What does cash back mean?
Credit card cash back refers to the rewards program offered by certain credit cards that allows you to earn a percentage of “cash” back on your purchase. This usually ranges from 1% to 6%, depending on the card.For instance, the top card on our list, the Discover it® Cash Back, offers 5% cash back on rotating categories up to the quarterly maximum each time you activate, and 1% unlimited cash back automatically on all other purchases.
If you’re trying to receive cash from an ATM, bank teller, or convenience check with your credit card then that’s actually considered a cash advance. In those cases, you’ll need to contact your card’s customer service center to set up a PIN number. Once you have a PIN, you can withdraw money from your credit card as you would a debit card.
How do cash-back credit cards work?
Depending on the structure of your card’s rewards program, you’ll earn a certain percentage back (usually 1% to 6%) on purchases you make with your cash-back rewards card. The cash back you receive from your purchases will show up on your next credit card statement and your online account. You could think of the cash back as a rebate — and it is one, only there are no annoying forms to fill out or mail in.
Once your cash back rewards hit your account, you can redeem them in a few different ways. The simplest is to lower your monthly credit card bill with a statement credit. So if your credit card bill is $500 for the month, and you earned 5% cash back on all of it, you could redeem that $25 toward your balance, and you’d only have $475 left to pay.
But if you really want actual cash back, your can usually have the cash rewards deposited directly into your bank account, or even receive a paper check in the mail.
Some of the best cash back credit cards, like Discover it® Cash Back and Chase Freedom®, for example, also allow you to redeem your cash back rewards as gift cards.
Other credit cards allow you to donate your points to charity, such as Chase Freedom Unlimited®. One caveat to keep in mind, though: A lot of credit cards take a small (roughly 2%) interchange fee from money going to a charity. So if you’re paying a charity with your credit card, not all of it will actually get to the nonprofit, in case that affects your decision.
What credit card gives the most cash back?
The Blue Cash Preferred® Card from American Express has one of the highest rewards rates of any cash back card: 6% cash back at U.S. supermarkets (up to $6,000 per year, then 1%) and 6% cash back on select U.S. streaming subscriptions. It also earns 3% cash back at U.S. gas stations and on transit, and 1% back on other purchases.
Three types of cash back cards
There are three types of cash back credit cards: flat-rate cash back cards, tiered cash back cards, and bonus category cards. Of the three, bonus category cards usually offer the highest rewards rates.
|Type of cash back card||How it works|
|Flat-rate cash back card||Earns unlimited, flat-rate rewards on all purchases (usually around 2%)|
|Tiered cash back card||Earns rewards in specific categories, often with a earning limit, and a lower rate (usually 1%) on all other purchases|
|Bonus category card||Earns high-rate rewards (some as much as 6%) on spending categories that change periodically, and a lower rate on all other purchases (usually 1%)|
- Flat-rate cash-back cards: If you like keeping things simple, go with a flat-rate card. This type of cash back card earns unlimited rewards (usually 2%) on every dollar you spend on eligible purchases. It’ll take you longer to earn the same amount of rewards as a bonus category cash back card, but you have the flexibility of using whenever, and however you want.
- Tiered cash-back cards: Tiered cash-back cards like the Blue Cash Preferred® Card from American Express are usually best for families that regularly shop for groceries. The rewards are higher than flat-rate cards (usually from 3% to 6%), but usually accompanied with an earning limit. If you plan to spend more than the earning limit, consider whether you might be better off with a flat-rate card.
- Bonus category cards: If you have the flexibility to adjust your purchasing habits every few months, a bonus category cash back card may be for you. Bonus categories rotate multiple times a year, usually every quarter, earning high-rate rewards on things like gas, supermarkets, and restaurants. Keeping track takes discipline, but the rewards rates are higher than with flat-rate cards — and the signup bonuses are often easy to earn.
Pros and cons of cash back credit cards
|They’re easy to understand. It’s easy to keep up with how much you’ve earned and what your rewards are worth, because you don’t have to convert a point or mile into the equivalent cash value.||Not everyone will qualify credit-wise. The best cash back credit cards usually require a “good” FICO credit score, 700 or more.|
|Easy to redeem cash back. Redeeming cash back is as simple as connecting your bank account for a direct transfer. Gift cards and statement credits are also options. (It’s important to note that some cards have a minimum redemption requirement.)||Chasing signup bonuses. Cards with signup bonuses generally have a minimum spending requirement. It can be tempting to spend more than you can afford to earn the bonus, resulting in a monthly balance and interest charges.|
|A wide range of bonus categories. Some cash back cards earn high-rate rewards on categories that rotate throughout the year. Others earn unlimited flat-rate cash back on all types of purchase.||Tracking bonus categories. Keeping track of rotating bonus categories takes discipline. If you prefer keeping things simple, consider a flat-rate cash back card.|
How do I redeem cash back?
Redemption options vary from card to card, but here are the most common methods for redeeming rewards:
- Bank deposit: All the cash back that you earn goes straight into a checking or savings account.
- Statement credit: This form of cash back is only applied to your credit card balance — you can’t spend it anywhere else.
- Gift cards: Some credit cards offer cash back in the form of physical gift cards or eCertificates for popular retailers and merchants.
- Charitable donations: Other cards offer you the opportunity to donate your earnings to charities and disaster relief programs.
It’s important to remember that some of the best cash back cards have limits on how much you must redeem, and when you can redeem it. For example, the Discover it® Cash Back matches your first-year earnings dollar-for-dollar, but you won’t get access to them until the end of your first account year. Be sure to read the terms and conditions before you pull the trigger on a card.
Does it make sense to pay an annual fee?
Applying for a credit card with an annual fee doesn’t always make sense. If your spending habits don’t align with its reward structure, you might net a loss — even if you earn the signup bonus.
For example, the Capital One® QuicksilverOne® Cash Rewards Credit Card earns a flat 1.5% cash back on every purchase. It also has a $39 annual fee. To recoup that fee, you need to spend $2,600 on eligible purchases with your card annually, or $216 a month. Only once you spend more will you begin to earn net rewards.
Can I get my interest rate lowered on my credit card?
Your credit card interest rate isn’t written in stone. In face, 69% of people who asked their issuer for a break got a lower rate.
If you pay your balance in full every month (which we highly recommend), interest rates don’t matter. But if you’re trying to pay down debt, asking for a lower rate could save a significant amount of money in the long run.
Before you call, look for better offers from other lenders that you can use as leverage. If you get a “no” the first time, don’t give up. Instead, ask to speak to a manager and try again.
Making the most of your cash back credit card
The secret to using a cash back credit card effectively is, first of all, to use it a lot – and to pay it off every month, without fail. It doesn’t make much financial sense to, say, save 5% on all of your purchases if you’re consistently spending 15% more on all of them because of the interest you’re carrying from month to month.
So use the card frequently, but only on products and services that you need to buy, to get a lot of cash back, and pay off the card every month. (What you don’t want to do is start thinking, “Hey, I get cash back if I buy all this stuff I don’t need.” Common sense, but it’s easy to fall into that trap if you get too carried away with the idea of getting cash back.)
But there are other strategies you can use to eke out even more cash back rewards. If you have a credit card with rotating bonus categories, for example, such as the Chase Freedom®, you want to pay attention to those. If gas stations are the category for a certain quarter, you want to make sure every dollar you spend on gas is with your Chase Freedom® card. If it’s groceries, obviously make sure all of your supermarket spending is done with the Chase Freedom® card in that quarter – and maybe even stock up on some nonperishable items you know you’ll use if you’re approaching the end of the quarter and haven’t maxed out the bonus yet. (And if you carry a Chase Sapphire Preferred® Card, you can pool points from both cards and redeem them for more free travel.)
There are other small ways to stretch your rewards, too. The Discover it® Cash Back card, for instance, allows you to redeem your rewards for discounted gift cards. For example, it only takes $90 in cash-back rewards to get a $100 gift card to Lowe’s or Airbnb, among many others offered by Discover, and a $100 gift card to L.L. Bean or Land’s End costs just $80. So whether you’re holiday shopping, ready to book a vacation, or planning a home improvement project, you can get another 10% off or more by trading in your cash-back points for discounted gift cards.
If paying attention to the rotating categories sounds like too much work and not all fun, then you may be better off with a credit card like Capital One® Quicksilver® Cash Rewards Credit Card, which doesn’t have rotating fees. You just earn 1.5% back on everything, no matter what.
Still, if you’re looking for the best cash back credit cards, and you really want to make the most of the one you apply for, cards with rotating categories do offer your best chance to rack up big rewards — if you pay attention to the bonus categories and adjust your shopping routine accordingly. So the question is whether you mind watching the calendar and enjoy the thrill of the cash-back game, or if you’d rather just consistently save money without overthinking it.