Wouldn’t it be nice if you could get a little money back whenever you buy something? With a cash back credit card, you can!
These credit cards are among the most straightforward available. You don’t need to keep track of points, miles, rewards, or restrictions. You pay for something, and you earn a little cash back.
If you don’t already have a cash back card, you might have some questions. For instance, how does a cash back credit card work? What’s the best cash back credit card to get? Fortunately, The Motley Fool has everything you need to know so you can select the right one for you.
What Are Cash Back Credit Cards?
A cash back credit card is exactly that — a credit card that gives you a percentage of the purchase amount in the form of cash back. What you get back varies from card to card, and some may even have different amounts based on the spending category.
Most transactions qualify for cash back, except for balance transfers and cash advances. Other ineligible transactions typically include cash-equivalent purchases like gift cards or payment services as well.
How Do You Redeem Your Cash Back?
It’s easy to redeem the cash back you earned. You can log in to your card issuer’s online account or call customer service. Depending on the provider, you may have to accumulate a certain amount of cash back. Most companies have a $25 minimum requirement.
Card issuers usually offer several options for cash back redemption, including:
- Statement credits: You can use your cash back to pay down your outstanding balance. This is usually the simplest choice, except for those who use their card infrequently or have more cash back than their balance.
- Bank account deposits: You can connect your bank account to your credit card and deposited your cash back into your account.
- Checks: You can opt to have the credit card issuer send you a check for your cash back.
- Gift cards: You can redeem your cash back for gift cards. Although most people prefer cash over gift cards, retailers sometimes offer promotions where you can buy gift cards for under their initial value.
Types Of Cash Back Credit Cards
You have three different kinds of cash back credit cards to choose from. Each one shares similarities, but their cash back rates are what sets them apart.
Flat-Rate Cash Back Credit Cards
Flat-rate cash back credit cards are ideal if you only want one card. That’s because you can earn the same amount, regardless of your spending. 1% was once the prevailing rate, but now most cards offer 1.5% instead.
Bonus Category Cash Back Credit Cards
With these credit cards, your purchases determine how much cash back you earn. For example, you can enjoy 2%, 3%, or even more on qualifying categories like gas or groceries. Depending on the card, there may be restrictions on what you can earn at the bonus rate, but not every card has these. Any purchases made outside of the fixed spending categories typically earn 1% back.
Rotating Bonus Category Cash Back Credit Cards
Like bonus category cards, rotating bonus cash back cards offer new bonus rewards each month, quarter, or year. Since spending categories change, you may receive 5% cash back at the grocery store for three months, then 5% on gas purchases the following quarter.
What You Should Consider In Cash Back Credit Cards
There are dozens of cash back credit cards to choose from, which can make finding the right one for you feel like a challenge. You can narrow your choices by comparing these key features:
- Cash back rates: Of course, you want a card with the most cash back. The Motley Fool suggests reviewing your monthly expenses to determine where your money primarily goes and selecting a card with rates that align with your spending.
- Annual fees: No one wants to get stuck with a hefty annual fee. Luckily, there are many excellent cash back credit cards without one. Even those that do come with a yearly fee make up for it with a better cash back rate.
- Sign-up bonuses: These can help you save even more when you first open a credit card. Most bonuses require spending a certain amount of money, however.
Cash back cards offer many benefits to almost anybody. If you are financially responsible and won’t be tempted to overspend, then a cash back credit card is a great way to get more for your money.
- Daly, Lyle. “How Do Cash Back Credit Cards Work?” The Motley Fool, 28 Mar. 2020, www.fool.com/the-ascent/credit-cards/articles/how-do-cash-back-credit-cards-work/?utm_campaign=ccrelatedarticles.