Regardless of your financial goals, including cashback in your credit card strategy is essential. Cashback credit cards are simple to use, have easy-to-redeem rewards, and offer complete flexibility. While credit card enthusiasts often prefer transferable points, cash back is the most flexible reward. You can use cash to pay for various expenses, such as airfare, hotel stays, rental cars, electricity bills, and rent payments. Cash is the most valuable reward, especially if you prioritize something other than traveling. Therefore, using cashback credit cards regularly is a smart financial move.
Understanding Cash Back Credit Cards
Cash-back credit cards are an ideal starting point for those who want to enter the world of credit card rewards but need more time or patience to learn about maximizing airline miles and hotel points. With a simple rewards system and uncomplicated redemption options, cash-back cards offer a small rebate on every purchase, resulting in effortless savings for frequent swipers.
Types of cash back credit cards
Not all cash back credit cards are created equal. To get the maximum benefit, you need to have a strong understanding of your spending habits before you apply for one of these cards.
Cash back credit cards are available in four different genres. Keep in mind that you can open more than one type of cash back credit card.
1. Bonus categories
Many cash back credit cards offer bonus categories, such as gas stations, restaurants, and online retail purchases. These credit cards incentivize you to use the card for specific expenses.
The Blue Cash Preferred® Card from American Express is an example of a cash back credit card that gives you the following return rates (while charging a $95 annual fee):
- 6% cash back at U.S. supermarkets (on up to $6,000 in spending, then 1%)
- 6% back on select U.S. streaming subscriptions
- 3% back at U.S. gas stations and on transit
- 1% back on all other purchases
This card is ideal for certain purchases. For example, a 6% return at supermarkets ensures that the card will capture your monthly grocery shopping. You could quite effortlessly receive $360 in cash back annually for that expense alone.
Shop around to find the cash back credit card that suits your lifestyle. You’ll likely find two or three options, which can bonus nearly every dollar you spend. It could certainly be worth opening them all — so long as you stay responsible with your credit card usage!
2. Rotating categories
Cash back credit cards that offer rotating bonus categories reward you for everyday purchases. However, you need to be aware of two things:
- The categories change each quarter. You’ll have to periodically check the card’s bonus category schedule to keep up with which purchases are currently bonused.
- You’ll have to activate your card each quarter, or you won’t earn any bonus cash at all.
An example of a cash back card with rotating categories is the no-annual-fee Discover it® Cash Back card. It earns 5% cash back on up to $1,500 in spending in varying categories after you activate the card (then 1%). It earns 1% on all other purchases.
This year, the card has offered bonus categories such as grocery stores, fitness clubs/gym memberships, gas stations, Target, restaurants, and PayPal. These are super common expenses.
You just need the diligence to keep up with the bonus categories.
3. Customized categories
There’s a rare breed of cash back credit cards that will actually adapt to your spending to help you achieve bonus cash without all the mental horsepower.
There are a couple of angles these cards use to help you.
Choose your own categories
These are cards that let you choose in which categories you want to earn your cash back.
An example is the Bank of America® Customized Cash Rewards Credit Card, which earns 3% cash back in one category of your choosing, each calendar month:
- Dining
- Gas
- Online shopping
- Drugstores
- Travel
- Home improvement/furnishings
If you know you’re going to spend a lot in dining this month and online shopping the next month, you can customize your categories accordingly.
Automatically selected categories
These are cards that analyze your shopping on your behalf, so that you don’t have to worry about manually picking each time.
An example is the Citi Custom Cash℠ Card, which gives you 5% cash back on up to $500 in spending for the category in which you spend most (then 1%) from the following list:
- Grocery stores
- Restaurants
- Gas stations
- Drugstores
- Select streaming
- Select travel
- Select transit
- Live entertainment
- Home improvement stores
- Fitness clubs
With this card, you don’t even have to choose your favorite category — the card will identify which category you’ve used the most and bonus it automatically.
Card info has been collected by MoneyUnder30 to help consumers better compare cards. The financial institution did not provide or approve card details.
4. Flat rate
If you want simplicity, a flat rate cash back card is the best choice for you. You’ll earn the same amount of cash for every purchase, no matter what. There are no bonus categories for you to worry about.
But there’s a tradeoff: these cards often have lower earning rates than others. The best you’ll tend to do with these cards is 2% cash back on all purchases.
For example, the Citi® Double Cash Card gives you 1% cash back when making a purchase and another 1% when paying off that purchase — an effective 2% back on everything.
However, you can net a whole bunch more (as you can see above) with a bit of effort.
Still, everyone should have a flat rate cash back card in their wallet. They’re great for purchases that don’t fall under a bonus category with any other card. Things like medical expenses and insurance payments are examples of payments that won’t fall under another credit card’s bonus category. That makes it a perfect candidate for a flat 2% cash back credit card.
How to Redeem Cash Back
Cashback credit cards are a great way to earn rewards for everyday purchases, but knowing how to redeem those rewards for maximum value is essential. Here are some tips for saving cashback:
Statement Credits/Checks/Direct Deposit
Cashback credit cards allow you to redeem rewards for a statement credit, check, or direct deposit. Before saving, understand the rules and any minimum redemption amounts for your specific card.
Gift Cards/Merchandise
Some credit cards offer the option to redeem cash back for gift cards or merchandise, but this is not recommended. It’s better to use your credit card to make a purchase and save some money as a statement credit to offset that purchase. If you redeem cash back for a gift card, you won’t earn rewards because you have yet to purchase.
Travel
Many credit cards, such as those issued by Chase and Citi, offer an online travel portal to redeem your cash for airfare, hotels, rental cars, cruises, and more. Remember that some cards marketed as “cash back” earn points, which can be redeemed for even more value. For example, Chase Freedom Unlimited® earns Chase Ultimate Rewards® points, which can be converted to airline miles and hotel points for even more weight.
Remember always to read the fine print and understand the redemption options for your specific card. With the right strategy, cashback credit cards can be a valuable tool for earning rewards on your everyday spending.
What to consider when choosing a cashback credit card
When you’re deciding on a cashback credit card, there are several factors to keep in mind:
- Annual fee: Paying a yearly fee for a credit card may seem like a waste of money, but many of these cards offer rewards that can more than compensate for the cost. Consider the earning rates and perks of the card before dismissing it based on the annual fee alone.
- APR: Some of the best 0% intro APR credit cards offer cashback rewards. If you’re interested in taking advantage of a long 0% intro APR period, you may be willing to sacrifice a higher earning rate for this benefit. For more information, check out our picks for the best 0% intro APR credit cards.
- Bonus categories: Depending on your spending habits, you may want a cashback credit card that offers higher rewards on specific categories, such as gas stations or grocery stores. Consider your lifestyle and spending patterns before selecting a card.
- Sign-up bonus: Many cashback credit cards offer sign-up bonuses of around $200 after meeting minimum spending requirements. If you can find a card with a more significant sign-up bonus, it’s an excellent opportunity to earn rewards quickly. For more information, please look at our picks for the best credit card sign-up bonuses.
- Personal vs. business card: Small business credit cards often offer even more generous rewards and bonuses than individual cards. To qualify for a small business card, you must have a for-profit venture, which doesn’t need to be a large business. Even activities like freelancing or driving for a ride-sharing service may qualify. Check out our picks for the best business credit cards for more information.
The bottom line
Regardless of your financial goals, cashback credit cards should be a part of your credit card strategy. They’re easy to use, the rewards are easy to redeem, and you have complete control over how you use them. You can use cashback rewards to offset your purchases, save up for a special occasion, or even combine them with travel rewards to pay for expenses that won’t cover. Just be sure to evaluate your spending habits so you choose the right card.