Let’s face it, there’s hardly a day that goes by where you don’t spend money. Whether it’s putting gas in your car, grabbing lunch with coworkers, or stopping at the coffee shop to get your morning fix. So the question is, if you’re frequently spending on everyday purchases, would you want to earn a percentage back? With cash back reward credit cards, you’ll earn a small percentage back on a variety of items. It’s equivalent to constantly shopping at a percentage discount.
What Are Cash Back Credit Cards?
Cash back credit cards are designed for consumers that want to save money as they shop. Some of these rewards cards offer travel credits, points for airline miles, or even hotel rewards. Although, redemption systems can often be a little more complicated. With cash back reward cards, it’s possible to have rewards directly deposited into a bank account, redeemed for gift cards to partnered stores, or put towards new merchandise.
With cash back credit cards you’ll always get discounts on items you purchase with the card. It’s not necessary to spend large sums on big ticket items to maximize your value of cash back rewards. The matter at hand is choosing a card that matches your unique lifestyle. Always remember, when using any credit card, it’s important to use it responsibly. Never go over your credit limit, always pay the card off at the end of the month, and keep your credit utilization low.
A cash back rewards card is valuable if you:
- Use cash or a debit card for most of your spending
- Want to save money
- Purchase gas, groceries, or dine out regularly
- Prefer to avoid point redemption systems and transfers
- Understand the importance of using a credit card responsibly
Card Characteristics to Know About
The seemingly simplistic nature of the cash back credit card doesn’t mean all are cards equal. It’s best to fully understanding differences among the options available. Consider every option carefully before deciding which one is the right fit for you.
For starters, the right cash back credit card should align with any current spending habits, without being a hassle to use or pay off. Start by comparing the cards that have the highest cash back rate for purchases you make on a regular basis. There are three main categories of cash back cards: fixed-rate, fixed-category, and rotating category.
Fixed-rate cash back cards are direct in what they offer. They have a single cash-back rate no matter where you shop, or what you buy. These cards are ideal for people who don’t want to think about which card to use for each transaction. Usually fixed-rate cards provide 1.5% to 2% back on all spending, in addition to a sign-up bonus. The only negative is that the percentage of cash-back you’ll get with this type of card is typically much less than what the other two card groups offer.
Fixed-category cash back cards often get characterized by having cash-back rewards rates from 2% to 6% within specific shopping categories, and around 1% back on everything else. These cards usually provide cash-back on every day commodities such as gas and groceries. This is a great option for those who want a single card with a higher percentage of cash back for items purchased on a regular basis.
Rotating category bonus cash back cards are cards with rotating categories instead of having high cash back rates in single fixed categories, these card offer high rewards potential for multiple purchase categories that change or rotate every quarter. These cards typically offer 5% cash back from the revolving spending categories. Each quarter (every three months), you’ll have to register for a new bonus category in order to start earning cash back. There’s usually limit to the amount of cash back you can earn each quarter. Every purchase not in the bonus category or over the quarterly limit will usually still earn you 1% cash back.
Cash Back Credit Card Overview
People that have a rotating category card, like Discover it, pay no annual fee, earn 5% cash back throughout the year in certain categories, and can earn up to $1,500 in rewards per quarter. The Discover it card gives new members double the amount of cash back they earned in their first year along with 1% cash back on all purchases outside the specified categories.
With a fixed rate cash back credit card, such as the Citi Double Cash Card, cardholders earn 2% cash back for every purchase. The card has no annual fee, and offers a $100 signup bonus for spending $500 in the first three months of opening the account.
Groceries and gas are common categories for a fixed category card to allow people to earn a higher percent of cash back from. The Blue Cash Preferred Card from American Express offers a signup bonus of $200 if you spend $1000 in purchases in the first three months of opening the card account. Cardholders earn 6% cash at US supermarkets (up to $6000 per year in purchases), 3% back at US gas stations and select department stores, and 1% cash back on all other purchases. This card does have an annual fee of $95, so anyone interested in obtaining this card should calculate how much spending it would take to earn enough cash back to offset the annual fee, while still making enough cash back for the card to be profitable.
In some cases, it might make sense to get a combination of all three types of cards to maximize rewards, especially when the cards don’t have an annual fee.
Consumer Takeaways
At the end of the day, a cash back credit card is a flexible and straightforward way to constantly be getting discounts on your daily purchases. By adding this tool to your wallet, you will be able to get a small percentage back on all the money you spend, with whatever cash back card you choose. Keep in mind, in addition to the discounts, using the credit card responsibly will help improve and even build up your credit scores. So now the question is, what are you waiting for?
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