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The 3 types of cash back credit cards: Which one is right for you?

Cash back credit cards offer similar rewards, but not all in the same way

Summary

There are three main types of cash back cards to choose from. Find out how they work and how to decide which card is for you.

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Getting ahead with a credit card may seem like a pipe dream, but there are plenty of people who rack up hundreds (or even thousands) in rewards without piling up debt. The key to maximizing cash back credit cards is simple – charge only planned purchases you can afford to pay off each month and never, ever carry a balance.

With this strategy and some discipline, it’s possible to earn 2% in cash back and more on whatever you charge to your card, whether you use plastic to cover bills or everyday expenses. Before you do, you need to decide on the type of cash back credit card to sign up for – a feat easier said than done.

What are cash back credit cards?

Cash back credit cards reward consumers with “free” cash back for each dollar they spend. This cash back is added to their rewards account when they use their credit card to pay for purchases, usually as a percentage of each dollar spent. Typically, cardholders can redeem their cash back for a check in the mail, statement credits to their account, gift cards and other options.

Some cash back credit cards also offer 0% APR on purchases, balance transfers or both for a limited time. This can make cash back credit cards a good option for people who want to pay down a large purchase over time and pay down other debts.

While this isn’t always the case, the majority of cash back credit cards don’t charge an annual fee.

Cash back credit card pros and cons

While cash back credit cards can seem like a no-brainer for your wallet, they do have some downsides when you compare them to other credit cards, or even to paying with cash or debit instead.

Cash back credit card pros

  • Cash back credit cards let you earn rewards just for using your credit card.
  • Many cash back credit cards offer welcome bonuses when you meet a minimum spending requirement.
  • Most cash back credit cards do not charge an annual fee.
  • Some cash back credit cards offer 0% APR on purchases, balance transfers or both, albeit for a limited timeline.
  • Cash back credit cards can come with benefits like purchase protection, extended warranties or travel insurance.

Cash back credit card cons

  • You’ll pay interest if you ever carry a balance – and the average credit card APR is over 16%.
  • Earning more rewards when you spend more can make it tempting to overspend.
  • You can typically get more value out of your rewards with travel credit cards.
  • Cash back credit cards are more likely to charge foreign transaction fees.
  • Some cash back credit cards come with caps that limit your earnings.

Types of cash back cards

If a cash back credit card seems like what you’re after, you still have some important decisions to make. The first one is deciding on the type of cash back credit card that might serve you best.

While some cash back credit cards offer a hybrid approach to rewards, most fit within one of the three following categories:

Flat-rate cash back

A flat-rate cash back credit card offers one rate of rewards on everything you buy. For example, a rewards credit card with a flat rate might offer 1.5% back or 2% back for each dollar spent, then offer the option to redeem for statement credits, a check in the mail, gift cards or more.

Generally speaking, flat-rate cash back credit cards are best for people who don’t want to deal with rotating rewards categories or earning caps. With a single rate of cash back for each dollar you spend, you can use your card for all your spending and bills without worrying about maximizing bonus categories or hitting rewards caps on certain types of spending.

Examples of flat-rate cash back credit cards include Citi® Double Cash Card and Wells Fargo Active Cash℠ Card.

Fixed bonus category

Rewards credit cards with fixed bonus categories offer a higher fixed rate of rewards in some categories and a standard rewards rate on everything else. For example, you might earn up to 6% back on grocery store purchases, or a higher-than-average rate on dining or transit. In the meantime, you would still earn a standard rate on everything else you buy, usually 1%.

Fixed bonus category cards are best for people who spend a lot in specific categories and want to maximize their rewards as a result. Just keep in mind that fixed bonus category cards frequently have caps on bonus rewards and they tend to offer a meager 1% back on regular, non-bonus spending.

Examples of fixed bonus category cash back credit cards include Blue Cash Preferred® Card from American Express and Capital One Savor Cash Rewards Credit Card*.

Rotating bonus category

Another type of cash back credit card lets you earn rewards in categories that rotate over time. Typically, cards with rotating categories let you earn 5% back on up to $1,500 spent in specific categories each quarter when you activate, after which you earn 1% back.

Cash back credit cards with rotating categories also offer a flat rate of rewards for each dollar you spend, usually 1% back. Also, note that some have other bonus categories in which you can maximize rewards throughout the year.

Like other cash back credit cards, rotating bonus category cards tend to offer welcome bonuses, 0% APR offers or both.

Examples of rotating bonus category cash back credit cards include Chase Freedom Flex℠ and Discover it® Cash Back.

How to choose the best cash back credit card

Since credit cards with cash back can be so different, how do you begin to choose the best cash back credit card? First, know that you don’t have to limit yourself to just one. There are plenty of consumers who successfully manage multiple cash back credit cards, which they use to maximize rewards in different categories as well as on miscellaneous purchases.

As you decide which cash back credit cards would work best for you, think long and hard about the following:

Spending habits

Your spending habits should play a significant role in the cash back credit cards you ultimately sign up for. If you happen to spend a lot of money in categories like dining out, groceries or gas station purchases each month, for example, it wouldn’t make sense to skip over cards that offer a lucrative rewards rate on this spending.

If you aren’t entirely sure which categories you spend the most in right now, it can help to track your spending for a few weeks to see where your money goes. If you use a credit card already, you can look over your statements to see which categories you tend to spend the most in.

Rewards rate

Even if you decide on a specific type of cash back credit card, you’ll find that some offer a better rewards rate than others. For example, there are flat-rate credit cards that only offer 1.5% in cash back for everything you buy, but you’ll also find cards that give you 2% back with no annual fee.

Obviously, you should focus on rewards credit cards that offer the highest rate of cash back possible, whether you’re looking for a card with a flat rate, bonus categories or rotating bonus categories. For example, you may find a card with bonus categories that make sense with your lifestyle, then still pick up a 2% cash back credit card to use for miscellaneous purchases and bills.

Rewards limits and caps

Also, note whether rewards credit cards you’re considering set limits on how much cash back you can earn. Some of them do, and these limits are worth tracking if you’re someone who spends a lot with plastic every month.

For example, credit cards that offer 5% back on up to $1,500 in spending each quarter only let you earn $75 in bonus cash in rotating categories every three months. This doesn’t mean they’re not useful; you just need to know the limits you’re dealing with and how they can impact your rewards over time.

Redemption options

Finally, you should figure out how you can redeem rewards with the cards you’re most interested in. While some cash back credit cards offer a plethora of rewards options, others only let you redeem your cash back for statement credits to your account.

There is no right or wrong answer here; your rewards redemptions should suit your personal preferences, and that’s all that matters. If you want some flexibility, look at cash back credit cards that let you redeem for at least two or three options including gift cards, travel, merchandise, cash back and statement credits.

Cash back credit card FAQs

What is the highest cash back credit card?

Examples of cards with the highest cash back rates include the Blue Cash Preferred® Card from American Express, the Chase Freedom Flex℠ and the Discover it® Cash Back.

How does cash back work?

Cash back credit cards award consumers with cash back when they use their credit cards for purchases and bills, usually as a percentage of their spending.

What is cash back?

Cash back is a type of reward you can earn when you spend with a credit card. While some cash back credit cards will send you a rewards check in the mail, others let you redeem for statement credits, gift cards, merchandise, travel and other options.

Can you get cash back with a credit card?

Getting cash back with a credit card is easy since there are so many rewards credit cards that offer this option. Just keep in mind that ending up “ahead” in the rewards game requires you to pay your credit card bill off each month. If you carry a balance, the interest you pay will easily wipe out your rewards.

Bottom line

Cash back credit cards really do offer the prospect of “something for nothing,” but you’ll only benefit if you are disciplined enough to avoid debt. Make sure you have a plan in place to earn rewards responsibly, and that you have an idea of the type of card you want to sign up for.

With some research and planning, you can earn cash back in no time.

*All information about the Capital One Savor Cash Rewards Credit Card has been collected independently by CreditCards.com and has not been reviewed by the issuer. Capital One Savor Credit Card is no longer available through CreditCards.com.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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