Cash-back credit cards turn the oft-repeated phrase “make your money work for you” into a reality. By just enrolling, you can enjoy perks like a $100 sign-up bonus and earn cash with every swipe of the card. It’s no wonder people are signing up in droves. A widely cited TNS Global Financial Services study found that more than half of rewards card holders use cash-back cards. Before you go and join them yourself, though, it’s important to know the ins and outs of these popular cards to truly make your money work for you.
The Basics of Cash-Back Rewards Cards
In the credit card universe, there are three major types of rewards cards:
- The kind where you earn airline miles, which you can put towards flights or hotels;
- the kind where you earn points, which you can later redeem for merchandise and giftcards;
- and – a favorite among financial experts – the kind where you earn back a percentage of what you spend. These are your cash-back rewards cards.
They all pretty much operate the same way, regardless of the company, though it’s important to know the basic qualities of these cards and how they might differ in order to find one that works best for you:
- Signup bonus: This is the biggest draw of cash-back rewards cards. Just by signing up and charging a certain amount on your card within the first few months, you can earn cash or credit towards your account.
- Cash-back percentages: This is another big draw of cash-back rewards cards. For every dollar you spend, you can earn a percentage back. This number can range from 1% to 6% – the higher the number, the more cash back you’re getting.
- Categories: Some cash-back rewards cards have a flat percentage you earn back on all purchases, though most have varying percentages depending on the type of purchase, or category. For example, a card may let you earn 3% back on groceries and gas, 2% on retail, and 1% on all other purchases. These categories may even rotate percentages by quarter, so every few months certain purchases get you more money back.
- Annual fees: Most cash-back rewards cards have no annual fee. Those that do likely have a higher cash-back percentage, allowing you to earn more back on every dollar spent.
- APR: A majority of cash-back rewards cards offer a 0% introductory APR for the first 12 to 15 months, though once that promotion ends, the interest rate shoots up.
The Best Cash-Back Credit Cards
There are dozens of cash-back rewards cards to choose from, all offering different sign-up bonuses, cash-back percentages, and annual fees. For an idea of some of the best ones, here is a list of the top cash-back rewards cards based on sign-up bonuses, cash-back percentages, and other perks:
- The Chase Freedom Credit Card: This popular card lets you earn 5% cash back on the first $1,500 spent every quarter on everyday purchases, such as gas, restaurants, and groceries. All other purchases earn you 1% back. To sweeten the deal, there are no annual fees, 0% APR for the first 15 months and a $100 signup bonus if you spend $500 in the first three months.
- Discover it Card: Consumerism Commentary names this the best no-debt, no-fee card. You can earn 5% cash back on rotating categories up to $1,500, plus an unlimited 1% everywhere else. You just have to be aware of the specific category selected each quarter to take advantage of the high cash-back percentage. Plus, there’s no interest earned for the first 14 months.
- Blue Cash Everyday from American Express: This card is among the best in cash-back cards for gas and grocery purchases. Each dollar spent at supermarkets earns you 3% cash back for up to $6,000, while purchases made at select department stores and gas stations earn you 2% back. All other purchases earn you 1%. Cash back is received as Reward Dollars, which are redeemable as statement credit. Additionally, spend $1,000 within the first three months of membership and earn 100 Reward Dollars on this no-fee card.
- Capital One Cash Credit Card: This card offers a pretty decent sign-up bonus: spend $500 on purchases within the first three months and earn $100. It’s also simple: all purchases earn a flat 1% cash back, and you also receive a 50% bonus on the cash back you earn every year. There’s no annual fee and a 0% introductory APR, which after a year will range from 12.9%-20.9%.
- Blue Cash Preferred Credit Card from American Express: This cash rewards card has an annual fee of $75, but gives you a higher percentage back on purchases, to the tune of 6% on supermarket purchases up to $6,000 per year, 3% at gas stations and select department stores, and 1% on all other purchases. It also has a bigger sign-up bonus – spend $1,000 within the first three months and you earn $150 toward your account. All cash back is received as Reward Dollars, which is redeemable as statement credit.
- Capital One Cash Rewards Credit Card: This card comes with a $39 annual fee but also gives you the opportunity to earn more back. Earn 1% cash back on all purchases and then a 50% bonus on what you’ve earned throughout the year. There’s no limit to the amount of cash back you can earn, and your cash rewards don’t expire.
- Citi Dividend Platinum Select Visa Card: This no-fee card offers a higher percentage back than most other cards of its type – earn 5% cash back on purchases based on rotating categories, such as gas, groceries, restaurants, home improvement and movies. Of course, you have to really tailor your spending to take advantage. All other purchases earn 1% cash back. Additionally, spend $500 within the first three months and earn $100 cash back.
- BankAmericard Cash Rewards Credit Card: With this no-fee card, you earn 2% cash back on groceries and 3% on gas for the first $1,500 in combined gas and grocery purchases each quarter. All other purchases earn you 1% cash back. Spend $500 in purchases in the first 90 days and you get $100 in cash rewards. Rewards can be redeemed as a statement credit or direct deposit into a Bank of America checking or savings account.
- Citizens Bank CashBack Credit Card: Unlike most cash-back credit cards, this card doesn’t offer any sign-up cash bonus. Instead, you can earn 5% cash back on any gas, grocery, and drugstore purchases within the first 90 days, after which all purchases earn 1% cash back. So you can tailor your purchases during those first three months to take advantage of the rate. Cash-back bonuses are received in increments of $50 checks automatically. This no-fee card also has a 0% APR for the first 12 months, after which it ranges from 14.99%-19.99%
- Capital One Cash Rewards for Newcomers Credit Card: This no-fee card lets you earn 2% cash back on travel purchases and 1% on all others. Cash back is unlimited, doesn’t expire, and can be redeemed automatically as an account credit or check. This card is geared toward people with limited or average credit and, after a 0% APR introductory period, your rate jumps to 24.9% variable APR.
Reading the Fine Print
As these 10 cards show, each cash-back rewards program is different. Beyond the basics, there are additional aspects of cash-back credit cards to keep in mind, from how you earn your signup bonus to how and when you can redeem your cash reward. When you dig deeper, you may find some terms of cash-back credit cards that aren’t as good as they sound.
- Signup bonuses strings: While some cards offer a bonus immediately upon signup, many only offer it if you spend a certain amount of money within the first three months. So if you don’t spend enough, you miss out on the bonus.
- Skyrocketing APR: Once that introductory, promotional interest rate is over, APR is likely to shoot up, often to more than 20%.
- Forfeiting rewards: For some cards, your cash back accrual may expire after a few years if you don’t use your card frequently enough. You may also have to forfeit your cash-back rewards if you’re late on payments.
- Redemption restrictions: There may be limits on when you can redeem your cash-back rewards. Some cards have redemption minimums or reward increments, such as every $25 or $50, and you can’t redeem until you hit that increment. Other cards may only let you redeem your cash back on a monthly or annual basis.
- Caps on rewards: Some cards may place limits on the amount of cash-back you can earn each quarter. So if you use your credit card a lot, you may want to look for a card that has a higher limit – or no cap at all.
Do Your Research
There is a lot of information to gather, but by knowing how cash-back rewards cards work and doing your homework on each one, you won’t have any surprises once you sign on the dotted line. It’s also important to have a full understanding of your needs and spending habits to decide on a card that best suits your lifestyle. Only then can you make the most out of your cash-back rewards card.