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 at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com and more up to the quarterly maximum, each time you activate. Also, earn 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.
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 want actual cash back, you 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 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?
Your spending habits will determine which cash back card is the best for you, but here are a few popular spending categories and the top credit cards that fall under those clusters:
- U.S. supermarkets and U.S. gas stations: Blue Cash Preferred® Card from American Express – 6% Cash Back at U.S. supermarkets on up
to $6,000 per year in purchases (then 1%), 3% Cash Back at U.S. gas stations. 1% Cash Back on other purchases.
- Dining out and entertainment: Capital One® Savor® Cash Rewards Credit Card – 4%
- Amazon.com, Target, Walmart.com: Discover it® Cash Back – 5% up to $1,500 spend from Oct. – Dec. 2019 (then 1%, enrollment
- Everyday spending: Chase Freedom Unlimited – 1.5% back on all purchases.
Three types of cash back cards
Cash back credit cards come in three varieties: flat-rate, bonus category and tiered. No single cash back card is a good fit for everyone. Make your choice based on how you spend money.
- Flat-rate cash-back cards: Unlimited, flat-rate rewards on all purchases (between 1-2%) card, but you have the flexibility of using whenever, and however you want.
- Tiered cash-back cards: Rewards in specific categories, often with an earning limit, and a lower rate (usually 1%) on all other purchases.
- Bonus category cards: High-rate rewards (5-6%) on spending categories that change periodically, and a lower rate on all other purchases (usually 1%).
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, based on creditworthiness.
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 sign up 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..
Points vs. cash back: which is better?
The points versus cash back debate is ongoing, and it’s important to take each into consideration when choosing a rewards credit card. Both exemplify strengths and weaknesses – cash back is flexible and the rewards come in dollars, whereas points might help pay for that next vacation, and sometimes, offer a higher reward value per dollar spent.
Unfortunately, more than one-third of credit card customers do not understand rewards programs, according to the J.D. Power 2019 U.S. Credit Card Satisfaction Study. Credit card customers who fully understand how to earn and redeem rewards spend an average of $307 more per month than those who do not fully understand their rewards ($1,291 vs. $984, respectively). Despite this, 36% of credit card customers say they do not fully understand the rewards available to them.
If you’re stuck between a rewards credit card that focuses on points or a cash back credit card, your decision will come down to your lifestyle and which one you find more valuable.
What is rotating cash back?
There are strategies you can use to win even more cash back rewards. If you have a credit card with rotating bonus categories, for example, such as the Discover it® Cash Back®, you want to pay attention to those.
Rotating bonus categories change every quarter, and can apply to a variety of different stores and services including gas stations, tolls, drugstores, grocery stores, home improvement stores streaming services, Uber and Lyft purchases, restaurants and more.
For example, if gas stations are the category for a certain quarter, you want to make sure every dollar you spend on gas is with your Discover it® Cash Back card. If it’s groceries, it may be best to do your grocery shopping with the Discover it® Cash Back card in that quarter – and possibly 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.
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 or , which doesn’t have rotating fees. You just earn 1.5% back on everything, no matter what.
How do I redeem cash back?
Redemption options vary from card to card. 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 — 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
- 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.