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Cash back credit cards work by offering the cardholder a rebate for purchases made with the card. And while rewards can also come in the form of points or miles, many credit card users prefer cash back rewards.
What Is a Cash Back Credit Card?
A cash back credit card is one that offers cash rewards for spending. When you make a purchase with a cash back rewards card, you earn a cash credit for a percentage of the purchase. For example, you might earn 1% to 2% on all your purchases. Some credit cards that offer cash back rewards may also offer a higher payback on purchases from a specific spending category. For instance, you might be able to earn 3% back at grocery stores or at gas stations.
Some cards also offer bonus cash back on special spending categories that change each quarter. For example, you might get 5% back on grocery spending this quarter, and then next quarter your grocery payback reverts to the typical standard rate of 1% and another category, such as restaurant spending, earns 5%.
How to Get Cash Back Rewards From Your Credit Card
Once you've made purchases with your cash back credit card, it's typically not difficult to redeem the cash back that you've earned. In fact, redeeming cash rewards can often be easier than jumping through the blackout period hoops to redeem travel reward points.
Most card issuers will offer you the option of redeeming your rewards for a statement credit, a direct deposit to your bank account, or even a check that is sent to you in the mail. Some rewards credit cards offer you points that can be redeemed for cash back or for other options such as gift cards, merchandise or travel reservations.
Cash rewards may also help you stay on top of your credit card bills, as you can have your cash back rewards automatically applied to your credit card balance. If that helps you pay down your card bill, it could also help improve your credit score, as well. (Learn more about how lower credit card balances can improve your credit utilization ratio, one important factor in computing your credit scores.)
Sizing Up a Cash Back Rewards Offer
There are dozens of cash back credit cards in the market, so how can you find the one that's right for you? Start by thinking about which purchases you put on your credit cards most frequently. Look at cards that offer more than 1% cash back for all purchases, and compare them with cards that offer bonus cash back on some purchases and just one 1% cash back on all other purchases. You can also consider a card that offers you more cash back on up to a certain dollar amount on qualifying purchases each quarter. You can even consider using multiple cards for different types of purchases.
Next, look at the card's annual fee, if there is one. Paying an annual membership fee might not make sense if you will likely earn less than that in cash back for the year. If the card waives the fee in the first year, be sure to check what the fee will be in subsequent years.
If you anticipate you might not pay off your balance in full each month, then you'll also want to compare the interest rate charged on a cash back card with other cards. Paying a higher interest rate can quickly outstrip the value of cash back rewards.
Finally, consider a card's sign-up or intro bonus, if they offer one. Many cash back cards offer cash bonuses of $100 to $200 when you start using the card and complete a minimum spending requirement. Make sure you understand how much spending you need to do—and in what time period—to earn the bonus. For example, you might need to spend $1,000 in the first three months to earn a $100 bonus. And think through what happens after that first-year bonus. If the card pays you just flat 1% cash back rewards, then you might be better off with a card that pays you 2% or more, even if it doesn't even have a sign-up bonus.
It's also common for cash back cards to offer a low interest rate on new purchases, balance transfers or both for six to 18 months. These can be valuable offers if you have an unpaid balance or if you might need to carry a balance for a short period of time, such as after a large purchase.
What Credit Score Do You Need for a Cash Back Card?
You typically need excellent credit to qualify for the most generous rewards credit cards, including those that offer cash back. However, some card issuers offer cash back cards to those with fair or good credit. There are even some subprime cards for those with fair or bad credit that can offer some nominal cash back rewards for certain purchases.
Which Cash Back Credit Card Is Right for You?
Here are some of the top cash back cards from the Experian CreditMatch™ marketplace.
- Blue Cash Preferred® Card from American Express
This card has been newly refreshed to offer you top levels of cash back for many families' most common purchases. You earn 6% back on U.S. streaming subscriptions and on up to $6,000 per year in purchases from U.S. supermarkets. You also earn 3% cash back on transit, including taxis and rideshares, parking, tolls, trains and buses. And you're eligible to earn a $250 statement credit after spending $1,000 within three months of account opening. There's a $95 annual fee for this card.
- Chase Freedom®
This popular cash back card offers you 5% returns on up to $1,500 spent each quarter on purchases from featured merchant categories that change each quarter, such as gas, groceries and home improvement stores. You must activate each quarter to earn the bonus cash back. You earn 1% cash back on all other purchases. You're also eligible to earn $150 cash back after spending $500 in purchases within three months of account opening, and there's no annual fee for this card.
- Capital One® Savor® Cash Rewards Credit Card
This card is designed to reward those who spend a significant amount going out as well as eating in. You earn unlimited 4% cash back on dining and entertainment purchases, 2% back at grocery stores, and 1% back on all other purchases. You also earn 8% cash back on tickets at Vivid Seats through May 2020, and get a monthly statement credit for a Postmates Unlimited monthly membership through December 2019. There's a $95 annual fee for this card, waived the first year.
- Citi® Double Cash Card - 18 month BT offer
This card offers one of the highest rates of cash back on all purchases. You earn 1% cash back when you make a purchase, and another 1% when you pay for your purchases, for a total of up to 2% cash back. New applicants also receive 18 months of 0% APR financing on balance transfers, with a 3% balance transfer fee.
More Cash in Your Pocket
Cash back credit cards can be a great way to save a little bit of money on all of your purchases, but you need to take a moment to understand them well. By looking carefully at how they work, and what are the best cards available for your needs, you may earn more cash back than you might imagine.