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How to choose a cash back credit card

Need to choose a cash back card? Read on for our tips and advice to pick the best one for your wallet

Summary

How do cash back cards compare and which is right for you? If you’re shopping for a cash back card, here’s everything you need to know.

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As the saying goes, cash is king. It’s also the most straight forward of credit card rewards. You may not earn any noticeable interest on your savings account, but you can earn a decent amount on purchases with a good cash back card.

So, how do you choose a cash back credit card that’s fit for a king – or, more important, for you? Here’s how it works.

What are cash back credit cards?

Simply put, a cash back credit card pays you back a percentage on every purchase you make. The cash you get falls into one of three categories.

What are the three types of cash back cards?

You have a choice between cash back cards that offer flat rate, fixed bonus and rotating bonus. Flat-rate rewards typically are best suited to a cardholder who wants to put their cash rewards on autopilot. But fixed- and rotating-bonus cards can pay off handsomely if you’re willing to devote a bit of extra time. Each offers its own advantages.

Flat rate

With a flat-rate card, you earn a certain percentage (normally 1% to 2.5%) on each eligible purchase. This might be an airline ticket to Paris, a cartload of groceries or a tank of gas.

As an example, the Capital One Quicksilver Cash Rewards Credit Card lets you earn 1.5% on every purchase. So, if you buy $200 worth of groceries, the cash back amount with this card would be $3. By itself, a $3 reward isn’t much to celebrate. But if you regularly make purchases with a flat-rate card, the cash back can add up quickly.

Fixed bonus

Depending on your spending habits, a fixed-bonus card can lead to fatter cash back rewards than a flat-rate card does.

An example of a fixed-bonus card is the Blue Cash Everyday® Card from American Express from American Express. Blue Cash Everyday gives 3% cash back for purchases at U.S. supermarkets (up to $6,000 per year in purchases, then 1% after that), 2% cash back at U.S. gas stations and select U.S. department stores, and 1% cash back on other purchases.

So, let’s say you charge $6,000 in groceries on this card over a year’s time. In this case, your cash back would total $180 — perhaps enough to buy a week’s worth of groceries for your household.

Rotating bonus

As the name suggests, the cash back categories for a rotating-bonus card change periodically. For instance, the Discover it® Cash Back offers 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants and gas stations, up to the quarterly maximum when you activate that category.

For any category outside the 5%, you automatically earn unlimited 1% cash back on purchases. If you pick the Amazon.com category one quarter and spend $500 during that time, your cash back just for that category would amount to $25.

What are the benefits of cash back vs. rewards points?

If you’re trying to decide between a cash back card and a card with rewards points or miles, here are some pros and cons of each.

Pros of cash back cards

  • Cash back can be redeemed a number of ways, including statement credits, direct deposit, gift cards or merchandise.
  • Unlike many cards offering rewards points or miles, most cash back cards don’t charge an annual fee.
  • Cash back cards typically offer more redemption flexibility than cards with rewards points or miles, since points or miles often must be redeemed on a specific website.

Cons of cash back cards

  • Perks such as travel protections may be watered down compared with those provided by cards with rewards points.
  • You can’t transfer points or miles to airline or hotel partners, where you might be able to extract even more value from your rewards.
  • Some cash back cards may limit how much money you can receive over a year’s time.
  • Cash back cards frequently deliver sign-up bonuses that fall short of those offered by cards with rewards points or miles.

Pros of rewards points

  • Rewards cards may let you maximize the spending power of points and miles. For instance, the Chase Sapphire Reserve® provides a 50% redemption bonus when you book travel through Chase’s Ultimate Rewards portal.
  • A lot of rewards cards give you the chance to transfer points or miles to airline and hotel partners.
  • Some rewards cards supply travel benefits like insurance coverage for rental cars or membership at airport lounges.

Cons of rewards points

  • Many rewards cards hit you with hefty annual fees. Those fees can be offset by card benefits, award redemptions and sign-up bonuses, assuming you use them right.
  • Figuring out the ins and outs of rewards programs can be as tricky as getting through airport security over the holidays.

How to decide if a cash back card is right for you

Now that you know the ups and downs of both cash back cards and rewards cards, how do you decide whether the cash back option is right for you? Ask yourself these four questions:

  1. What gives you more pleasure, the idea of a building toward a prize vacation or some unexpected cash when it’s time to pay a bill? If it’s the latter, cash back is for you.
  2. Does it bug you to pay annual fees for credit cards? If so, you might prefer a cash back card over a rewards card. Rewards cards tend to come with higher annual fees.
  3. How much do you travel? If you don’t fly a lot or spend much time in hotels, you might be better off sticking with a cash back card.
  4. Do you find yourself getting aggravated simply logging in to pay your bills or check your statements? If that’s the case, you might be happier with a lower-hassle cash back card. It can take a fair amount of time and patience to capitalize on cards that supply points or miles.

Bottom line

Depending on your perspective, a cash back card can be more rewarding than a rewards card that lets you collect points or miles. While a cash back card may not pack as much of a financial punch as a rewards card does, you may be perfectly happy paying a lower annual fee or paying less attention to the nitty-gritty of rewards programs in exchange for the relative simplicity of a cash back card.

Of course, nothing says you can’t stash both a cash back card and a rewards card in your wallet, so you can enjoy the best of both worlds.

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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