How Do Cash Back Credit Cards Work?

How Do Cash Back Credit Cards Work? article image.

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A cash back credit card is a type of rewards card that you can use to earn cash on purchases. A cash back card can be a little easier to use than travel rewards cards because the value of your rewards is clear. However, cash back cards can still differ in important ways depending on the rewards program and specific card. Here's what you need to know about how cash back cards work.

What Is a Cash Back Credit Card?

Most rewards cards fall into one of two categories: travel rewards cards and cash back rewards cards.

With a cash back card, it's easy to understand how much you'll earn on each purchase. For example, if your cash back card offers 2% cash back on purchases, you'll get $2 in rewards for every $100 you spend. (In contrast, the value of travel programs' points and miles can vary greatly depending on the loyalty program and current cost of travel.)

All cash back credit cards let you redeem your rewards for cash, often via a check, statement credit or bank transfer. Some travel cards do as well, but you might receive less value if you choose cash back redemptions instead of using the rewards on travel.

How to Earn Cash Back Rewards With Your Credit Card

Cash back rewards cards can be further distinguished by the card's rewards system.

Flat Rate Cards

With a flat rate cash back card, you earn the same amount of cash back on every purchase—often, 1.5% or 2%. In general, a card with a higher rewards rate will provide the most value. However, be sure to check whether the card has an annual fee or other fees that will offset the rewards you earn.

Flat rate cards can be a good fit for people who don't want to spend a lot of time managing a credit card rewards program. It's easy to compare flat rate cards to each other, and you'll know exactly how much you're earning on every purchase.

Bonus Categories or Tiered Rewards Cards

Some cash back cards offer different tiers of rewards depending on where you use the card.

These cards are sometimes distinguished by their bonus categories. For example, there are dining cards that give bonus cash back on take out and at restaurants, and gas cards with bonus cash back at gas stations.

Many cash back cards have several tiers, such as 2% cash back on dining and 3% on gas. There may also be a limit to the amount of bonus cash back you can earn each quarter or year. Generally, you can earn an unlimited 1% cash back on all non-bonus category purchases.

A tiered rewards card can be best when you tend to spend most of your money at particular types of retailers. They're also helpful if you have several rewards cards and can remember to pick the card that offers the most rewards on each purchase.

Rotating Rewards Cards

A rotating cash back rewards card is a type of tiered rewards card that has changing bonus categories. Generally, the categories change every three months.

These cards can be appealing because the limited-time bonus categories generally offer 5% cash back—a high rate. However, you're often limited to earning bonus rewards on up to a certain amount—usually $1,500 or $2,000—in purchases each quarter. Also, with some cards, the issuer picks the categories.

A rotating rewards card could be a good addition to your wallet if you don't mind keeping track of the changing categories and potentially having to activate them to earn the bonus rewards. But it might not be as rewarding as a flat rate or tiered card if it's your only credit card.

How to Redeem Your Cash Back Rewards

You may be able to redeem your cash back rewards in several ways, including:

  • A check
  • A statement credit
  • Direct deposit into your bank account
  • Gift cards

Some cards offer other options as well, such as letting you use your cash back rewards to book travel, donate to charity or make purchases online. Some cash back cards actually give you points in the issuer's rewards program, which can open up additional options as well.

Cash back cards may have minimum balance requirements for redeeming your cash rewards. For example, with some American Express cards, you need at least $25 in rewards.

What Credit Score Do You Need for a Cash Back Credit Card?

Many cash back cards require at least fair to good credit, and some of the best options may require a very good or excellent score. These cards may offer large intro bonuses, high cash back rewards rates and additional cardholder perks.

There are options for people with poor credit, including secured cards that offer cash back rewards. But they may have higher fees, lower rewards rates and fewer cardholder benefits.

Best Cash Back Credit Cards

The best cash back card can depend on which cards you'll qualify for, how you plan on using the card and where you tend to spend the most money. Here are some top picks from our partners.

Best Tiered Rewards Card

The best tiered rewards card will depend on where you shop, as you want to align the top tier with your most frequent or expensive purchases. If you tend to spend a lot on dining and entertainment, and don't want to pay an annual fee, the Capital One SavorOne Cash Rewards Credit Card could be a good option. Using the card, you can earn:

  • 3% cash back on dining
  • 3% cash back on entertainment
  • 3% cash back on groceries excluding superstores like Walmart and Target
  • 8% cash back on tickets at Vivid Seats through January 2023
  • 3% cash back on streaming services
  • 1% cash back on all other purchases

You can earn an intro one-time $200 cash bonus if you spend $500 on purchases within 3 months of opening your account. The card also doesn't have a foreign transaction fee, and there's an introductory 15-month 0% APR offer on purchases. After the intro period ends, the standard variable 14.99% to 24.99% purchase APR applies.

Capital One SavorOne Cash Rewards Credit Card

Apply

on Capital One's website

Good - Exceptional

Capital One SavorOne Cash Rewards Credit Card

APR

14.99% - 24.99% (Variable)

Intro APR

0% on Purchases for 15 months

Rewards

3% cash back on Dining & Entertainment

3% cash back on Groceries

3% cash back on Streaming Services

1% cash back on All Other Purchases

Intro Bonus

Earn a one-time $200 cash bonus after you spend $500 on purchases within the first 3 months from account opening

Annual Fee

$0

Card Details
  • Earn a one-time $200 cash bonus after you spend $500 on purchases within the first 3 months from account opening
  • Earn unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart® and Target®), plus 1% on all other purchases. Plus, earn 8% cash back on tickets at Vivid Seats through January 2023
  • No rotating categories or sign-ups needed to earn cash rewards; plus cash back won't expire for the life of the account and there's no limit to how much you can earn
  • 0% intro APR on purchases for 15 months; 14.99% - 24.99% variable APR after that
  • No foreign transaction fee
  • No annual fee

Best Rotating Rewards Card

The Chase Freedom Flex℠ is one of the top rotating rewards cards, as it offers bonus cash back on rotating categories and tiered rewards for travel and dining purchases. You can earn:

  • 5% cash back on up to $1,500 in combined purchases within rotating categories
  • 5% cash back on travel purchase through Chase Ultimate Rewards
  • 5% cash back on Lyft rides through March 2022
  • 3% cash back on dining and drugstores
  • 1% cash back on all other purchases

There's also no annual fee, and cardholders earn cash back rewards as Chase Ultimate Rewards points, which offer a variety of redemption options. However, you have to sign up for the bonus category each quarter (you can quickly do this online or in the Chase app) to remain eligible.

New cardholders can also get a $200 intro cash back bonus after making $500 worth of purchases within 3 months of opening their account.

Apply

on Chase's website

Good - Exceptional

APR

14.99% - 23.74% Variable

Intro APR

0% Intro APR on Purchases for 15 months

Rewards

5% cash back on Rotating Categories

5% cash back on Travel

3% cash back on Dining

1% cash back on All Other Purchases

Intro Bonus

Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening. And earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.

Annual Fee

$0

Card Details
  • Earn a $200 Bonus after you spend $500 on purchases in your first 3 months from account opening.
  • Earn 5% cash back on grocery store purchases (not including Target® or Walmart® purchases) on up to $12,000 spent in the first year.
  • 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!
  • Earn 5% on Chase travel purchased through Ultimate Rewards®, 3% on dining and drugstores, and 1% on all other purchases.
  • No annual fee.
  • 0% Intro APR for 15 months from account opening on purchases, then a variable APR of 14.99 - 23.74%.
  • No minimum to redeem for cash back. Cash Back rewards do not expire as long as your account is open.

How to Maximize Cash Back Rewards

You can take a few steps to maximize the cash back rewards you'll earn.

  • Choose the right card. Review your average spending and consider how much time you want to spend managing your card, then get a cash back card to match. Occasionally reevaluate your choice if your creditworthiness improves and you can qualify for more cards.
  • Remember your cards' bonus categories. If you have a tiered or rotating rewards card, keep track of which card you want to use for each purchase. Having a note on your phone or stickers on the cards with their bonus categories can help.
  • Sign up for extra earning opportunities. You may be eligible for limited-time offers to earn bonus cash back. For example, look for Amex Offers on American Express cards that can give you statement credits for specific purchases.
  • Review the terms. Read over the credit card agreement to find out what doesn't count as an eligible purchase. For instance, you might not earn each back if you use your credit card to buy gift cards or lottery tickets.

If you can choose between cash back and non-cash redemption options, review the options closely to see which one will give you the best value.

Get Matched With Cash Back Cards

If you're unsure of which cash back card to get, you could start by getting matched with cards through Experian CreditMatch™. After logging in, you can get personalized offers based on your credit profile and the features you're looking for in a card. You can also choose several cards to create a side-by-side comparison.

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