How to Choose a Cash Back Credit Card
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.Read full bio
At a Glance
Cash back credit cards can be a great way to get a little extra money back every time you make a purchase. Over time, these small rewards can add up. But with different types of cards, rewards structures, and other factors, deciding which cash back credit card is right for you can be confusing.
What types of cash back cards are there?
When considering a cash back credit card, it’s important to know there are different types of cards that offer rewards in different ways. The three primary types are flat-rate, fixed bonus categories, and rotating bonus categories cards.
Flat-rate cash back cards
Flat-rate cards offer a flat, or fixed, rewards rate on every purchase. Typically, the rates range from 1-2%. These cards are best suited for people who don’t spend more money in one specific category, or who don’t want a complex rewards program. They offer a consistent earnings rate and how much you’ll get back can be easily calculated, but there’s a lack of flexibility to customize your spending to earn more.
Fixed bonus category cards
Also called “tiered-rate” cards, fixed bonus cards provide higher rewards rates for certain categories, and then a flat rate for all other purchases. Examples of categories that may earn a higher rate include groceries, gas, dining, or travel purchases. The number of bonus categories available varies by card. These bonus categories typically do not change and are available year-round.
Bonus category spending can earn 3-5% or more back, while all other purchases earn 1-2%.
Fixed bonus category cards are great for those who spend more in certain areas, but don’t want to have to choose or think about differing categories throughout the year. To choose one of these cards, you should make sure your regular spending aligns with the categories offered.
Rotating bonus category cards
Rotating bonus category cards are similar to fixed bonus category cards in that they offer higher rewards rates for certain categories, and a flat rate on all other purchases. However, these bonus categories rotate throughout the year – usually every three months – so you can earn a higher rate in varying categories.
These cards sometimes have a limit to how much you can earn in the bonus categories and can have varying rates. However, they can allow you to maximize your cash back by shopping in those categories when they have a higher rate. The downside is keeping track of the bonus categories throughout the year to maximize your earnings.
How to evaluate cash back rewards credit cards
If you want to know if a cash back credit card is right for you and need help deciding which type aligns with your needs, there are a few factors to evaluate:
Your credit score
When it comes to getting approved for a cash back credit card, having an excellent credit score will help. The higher your score (specifically 670 or above), the more likely you’ll be approved for a card and get a lower interest rate.
Even if your score is lower, you may still qualify, but you’ll also get a higher interest rate. If necessary, try improving your score before you apply for a card.
Your spending habits
Knowing what you spend and in what categories is important when choosing a cash back card. If you spend in varying categories, a fixed-rate card may be a good option. But if you find you spend more in certain categories, like groceries or dining, you should look for a card that offers a higher rewards rate for those categories.
Look through your current credit or debit card statements and list out the categories where you spend the most. Or, spend the next few weeks tracking where your money goes so that you can find a card that fits your habits.
Flat-rate cards are easy to use because you don’t have to think about where you’re spending – you just earn the same rate on all purchases. On the other hand, you need to pay attention to the rotating bonus category cards to try to time your higher spending with those categories when they offer the rate. Depending on whether you want to think about your categories of spending or not can help you decide which type is right for you.
Also consider other card features, such as sign-up bonuses, fees, and APR. Your preferences and the importance of these factors (or lack of) can help you choose.
Some cards offer 1% on all purchases, while others offer 1.5% or 2%. Bonus categories may offer a rate of 3%, 4%, 5% or even more. Higher rates are great, but only if they align with your spending.
For example, say the card offers 5% back on gas, 4% on dining, and 1% on other purchases. 5% is great, but if you don’t have a car or eat out a lot, those high rates won’t be super beneficial to you. But, if a card offers 3% on groceries and that’s where most of your spending is, a lower rate may make more sense because it supports your spending habits.
Cash back rewards structure
Now that you have an idea of what type of card you should choose, and how to evaluate cash back credit cards, the next step is to understand card rewards structures to help narrow down which option is right for you.
Reward rates and category spending
As mentioned, it’s important to analyze your current spending and choose a card that has rewards rates and categories that support your habits. To maximize your rewards, choose a card that has rates and categories that align with your budget.
Typically, cash back credit cards don’t have annual fees. However, there are some that do. If a card has an annual fee, it’s important to weigh whether your cash back rewards will be more than or outweigh the fee. For example, if the fee is $150 and you only earn $100 cash back, your net gain is only $50. But with a card that has no fee, you’ll get $100 in rewards.
Annual fees aren’t necessarily bad, but paying them will be a reduction in your annual cash-back total.
Carrying a balance on our credit card should always be avoided as much as possible, but it’s especially important on cash back credit cards. If you’re carrying a balance from month to month, you’ll be charged interest on that balance. If this is a regular occurrence, you may be putting all your cash back earnings toward paying off the interest.
The higher your credit score, the better interest rate you’ll get. But comparing rates and avoiding being charged interest altogether is your best option.
Most cash back credit cards offer several ways to redeem your rewards, but make sure to choose a card that provides the option you want. For example, you may be able to choose:
- A statement credit, which puts what you earn toward paying down your next credit card bill. Then, you’d pay less out-of-pocket when the bill is due.
- Paper check.
- Direct deposit into your checking or savings account.
- Redeeming at an online shopping portal supported by the issuer, or through other online shopping experiences.
- Gift cards.
Also, be sure to read the terms of the card to learn about any minimum redemption amounts, fees, or other restrictions. You’ll also want to review whether the rewards expire after a certain period.
Check to see if any other benefits come with being a card member, such as:
- Free credit score information
- Protection against fraud
- Lack of foreign transaction or other fees
- Purchase protection
- Cash back match
- Mobile app access
- Travel insurance
- Trip cancellation coverage
New cardholder bonus
Some cards offer one-time bonuses to new cardholders when they are approved. These are usually a flat rate dollar amount. But be sure to read the fine print because for some cards, you only get a bonus if you spend a certain amount of money within a specific period. Otherwise, you don’t get it.
A few other considerations to compare include:
- 0% introductory APR
- Cards from issuers you already like or have a customer relationship with
- Rewards limits and caps, as some issuers limit how much you can earn in certain categories
- Whether you must earn a certain amount of cash back before you can redeem it
The important thing is to do your research. Compare all the above features to help narrow down options that make sense. Also look at any reviews that previous or existing customers have shared about the issuer or card, especially around customer service support. You want to make sure you’ll have a positive experience in case you do need assistance or have questions.
Is it worth having multiple cash back credit cards?
Having multiple cash back credit cards can help you earn even more rewards, and maximize your cash back. Here are a few factors to think about before making this decision:
- Each credit card application will trigger a hard credit inquiry, which will decrease your credit score by a few points.
- Managing multiple cards can be tricky, especially if you’ve never used a cash back card before and aren’t familiar with the programs. You may have multiple bonus categories to keep track of in order to optimize your spending and maximize rewards.
- You’ll have to manage multiple credit card statements and payments per month.
- If you don’t budget and pay attention to your spending, you may end up overspending on your cards, which can lead to accumulation of credit card debt.
- There will be multiple cards in your wallet, and you’ll have to remember which cards offer the best rates for different categories to know which one to use.
Having multiple cash back credit cards isn’t for everyone, but it may be worth it if you’re willing and able to balance each card and program.
Is it good to earn cash back if you’re paying interest and fees?
If your card has a high interest rate or fees, you may be paying more in penalties and interest than you’re earning with cash back rewards. It’s important to be mindful of fees you may be charged, and avoid carrying a balance on the card each month to eliminate accumulating interest. However, if you aren’t able to pay it back each month, cash back you earn can be put toward paying those fees or interest.
Which rewards credit card is best for me?
To find the best cash back rewards card for you, start by analyzing your spending. Keep track of categories where you spend the most and look for cards that have high reward rates for those categories. Choose a type of card based on how you want to earn rewards. Be aware of any fees, interest rates, redemption options, and other key features when comparing.
Who shouldn’t get a cash back credit card?
If you don’t have an excellent credit score (at least 670 or above), or aren’t able to pay back your full balance each month, a cash back card may not be worth it. You also may want to consider a different type of card based on your spending habits and needs.
How can I redeem my cash back rewards?
Most issuers allow you to redeem your cash back rewards in a variety of ways, including paper check, direct deposit, statement credits, gift cards, or via an online shopping portal.
What other benefits do cash back credit cards offer?
Some cards offer 0% introductory APR, free credit score information, fraud protection, low or lack of fees, purchase protection, cash back reward matching, travel insurance or trip cancellation coverage, and more.