Should I Use Flat Rate or Bonus Cash Back Credit Cards
Trevor Mahoney is a financial services writer and content creator based out of Los Angeles, California. He holds a Bachelors of Science in Finance from Santa Clara University. In his free time, he enjoys hiking and lounging on the beach.
At a Glance
There are a wide variety of credit card types available to consumers. Some cards offer nothing besides credit, an increasing number are offering cashback rewards or equivalent points for spending. Choosing between these different card types can be a daunting task if you don’t know where to start.
What is a flat rate cash back credit card?
To understand the differences between the different credit card types, we need to start by defining what a flat rate credit card is. As implied by the name, a flat rate credit card provides you with a singular amount of cash with every purchase, regardless of whatever that purchase may be.
Common cash back amounts for flat rate credit cards range from 1-2%, which means that you can earn up to a cent to two cents for every dollar you spend. In most cases, these cards have no cap on the amount you can earn. These cards are incredibly valuable since they allow you to earn back your yearly fee you may pay on your credit card, but some flat rate cards do not even carry a fee!
What is a bonus cash back credit card?
In contrast, bonus cash back credit cards offer similar rewards, but in broader categories. Rather than providing you with a single flat percentage back with any purchase, bonus cash back credit cards will offer different amounts back depending on what you buy. For perspective, you may earn 4% on groceries, 2% on drug store purchases, and 1.5% on all other purchases.
Depending on the card issuer, you may even get a choice as to what categories you wish to earn cash back, which allows you to optimize the benefit to your specific shopping style. Some card issuers will also offer rotating categories on a quarterly basis. The percentages offered by bonus cash back cards may seem particularly high compared to a flat rate card offering, but keep in mind bonus cash back cards target niche categories.
If a shopper does not visit the type of store targeted by the bonus cash back credit card, the reward may be similar, if not the same, to a flat rate card.
Flat rate vs. bonus cash credit cards
Regardless of whether you are looking at a flat rate or bonus cash credit card, the benefits you will receive can offset any costs associated with the card, assuming you spend enough on the card. So, this begs the question of how do you choose the right type of card for you? This question is best answered with a few steps:
- Evaluate your spending habits and determine what type of purchases you make most frequently
- Regardless of card type, aim to find a card with little to no yearly fees
- Figure out whether you have the desire to remember the different cash back categories (mixing up which card you use where can defeat the purpose of a bonus cash card)
If you are the type of shopper who would prefer to just make a purchase anywhere you go and earn rewards without extra thinking, a flat rate card is an excellent choice. Assuming you can balance the various categories and optimize certain purchases, bonus cash credit cards could potentially provide more rewards.
In truth, if you can make all your payments on time and avoid many yearly fees, balancing both a flat rate card and bonus cash card is a common strategy. This way, you can use your bonus cash card on specific purchases while opting to use your other card for remaining purchases.
Is it worth it to get cash back?
Think about all cash back credit cards in this way: you would be making groceries, food, medical, and other necessary purchases regardless. Why not earn some cash back for no added cost? Assuming you don’t have a yearly fee (and even if you do the rewards can quickly cause you to break-even), getting any type of cash back card should be at the top of your to-do list.
Is it good to use cashback bonus?
An unused credit card cashback bonus is equivalent to money laying on your desk and never being touched. Saving up your cashback bonuses for vacation travel or other purposes is always a great idea, but if you have a cashback bonus that you never plan to use the money is going to waste. With that said, the money won’t ever disappear so if you become more interested in the rewards you may find a nice stockpile of cashback rewards.
Are rotating category cards worth it?
Rotating category cards are best for those who have deep insight into their personal finance and spending habits. By having this understanding, they can better choose a rotating card issuer that suits their spending habits. Consumers who do not have a breakdown of their spending habits may be better suited towards a flat rate card.
Does using cashback bonus affect credit?
No, using your cashback bonus will not affect your credit score. Your credit score will be affected, however, if you fail to make payments on your credit card.