Takeaways
- Cash back cards reward holders with a percentage of purchases as cash or credits.
- Cash back rewards can be accrued through statement balances or cash deposits.
- Cash back rewards programs offer partner-specific deals and promotions.
- Cash back credit cards come with different terms and conditions, APR, and fees.
- Cash back credit cards can be perfect for first-time credit cards users to accrue rewards quickly.
What Are Cash Back Credit Cards?
Cash back credit cards are a type of credit card that provides cardholders with cash back rewards for eligible purchases. These rewards are based on a percentage of spending. They can be redeemed in various ways, like credit card statement credits, direct deposit to your savings or online checking account, or gift cards to major retailers. Cash back cards offer an easy-to-use and valuable way to earn rewards quickly on everyday purchases.
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Upgrade Credit Card
Smart Money Rating: 5/5
Cash Back: 1.5%
Best For: Establishing Credit History
Credit Line: $500 – $25,000 (Terms Apply)
How Cash Back Credit Cards Work
Cash back credit cards are one of the easier reward programs to use because they operate on a straightforward principle. For every qualifying purchase made with your card, you earn a percentage of the purchase amount as cash back rewards. The reward rate can vary depending on the card, purchase type, and ongoing promotions.
Some cash back rewards cards offer a fixed cash back rate. Others, however, provide variable cash back rates on different purchases, such as rewarding restaurant or travel purchases differently than grocery purchases.
For example, a card may offer a 2% cash back rate on grocery store purchases and a 1% cash back rate on all other purchases. The earned cash back is typically tracked and accumulated in the cardholder's account. The cardholder can receive rewards once the cash back balance reaches a certain threshold.
Depending on the credit card, the best cash back cards usually run limited special rewards programs offering above-average cash back on specific purchases from partners (e.g., Amazon, Apple, or Walmart). You can peruse which partners have these programs on your credit card's mobile app or online.
Read Also: The 5 C’s of Credit. Here’s What You Need to Know
How to Redeem Your Cash Back Rewards
Cash back rewards can be redeemed through a variety of channels, depending on the specific card and your personal preference. Traditional redemption options include:
- Statement Credit: This is the most common method used by cardholders, in which the cash back amount is applied as a credit to the cardholder's next statement balance, effectively reducing the amount you owe on your next payment.
- Direct Deposit: The cash back amount is directly deposited into the cardholder's linked online savings account (or checking account).
- Check: The card issuer sends the cardholder a check for the accumulated cash back amount. The check can be sent to your home, office, or place of business.
- Gift Cards: Many credit card providers offer exclusive partnership programs in which cash back can be redeemed for gift cards to popular retailers. For example, you could use your cash back to purchase a new Apple iPad or MacBook Pro.
- Travel Portals: Some cash back rewards programs may offer the option to redeem rewards through travel portals, allowing cardholders to book flights, hotels, and rental cars using their accumulated cash back. (Read more about travel reward credit cards).
- Charitable Donations: There are also cash back programs that allow you to donate your accrued rewards to eligible charities. This feel-good act lets you give back to your community or charity of choice, allowing your earned rewards to make a direct impact.
Related: 7 Surprising Reasons You Should Use Your Credit Card
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Upstart Personal Loans
Smart Money Rating: 5/5
Best For: Fast Online Loans
Loans From: $1,000 – $50,000 (Terms Apply)
Bonus Offer: Checking Interest Rate Won’t Affect Your Credit Score
How to Maximize Your Rewards
Not all cash back credit cards reward users the same. You should think strategically about choosing the best card with a rewards program that maximizes your value. Here are five steps to get the most out of your card.
1. Select the Best Card: Choose a card that aligns with your spending habits. Consider credit cards with higher cash back rates in categories where you spend the most, like groceries, gas, or travel.
2. Use Your Card Regularly: There are many reasons to use your credit card. Consistent use of your credit card as your primary means of payment is crucial to maximizing rewards. You can use it for everyday purchases like groceries, dining, or gas.
3. Enroll in Extra Earnings: Take advantage of any bonus categories or promotional offers that may increase your cash back earnings. Some cards offer increased rewards for spending in specific categories during limited-time promotions. Review these regularly and opt-in to programs you will use.
4. Link to Payment Apps: How you pay for purchases matters. You can increase your benefits by linking your cash back credit card to online payment tools like PayPal or your Apple Wallet. Additionally, you can link your part to regular recurring subscription payments.
5. Review the Terms: Carefully review the terms and conditions of your cash back card, including the annual fee (if any), interest rates, and any restrictions on earning or redeeming rewards. Pay off your credit card statement in full each month and utilize every feature of your credit cards.
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The PayPal App
Smart Money Rating: 4.75/5
Cash Back: 1-5% (Terms Apply)
App: Send, Receive, Gift Cash
Best For: Sending Money Fast
Pros of Cash Back Credit Cards
- Straightforward Benefits: Cash back rewards are super easy to understand and accumulate quickly. Some programs offer percentages of total spending or partner-specific cash back rewards.
- Flexibility: Cash back can be redeemed in various ways, providing you with flexibility in how you utilize their rewards. Plus, you accrue rewards on all sorts of purchases without planning when and where to use your card. You don’t have to worry about blackout periods or restricted use, like on some travel reward credit cards.
- Value: Cash back rewards provide immediate tangible value, allowing you to effectively earn money back on your everyday spending. You can bank these rewards, get coupons for major brands, or use the credits to pay off your credit card debt.
- Credit Building: You can use your cash back card to build and maintain a great credit score. Healthy credit card management means making on-time payments, boosting credit length, and making sure your debt-to-income ratio stays low.
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Cons of Cash Back Credit Cards
- Limited Earning Potential: Compared to some travel rewards cards, cash back cards may have lower earning potential for certain types of spending. Researching the best card to optimize your rewards truly matters.
- Potential for Overspending: The convenience of using a credit card can lead to overspending, which can negate the value of any earned rewards. While accumulating cash back rewards is essential to getting the biggest bang for your buck, you also want to make sure you are spending according to your monthly budget. (Read more about how to start a 30-day No-Spending Challenge).
- Interest Charges: Carrying a balance on a cash back credit card can result in significant interest charges, which can quickly outweigh any earned rewards. Make sure to pay off your credit card balance each month and keep your credit score squeaky clean.
Smart Summary
Cash back credit cards offer a valuable way to earn rewards on everyday spending. By carefully selecting the best credit card that aligns with your spending habits and using it responsibly, you can maximize your cash back earnings and effectively earn money back on your purchases. However, using your credit cards responsibly and not carrying a balance is crucial to avoid accruing high-interest charges that can negate the value of any earned rewards.
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Frequently Asked Questions
Cash back rewards credit cards can alleviate the cost of everyday purchases. By finding the best cash back credit card for your personal finances, you can effectively get a discount on regular purchases or start saving your cash rewards in a high-yield savings account.
The Consumer Financial Protection Bureau is the U.S. government agency that regulates credit card companies.
Learn more about the best credit cards and see which card optimizes your spending habits and rewards.
