Cash back credit cards have become increasingly popular in recent years, offering cardholders the opportunity to earn rewards on their everyday spending. However, understanding how cashback works can be a bit confusing, especially with the different types of cashback cards available. This comprehensive guide will explain everything you need to know about cash-back credit cards, including how they work, the different types, and how to maximize your rewards.
What is Cash Back?
Cash back is a type of credit card reward that allows cardholders to earn a percentage of their spending back in the form of cash. Unlike travel rewards cards that offer points or miles, cash-back rewards have a fixed cash value. For example, if you earn 2% cash back on a $100 purchase, you’ll receive $2 in cashback rewards.
How Does Cash Back Work?
When you make purchases with a cash-back credit card, a percentage of the amount you spend is credited back to your account as a cash reward. The cash-back rewards you earn are typically calculated and credited to your account at the end of each billing cycle or statement period.
It’s important to note that cash-back rewards are not the same as cash advances or cash-back debit cards. Cash advances are loans that you take out from your credit card and typically come with high fees and interest rates. Cash-back debit cards, on the other hand, provide a small percentage of the purchase amount back in cash at the time of the transaction.
READ ALSO: The Best Cash Back Credit Cards with No Annual Fee
Types of Cash Back Credit Cards
Cash-back credit cards come in different varieties, each with its own unique way of earning and redeeming rewards. Here are the most common types:
Flat-Rate Cash Back Cards: Flat-rate cash back cards offer a fixed percentage of cash back on all purchases, regardless of the category. These cards are straightforward and easy to use, as you don’t have to keep track of different spending categories or rotating bonus categories.
Some popular flat-rate cash-back cards include:
- Citi® Double Cash Card: Earn 2% cash back on all purchases – 1% when you buy and 1% when you pay your bill.
- Wells Fargo Active Cash® Card: Earn 2% cash back on all purchases.
- Capital One Quicksilver Cash Rewards Credit Card: Earn 1.5% cash back on all purchases.
Bonus Category Cash Back Cards: Bonus category cash back cards offer higher cashback rates for certain spending categories, such as gas, groceries, or dining, and a lower base rate for all other purchases. These cards require a bit more strategy, as you’ll need to make sure you’re using the right card for the right purchases to maximize your rewards.
Some popular bonus category cash back cards include:
- Blue Cash Preferred® Card from American Express: Earn 6% cash back at U.S. supermarkets (up to $6,000 per year, then 1%), 6% on select U.S. streaming services, 3% on transit and U.S. gas stations, and 1% on all other purchases.
- Chase Freedom Unlimited®: Earn 5% cash back on travel purchased through Chase Ultimate Rewards®, 3% on dining and drugstores, and 1.5% on all other purchases.
- Capital One SavorOne Cash Rewards Credit Card: Earn 3% cash back on dining, entertainment, popular streaming services, and grocery store purchases (excluding superstores like Walmart and Target), and 1% on all other purchases.
Rotating Category Cash Back Cards: Rotating category cash back cards offer high cashback rates (typically 5%) in specific categories that change every quarter. These cards require activation each quarter to earn the bonus cash-back rate, and there’s usually a cap on the amount you can earn in the bonus categories.
The two most popular rotating category cash-back cards are:
- Discover it® Cash Back: Earn 5% cash back in rotating quarterly categories (upon activation) on up to $1,500 in purchases each quarter, and 1% on all other purchases.
- Chase Freedom Flex℠: Earn 5% cash back in rotating quarterly categories (upon activation) on up to $1,500 in purchases each quarter, 5% on travel purchased through Chase Ultimate Rewards®, 3% on dining and drugstores, and 1% on all other purchases.
Customizable Category Cash Back Cards: Customizable category cash back cards allow you to choose the bonus category in which you’ll earn the highest cashback rate, typically from a set list of categories. This flexibility can be especially useful if your spending habits change over time or if you have a specific category where you tend to spend more.
Some popular customizable category cash-back cards include:
- Bank of America® Customized Cash Rewards Credit Card: Earn 3% cash back in the category of your choice (gas, online shopping, dining, travel, drugstores, or home improvement/furnishings), 2% at grocery stores and wholesale clubs, and 1% on all other purchases.
- Citi Custom Cash℠ Card: Earn 5% cash back in your top eligible spend category each billing cycle (up to $500 in spending), and 1% on all other purchases. Eligible categories include restaurants, grocery stores, gas stations, select travel, transit, streaming services, drugstores, home improvement stores, fitness clubs, and live entertainment.
How to Redeem Cash Back Rewards
Once you’ve earned cash-back rewards, you’ll need to redeem them to receive the cash value. The redemption options vary by card issuer but typically include:
- Statement Credit: You can apply your cash back rewards as a credit towards your credit card statement balance.
- Direct Deposit: Some card issuers allow you to have your cash-back rewards deposited directly into a checking or savings account.
- Gift Cards: You can often redeem your cash-back rewards for gift cards from various retailers and restaurants.
- Merchandise: Certain card issuers offer the option to redeem your cash-back rewards for merchandise, such as electronics, home goods, and more.
It’s essential to check the redemption options and policies for your specific cash-back credit card, as some issuers may have minimum redemption thresholds or expiration dates for unused rewards.
Maximizing Your Cash Back Rewards
To get the most out of your cash-back credit card, consider the following strategies:
- Use the Right Card for the Right Purchase If you have multiple cash-back credit cards, make sure you’re using the card that offers the highest cash-back rate for each purchase category. For example, use your bonus category card for gas and groceries, and your flat-rate card for all other purchases.
- Take Advantage of Sign-Up Bonuses Many cash-back credit cards offer lucrative sign-up bonuses or welcome offers for new cardholders. These bonuses can provide a substantial boost to your cash-back earnings, especially if you’re able to meet the required spending threshold.
- Combine Cash Back with Shopping Portals and Apps In addition to earning cash back through your credit card, you can also earn additional cash back by shopping through online portals and apps like Rakuten, Dosh, or Ibotta. These platforms partner with various retailers to offer cash back on purchases made through their platforms.
- Pay Your Bills with Your Cash Back Card Using your cash back credit card to pay recurring bills, like utility payments or subscription services, can help you accumulate rewards on purchases you would have made anyway.
- Keep an Eye on Rotating Categories If you have a rotating category cash back card, make sure to activate the bonus categories each quarter and plan your spending accordingly to maximize your rewards.
Conclusion
Cash-back credit cards offer a simple and rewarding way to earn money back on your everyday spending. By understanding how cashback works, the different types of cashback cards, and strategies for maximizing your rewards, you can make the most out of your cashback earning potential.
Whether you prefer the simplicity of a flat-rate cash-back card or the potential for higher earnings with a bonus category or rotating category card, there is a cash-back credit card to suit your needs. By using the right card for each purchase category and taking advantage of sign-up bonuses, shopping portals, and careful planning for rotating categories, you can maximize your cash-back earnings.
Remember, cash-back rewards are not the same as cash advances or cash-back debit cards. Cash back rewards are earned as a percentage of your credit card purchases and credited to your account, typically at the end of each billing cycle. These rewards can then be redeemed for statement credits, direct deposits, gift cards, or other options offered by your card issuer.
As with any credit card, it’s essential to practice responsible credit behavior by paying your balance in full each month and avoiding interest charges, which can quickly negate the value of your cash-back rewards. By using your cash-back credit card strategically and responsibly, you can enjoy the benefits of earning money back on your everyday spending.
READ ALSO: Petal® 2 “Cash Back, No Fees” Visa® Credit Card Review
FAQs
Can I redeem cash back for real cash?
While some card issuers may allow you to redeem cash back for a check or direct deposit, most cash-back rewards are issued as statement credits, gift cards, or other non-cash options.
Do cash-back rewards expire?
Most cash-back rewards do not expire as long as your account remains open and in good standing. However, it’s always a good idea to check your specific card’s terms and conditions, as some issuers may impose expiration dates or inactivity rules.
Is it better to earn cash back or travel rewards?
The “better” option depends on your personal spending habits and preferences. Cash-back rewards are more straightforward and versatile, while travel rewards can offer higher redemption values for flights, hotels, and other travel expenses.
Can I earn cash back on balance transfers or cash advances?
No, cash-back rewards are typically not earned on balance transfers, cash advances, or other cash-like transactions.
How do cash-back sites and apps work?
Cash back sites and apps partner with retailers to offer additional cash back on purchases made through their platform. By shopping through these sites or apps, you can earn cashback on top of the rewards earned from your credit card.
