Finance

Top Cash Back Credit Cards – Types, Comparison, Rewards, Pros and Cons

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What are the Different Types of Cash Back Credit Cards available in banks and other financial institutions? The answer is simple; there are three types of cash back credit cards you can choose from. They are: (i) flat rate, (ii) tiered cash back and (iii) rotating category cards. I will take some time to give you the full explanation of Best Cash Back Credit Cards – Types, Comparison, Rewards, Pros and Cons. Now, while making a choice for your card, these are the vital info you have to know about the different kinds of cash back cards:

1. Flat-Rate Cash Back Cards.

As the name implies, a flat-rate card makes payment for the same amount of cash back on every purchase made. In fact, as cardholder, you might even earn about 1.5% back on all spending, for example.

However, the options you have for redeeming cash back rewards with flat-rate cards are either statement credits, bank deposits or checks. But in the long run, some cash back cards makes provision for other ways of redeeming rewards. They include; online travel bookings, shopping deals or gift cards.

Flat-rate cards to choose from include:

  • Citi Double Cash Card: which earns one percent when you make a purchase and 1% when you pay it off. Also, they offer a 0% intro Annual Percentage Rate (APR) on balance transfers for 18 months. But after that grace periods, the APR will increase from 16.24% to 26.24% (variable). Note that this is based on your creditworthiness/score.
  • Capital One Quicksilver Cash Rewards Credit Card: They peg a flat cash back rate of 1.5% with a long 0% intro Annual Percentage Rate (APR) on purchases for 15 months. This also includes and balance transfers too which later grows from 16.49% to 26.49% (variable) APR. In addition, 3% fee will be charges for the amounts you transfer within the first fifteen months.

2. Tiered Cash Back Cards.

For business or individual purposes, the Tiered cash back credit cards offer different cash back rates for different types of purchases. Some of their cards allows you to earn just 1% to 6% back only eligible purchases. But you might also get up to 3% cash back while shopping groceries, 2% at gas stations (for PMS, AGO, DPK) and 1% on all other unknown purchases, for instance.

In that spirit, you can basically earn a lot of rewards if you choose a credit card that fits your spending limits. But in the light of this, it is wise to read through the fine print of the type of cards you select. This is because a specific card categories may have money spending limits and other unusual restrictions.

Tiered cash back cards to choose from include:

  • Chase Freedom Unlimited: First, this cards earn about 5% cash back on travel purchases through Chase Secondly, you can get a 3% cash back at eligible restaurants and drugstores when you buy medicine, and 1.5% back on all other unknown purchases.
  • Blue Cash Everyday Card from American Express: They offer a 3% cash back on $5000 and up to $6,000 in yearly spending at U.S. supermarkets. Apart from that, you can get 1% and 3% back at United States gas stations, on up to $6,000 annually. Lastly, Blue cash allows you to redeem rewards as statement credits only.

3. Rotating Category Cards.

There are several rotating cash back credit cards that have 5% bonus that falls under this categories. Normally, they rotate on a quarterly bases. Some of the common categories such as groceries, gas stations, home improvement stores, and even EBAY, Amazon and Uber purchases fall under rotating cards.

Some caveats: Actually, you have to personally activate the bonus categories online every quarter else you won’t earn any. of the bonus rewards. In addition, you will have to always track your spending habits because the 5% bonus categories have money limits.

Rotating category cards to choose from include:

  • Discover it Cash Back: They feature a 5% cash back on daily purchases at different places each quarter. Eligible rewards comes from purchases on Amazon.com, grocery stores, restaurants, as well as gas stations. Making us of PayPal for payment also comes with quarterly maximum rewards, when you activate it.
  • Bank of America Customized Cash Rewards credit card: U.S cards allows users to handpick a 3% cash back category every 30days. Users can also earn a 2% back on up to $2,500 in every 3 months purchases at grocery stores and wholesale clubs. While other purchases mainly gets a 1% cash back. In the long run, users can boost their earnings by registering for Bank of America’s Preferred Rewards program. Check from the search box on this page for the enrolling guidelines.

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How to Compare Cash Back Credit Cards

Personally, I know its not easy making a choice. Therefore, you might feel really tired as you try to select the best cash back credit card for your needs. That won’t be a problem anymore because the solution is available here. Just follow these simple steps to help you compare cash back cards easier and faster:

1. Calculate your possible Monthly Earning.

Financial companies provides enticing offers including rewards to convince people to choose them. These rewards you can earn comes in different rates depending on what type of cash back card you use. Secondly, it also depends the benefits when you make purchases at eligible outlets. Thirdly, you can check whether a category bonus applies on your daily transactions. Here, you have to carefully calculate as well as analyze your spending habits. After that, you can now look for a credit card that earns bonus rewards in the categories where you spend most of your money.

  • Flat-rate cards: Generally, the flat rate is 1% to 2% for all POS purchases. On the other hand, you may find a card promotion for a higher rate. However, a flat-rate card can be valuable to you if your spending is evenly spread across multiple eligible categories. It can also be beneficial if you don’t want to track which credit card will earn the most for your purchases. This depends on your choice.
  • Tiered cash back cards: These credit cards type offer different cash back rates on certain categories. Common bonus categories include travel, restaurants & dining, gas, and grocery and department stores.
  • Rotating bonus category cards: Most have a base 1% cash back rate, along with bonus categories that change quarterly. The rotating categories typically offer 5% cash back, one of the highest cash back rates you’ll get on a credit card. But the categories almost always have limits on how much you can earn every 3 months.

2. Factor in sign-up bonuses.

There are some cards that offer new account registration bonuses. And we all know that a cash back card with a big sign-up bonus can certainly help to increase your earnings. But first, you’ll need to know the spending limits/requirement to receive such rewards. So, if you can’t get this credit bonus without spending more than you earn or a normal, then the card probably is not equal to your pocket.

3. Subtract annual fees.

Financial institution loves charging maintenance fees. Therefore, most of the cash back credit cards will always charge an annual fee. In most cases, the average fee is almost $110, according to research in the US.

Invariably, you have to consider whether the card rewards and benefits will be more to offset an annual fee charge. And if they don’t, you likely will be better off with a no-fee type of card issuer.

4. Understand cardholder benefits.

Companies are set up to make money in profits. Therefore, don’t be carried away by advertisements of cards and their giveaways. This is because, many credit card issuers and card networks offer benefits beyond a rewards program. Trust me. However, benefits if available could include extended warranty coverage, concierge service, travel accident insurance, purchase protection, price protection and free credit score access.

Illustration: Chase Sapphire Preferred Card users, for example, can get trip cancellation, interruption insurance as well as extended warranty protection. They can also get auto rental collision damage, waiver coverage, among other benefits. Other companies also provide similar rewards and benefits, we will talk about them as we progress.

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How to Maximize Your Cash Back Rewards

Below is a guide on how you can gain more cash back rewards without necessarily spending more than your budget on your cash back credit card:

  1. Avoid carrying a balance. This is the No. 1 rule with any rewards credit card.
  2. Step away from your cash back credit card if you start carrying a balance. Revolving balances can lead to paying more in interest than you earn in cash back. But the worst part? You could end up with credit card debt.
  3. Choose a card that matches your spending habits. A rewards card with bonus categories that align with your normal spending can help boost your cash back earnings.
  4. Look for a sign-up bonus you can achieve. Sign-up bonuses can be a great way to earn a lot of cash back quickly, but don’t spend money you wouldn’t have otherwise.
  5. Earn extra cash back. Some cards offer a bonus for referring new cardholders or extra cash back for adding an authorized user.
  6. Remember the cash back card’s other benefits. Your cash back credit card might offer purchase protection, extended warranty coverage or other perks.
  7. Ask for a retention offer. Your issuer gives you this incentive to keep your card, but securing one could take some good old-fashioned negotiating. Lastly, you might be able to get an annual fee waived or reduced, for example, but you will need to call the issuer and request it. The higher your credit score, the better your chance of success.

What Are the Pros and Cons of Cash Back Credit Cards?

Pros of Cash Back Rewards Cards:

  • Understanding your earnings is easy. Tracking how much you’ve earned in cash back rewards and what those rewards are worth is not hard. Generally, 1% back means you will get 1 cent for every dollar you spend.
  • Redeeming cash back rewards is simple. Your card might require you to have a certain amount of rewards – say $25 – before you can redeem them.
  • Having a range of bonus categories provides many chances for rewards. Some cards pay the highest cash back rate when you make particular purchases. With certain cards, bonus categories change throughout the year, giving you different opportunities to earn extra rewards.
  • Referring friends could get you sign-up bonuses. Cash back credit cards may offer sign-up bonuses ranging from $100 to several hundreds of dollars. You might also be able to receive extra cash back by adding an authorized user to your account or for referring friends who become cardholders.
  • Using cardholder benefits adds extra value. These are not exclusive to cash back cards but often include special event access, zero fraud liability, extended warranty coverage, purchase protection, rental car insurance, roadside dispatch service and lost luggage reimbursement.

Cons of Cash Back Rewards Cards:

  • Good to excellent credit requirements. The best cash back credit cards generally require a good to excellent credit score, which is a FICO score of at least 670.
  • Sign-up bonus requirements. If you want to earn a sign-up bonus, then you will have to meet a spending requirement. The spending requirement varies by card but ranges from about $500 to a few thousand dollars, and you’ll usually have to accomplish this within three months of opening an account. But don’t increase your spending just to get the sign-up bonus. If you can’t meet the requirements within the bounds of your normal spending habits, then maybe this card isn’t the right one for you.
  • Monitoring bonus categories. If you want to earn the most cash back using a card with rotating categories, you will need to take time and effort to track the categories and their cash back rates.
  • Potentially less-valuable rewards than other cards. Your cash back card’s point value may be locked in at a certain level, which means you won’t have a chance to receive more value. This is different from co-branded airline and hotel cards that sometimes allow you to redeem points at different rates.
  • Fewer perks than other types of rewards credit cards. If travel deals and free checked bags appeal to you, then a travel credit card could be a better fit.
  • Fees. You might find that you’re spending more on annual fees than you’re earning in cash back rewards, depending on how you use a card. And if you think you might carry a balance, you could be better off with a plain lower-interest credit card. Carrying a balance with a rewards credit card can lead to credit card debt.

Is Cash Back From a Credit Card Taxable?

Credit card rewards, including cash back, are rarely taxable. As long as you spent your own money to earn them, credit card rewards are not considered taxable income by the IRS.

Does Cash Back Expire?

Check the terms and conditions of your account to see whether cash back rewards can expire and, if not, how you might lose them.

Many issuers let you keep rewards as long as your account is current. Check the fine print because this is not universal, and some may require you to use your rewards within a certain time frame.

Generally, try to redeem cash back often because inflation can cause it to lose value. If your points do not expire, be aware that you might risk losing them if your card is inactive for an extended time. You may also lose your rewards if you close your card.

Best Cards Summary

Chase Freedom Unlimited®

Why this is one of the best cash back credit cards: Chase Freedom Unlimited charges no annual fee. It earns 5% cash back on travel purchased through Chase Ultimate Rewards, 3% cash back on dining and drugstore purchases and 1.5% cash back on all other purchases. You can earn an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) – worth up to $300 cash back.

Discover it® Cash Back

Why this is one of the best cash back credit cards: The Discover it Cash Back offers 5% cash back each quarter in rotating categories, such as Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate. All other purchases earn unlimited 1% cash back. There is no annual fee. At the end of your first year as a cardmember, Discover will match all the cash back you earned.

Blue Cash Everyday® Card from American Express

Why this is one of the best cash back credit cards: The Blue Cash Everyday Card from American Express rewards you with cash back on day-to-day purchases. You’ll earn 3% cash back at U.S. supermarkets on up to the first $6,000 per year in purchases, then 1% back. Purchases at U.S. gas stations earn 3% Cash Back, on up to $6,000 per year, then 1%. New! 3% Cash Back on U.S. online retail purchases, on up to $6,000 per year, then 1%. Cardholders earn a $200 statement credit after you spend $2,000 in purchases on your new Card within the first 6 months.

Discover it® chrome

Why this is one of the best cash back credit cards: This card caters to consumers who want to earn cash back on gas and dining purchases. You’ll earn 2% cash back at gas stations and restaurants on up to the first $1,000 in combined purchases quarterly. After that, you’ll earn 1% back, along with unlimited 1% cash back on all other purchases. There’s no annual fee and rewards never expire.

Chase Freedom Flex℠

Why this is one of the best cash back credit cards: Chase Freedom Flex delivers 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. You’ll also earn 5% back on travel purchased through Chase, 3% back at drugstores and restaurants, including takeout and delivery, and 1% back on other purchases year-round.

Citi Custom Cash℠ Card

Why this is one of the best cash back credit cards: The Citi Custom Cash Card earns five ThankYou Points per dollar on up to $500 spent in a category that can shift according to your spending habits each billing cycle. Eligible categories include restaurants, gas stations and grocery stores. Other spending earns one ThankYou Point per dollar. The card does not charge an annual fee, and new cardholders can earn points worth $200 in cash back if they spend $750 in the first three months with the card.

U.S. Bank Cash+® Visa Signature® Card

Why this is one of the best cash back credit cards: With the U.S. Bank Cash+™ Visa Signature® Card, you earn 5% on the first $2,000 in combined eligible purchases each quarter in two categories of your choice. You also earn 5% cash back on prepaid air, hotel and car rentals booked directly in the Rewards Travel Center, and 2% on one everyday category, such as gas stations and EV charging stations, grocery stores, or restaurants. You get 1% on all other eligible purchases, plus earn a $200 rewards bonus after you apply online and spend $1,000 in eligible purchases within 120 days of opening the account.

Amazon Rewards Visa Signature Card

Why this is one of the best cash back credit cards: The Amazon Rewards Visa Signature Card is a cash back rewards credit card designed for frequent shoppers of Amazon.com and Whole Foods Market. The card earns 3% cash back at Amazon.com and Whole Foods Market, 2% at drugstores, gas stations and restaurants and 1% on all other purchases. When the card is paired with an eligible Amazon Prime membership, cash back earnings at Amazon.com and Whole Foods Market increase to 5%. This card does not charge an annual fee.

Bank of America® Customized Cash Rewards credit card

Why this is one of the best cash back credit cards: The Bank of America Customized Cash Rewards card lets you pick one category to earn 3% cash back, including online shopping or gas. Grocery store and wholesale club purchases get 2% back. You’ll also receive a $200 cash rewards bonus after spending $1,000 on the card in the first three months.

American Express Cash Magnet® Card

Why this is one of the best cash back credit cards: This card might catch your eye if you want to earn unlimited cash back with an uncomplicated rewards structure. All purchases earn 1.5% cash back that you can redeem for statement credit, gift cards and merchandise.

Take a look at some other methodology online to see how we rank the best credit cards.

U.S. NEWS SURVEY

Half of Respondents Don’t Follow a Budget When Shopping

While personal finance experts recommend creating a budget to keep spending on track, a U.S. News survey found that only 25% of respondents have a budget that they stick to when they shop, and 50.2% of respondents don’t even make a budget in the first place.

Additional Survey Insights

Fortunately, 61.4% of respondents say they don’t have post-pandemic debt they are trying to pay off.

This could be because 56.1% of respondents say their spending habits didn’t change during the pandemic. Only 4.5% say their habits got worse.

Almost 40% of respondents say they practice retail therapy – going shopping to make themselves feel better.

U.S. News Survey Methodology

  • U.S. News ran a nationwide survey through Google Surveys in May-June 2021.
  • The survey sample came from the general American population, and the survey was configured to be representative of this sample.
  • The survey asked 10 questions related to cash back credit cards.

Best Cash Back Credit Cards Methodology

U.S. News has been helping consumers make money decisions for decades. For our Best Cash Back Credit Cards list, we factor in overall satisfaction data, cash back earning rates, annual fees, APRs and sign-up bonus values. The satisfaction data is based on an annual nationwide survey.

Our top picks may earn a flat cash back rate for all types of purchases or a bonus rate when you spend in certain categories. Consider how you spend to determine which card would be the best one for you. Cash Back Credit Cards FAQs is available from the related posts.