Can Cash-Back Rewards Beat Your Savings Account?

Advertiser Disclosure

This page includes analysis of our favorite cards from The Simple Dollar's advertisers and the marketplace. Visit our advertiser disclosure to learn more.

swiping a credit card

Are you tired of earning less than 1% on your savings? You’re not alone.

With interest rates hovering near record lows for the past few years, the average savings account in the U.S. is currently bringing in around 0.17% APY, according to GoBankingRate data. In other words, most people are earning next to nothing on their liquid savings. And you can shop around ‘til the cows come home, but for the most part, there are few places you can safely earn more than 1% on your cash cushion.

Fortunately, you can continue earning money on your spending, at the very least. All you need is a cash-back rewards card, the discipline to pay your balance in full each month, and the desire to earn at least something in this low-return environment.

How Much Cash Back Can You Earn?

There are all kinds of cash-back rewards cards on the market, but some are easier to use than others. Take the Chase Freedom® credit card, for example, which allows you to earn 1% cash back on all your spending and 5% cash back on categories that rotate every quarter.

Enjoy the Chase Freedom® 5% categories every 3 months like gas stations, restaurants, select grocery stores, and wholesale clubs. Imagine if someone put all of their shopping on the card this entire quarter. How much could they earn each month? Let’s use some average spending figures to come up with a general idea:

March Spending

  • Groceries: $500
  • Gas: $250
  • Clothes: $100
  • Miscellaneous: $500

Total: $1,350

Earning 5% cash back on groceries would help this theoretical family bring in $25 in January, and earning 1% cash back on everything else would help them earn another $8.50. That’s a total of $33.50 in one month — earned with almost no effort and no extra spending. And if they kept it up the entire quarter, they would earn over $100!

Now, assuming the family has $5,000 in an 0.17% APY savings account, they’re earning less than $10 in interest on that balance…. over the entire year. It’s important to have a savings cushion, but when it’s yielding less than a dollar a month, cash-back rewards can help make up for those lost passive earnings.

Those cash-back rewards handily beat the returns of a high-interest savings account, too: Even at a 0.75% APY, their $5,000 balance will yield just $38 over the course of the year.

Rules for Earning Cash Back

Earning cash back is easy if you know how to rack up the rewards without getting into trouble – or worse, going into debt. These tips can help:

  • Always pay your bill in full. When you’re using credit to earn rewards, you should never pay interest — otherwise the charges will more than offset any rewards you earn. Only charge what you can afford to pay off immediately.
  • Pay attention to due dates. Always pay your bill before the due date in order to avoid late fees.
  • Don’t use rewards as an excuse to overspend. When earning cash back on your regular spending is the goal, you should never use your new credit card as an excuse to buy more. Only purchase what you would have bought anyway.

Earning Cash Back With the Chase Freedom Card

If you’re ready to start earning something for your everyday spending, the Chase Freedom card is great for beginners. Here are some other details you should know before you sign up:

Chase Freedom®

  • Earn a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening
  • Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate
  • Enjoy new 5% categories each quarter
  • Unlimited 1% cash back on all other purchases - it's automatic
  • 0% Intro APR for 15 months from account opening on purchases and balance transfers, then a variable APR of 16.49-25.24%. Balance transfer fee is 5% of the amount transferred, $5 minimum
  • Cash Back rewards do not expire as long as your account is open and there is no minimum to redeem for cash back.
  • Free credit score, updated weekly with Credit Journey℠
  • No annual fee

It’s also important to remember that you have to activate your card to earn the 5% cash back every quarter. You can do that by going to the Chase Freedom activation page, or through your smartphone. You only have to do it once each quarter in order to earn your 5% rewards.

No matter where you keep your liquid savings, chances are good you’re not earning as much as you would like. Until that changes, at least you can earn some cash back in the meantime. Just remember, you should never spend more than you planned just to earn rewards: No matter what, paying interest on your purchases is never rewarding.

How much are you earning on your savings account? Do you pursue cash-back rewards?

Editorial Note: Compensation does not influence our rankings and recommendations. However, we may earn a commission on sales from the companies featured in this post. To view a list of partners, click here. Opinions expressed here are the author's alone, and have not been reviewed, approved or otherwise endorsed by our advertisers. Reasonable efforts are made to present accurate info, however all information is presented without warranty. Consult our advertiser's page for terms & conditions.