credit card offers cash back on everyday purchases regardless of where you shop, you shouldn’t have to worry too much about spending money at a specific store. But if you can only earn cash back when you stop by the grocery store or the mall, you might want to double-check and find out whether you can only earn rewards when you purchase items from certain places.

8. Do I need to pay my credit card bill in full every month to earn rewards?

Generally, you should be able to earn rewards as long as you make the minimum credit card payment on time every month and there aren’t any issues with your account. While you don’t have to pay off your entire credit card balance, doing so is a good idea. You’ll maximize your cash back credit card rewards when you can ensure that the benefits you’re earning outweigh the cost of fees and interest payments.

9. How soon can I cash in on my cash back credit card rewards?

Some credit card issuers make you wait until you’ve gone through a billing cycle or two before you’re allowed to redeem the rewards you’ve earned. That way, a card issuer can ensure your account is in good standing.

Some credit card companies won’t let you cash in until you spend a certain amount of money. However, most give you your cash back once a month. Some calculate cash back after each purchase. If your cardholder agreement doesn’t say much about redeeming your cash back rewards, you may want to make a phone call or check the company’s website.

10. Do cash back rewards ever expire?

Many cash back rewards don’t expire as long as an account remains open and a cardholder maintains a good track record with his or her card issuer. But some cash back rewards expire at some point. If your rewards come with an expiration date, you’ll need to make sure you use all of them while you still can. If you decide to close your credit card account, you may have to forfeit any rewards that you failed to redeem.

Final Thoughts

Cash back credit cards make it easy to earn rewards on a daily basis that you can redeem for statement credits, cash rewards, gift cards and merchandise. Most cash back rewards are only worth 1 or 2 cents for every dollar you spend. If you want your rewards to add up quickly, you’ll need to find a card with a sign-up bonus or a rewards rate that’s higher than average.

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