Credit cards that earn travel rewards sound exciting, but you can't pay your bills with frequent flyer miles. And besides, airline and hotel loyalty programs can be complicated and frustrating to use.
Instead, many reward credit card users prefer to earn good old-fashioned cash back, since it can be used to pay for anything. Here's our guide to using cashback credit cards.
What's in This Article?
What Is a Cashback Credit Card?
Simply put, cashback credit cards are cards that offer actual dollars and cents instead of points or frequent flyer travel miles as rewards. Your reward amount will be based on how much you spend – usually as a percentage of every transaction. And unlike other rewards programs, you can use that cash for anything you want: your bills, a dinner out, a new tattoo… anything! (However, we always recommend that you use your spare money for investing)
Average Cashback Rates
Right now, the average cashback credit card pays rewards of between 1% and 3% of the amount of each transaction made with that card. However, some cards may offer as much as 6% in certain situations (see below for the exact numbers).
The Pros and Cons of Using a Cashback Credit Card
Pros: The pros of using a cashback credit card are pretty obvious: You get cash back whenever you use your card! That's like saving an extra percentage on each transaction made and is an incentive for using your card, rather than, say, cash, for large purchases.
In addition, many credit card issuers offer cash bonuses for using your card for more than a specific amount over a certain period. So if you use your card for practically everything and pay off your balance every month, you could be saving a substantial amount of money.
Cons: How about the cons of using a cashback credit? Well, for starters, a lot of these cards charge significant APRs – as much as 30%! – which add up. It's best to use a cashback card only if you're certain you can pay off your balance every month.
In addition, some cashback credit cards charge annual fees. In that case, you want to make sure you're earning enough rewards to make the card worth it.
How to Redeem Your Cashback Rewards
How you redeem your cash back may differ, depending on what bank is issuing your card. However, here are the most popular redemption options:
- In many cases, you have to contact the issuer via the phone or website to request either a direct deposit into your bank account, a check by mail or a statement credit.
- Some cards allow you to set up automatic reward redemption.
- Or you can use your rewards right on the issuer's website to buy gift cards or other items.
The Different Types of Cashback Credit Cards
Just as there are different kinds of credit cards that offer travel rewards, there are also several types of cashback credit cards.
- The simplest ones are those that offer a flat rate of cash back on all purchases. For example, the Chase Freedom Unlimited® offers 1.5% cash back everywhere, and the Citi® Double Cash features 1% cash back when you make a purchase and another 1% when you pay for it, for a total of up to 2%.
- Another type of cashback credit card offers you bonus points on purchases from particular categories of merchants, such as restaurants, supermarkets or travel. And while some of these cards can offer you as much as 6% cash back on particular kinds of transactions, there are two potential disadvantages to this type of cards.
First, there can be a limit to the amount of purchases that are eligible for the bonus, and transactions beyond that amount won't qualify. But also, most of these cards offer just 1% cash back on all non-bonus purchases. This is less than the 1.5% or 2% cash back that you can expect from a competitive card with a flat rate of cash back.
- Finally, there are a few cashback credit cards available that offer rotating bonus categories. Cards like the Chase Freedom® and the Discover it® offer 5% cash back on up to $1,500 spent each quarter at merchants in featured categories and 1% cash back on all other purchases. The featured merchant categories change each quarter, and you have to go online to “activate” them in order to receive the bonus.
How to Maximize Your Cash Rewards
With so many different kinds of cashback credit cards offered, it makes sense to decide on a strategy for using them. This depends totally on your goals.
For example, you might want to earn the most cash back by using just a single card for all of your purchases. If this is your goal, then you'll probably want to find a card with the highest rate of cash back available for all purchases, with no limits.
Other folks are willing to carry multiple credit cards in order to maximize the amount of cash back they can earn. For example, you can use one or more cards that offer bonuses for certain purchases and another card for all non-bonus purchases.
While this strategy will maximize the cash back that you can earn, it can be a bit confusing. In fact, some cardholders go so far as to place a piece of tape on their cards and label it with the merchant category that they use the card for, such as “gas” or “groceries.”
Another thing to consider is whether you're willing to pay an annual fee for your card. Most flat-rate cashback cards don't have an annual fee, but some of the cards that offer the most generous bonus cash back will charge annual fees of up to $99.
Now, paying this fee can be well worth it when the bonus cash back that you earn is greater than the annual fee. But you shouldn't just compare your cash back to the annual fee. Compare the cash back to what you could have earned with a no-fee card. If the difference is greater than the annual fee, then it's worth paying.
How to Compare and Choose a Cashback Credit Card
Once you've decided on a strategy for earning cash back, you then have to choose a card.
In addition to the cashback rewards offered, there are some other considerations. For example, you could look for a card with a large signup bonus. There are cards that offer new applicants as much as $300 cash back, usually after completing a minimum spending requirement.
Plus, beyond the annual fee, there are other fees that you might want to consider, such as foreign transaction fees. These are fees that are imposed on all transactions processed outside the United States. Many credit cards still impose a 3% fee on these charges, but an increasing number don't.
Another consideration could be interest rates. However, you really shouldn't be using a cashback card if you plan on carrying a balance. Like all reward cards, cashback cards will have higher interest rates than similar cards that don't offer rewards.
If you need to carry a balance, then you should be looking for a card with the lowest interest rate, not a cashback card. However, some cashback cards come with a 0% APR promotional financing offer on new purchases, balance transfers or both. These can be valuable offers, even if you don't plan on carrying a balance once they expire.
The Top Cashback Cards
Our goal at Investor Junkie is to help you make smart choices regarding your money. So we've taken a look at the best cashback cards currently on offer and listed them here. We've compared rewards percentages with annual fees to help make sure the cards we pick won't rip you off.
The Best Cards for Flat-Rate Cash Back
Capital One Quicksilver Cash Rewards
This is a neat little card for racking up cash back.
With the Capital One Quicksilver Cash Rewards card, you'll earn 1.5%. On everything. Unlimited. Plus, when it comes time to redeem your cash back, you call the shots. There's no minimum amount to redeem, and there are no time constraints either.
Plus, when you sign up, you'll enjoy a 0% APR introductory period for 15 months. You'll also get a signup cash bonus: earn a one-time $200 cash bonus after you spend $500 on purchases within 3 months from account opening
There's no annual fee with the Capital One Quicksilver Cash Rewards card. There's also no foreign transaction fee, either.
Wells Fargo Cash Wise Visa® Card
If you're looking for signup bonuses, you might find this card intriguing. You may also be interested if you're glued to your cellphone.
The Wells Fargo Cash Wise Visa® Card gives you a $200 cash reward bonus after you spend $1,000 during your first three months as a cardholder.
Then there's the cashback reward: an unlimited 1.5% on all purchases. In the first year, you can ramp that up to 1.8% when you use your mobile wallet. Plus, if you use your card to pay your cellphone bill, Wells Fargo will insure your mobile for up to $600 against covered damage or theft.
Citi® Double Cash
The card so nice it rewards you twice. The Citi® Double Cash card has one of the best cashback offers on the market. It's also one of the simplest.
With the Citi® Double Cash card, you'll earn 1% cash back when you make a purchase… and another 1% when you pay it off. Combined, that gives you 2%. You can redeem your cash back as either a paper check in the mail, a statement credit or a gift card.
There's no annual fee for the Citi® Double Cash card, but it does have a 3% foreign transaction fee.
Alliant Cashback Visa® Signature
This card has one of the most generous flat-rate cashback offers around.
The Alliant Cashback Visa® Signature gives cardholders unlimited cash back. For the first year, you'll earn 3% on all transactions. After that, you'll get 2.5%. For year one, the issuer will also waive the $99 annual fee.
There are no foreign transaction fees with this credit card, so it's a good fit if you're a frequent international traveler.
The Best Cards for Bonus Cash Back
Capital One SavorOne Cash Rewards Credit Card
If you enjoy the nightlife, this card is for you. But its decent cashback percentages are great for everybody else too.
The Capital One SavorOne Cash Rewards credit card features unlimited 3% cash back on dining and entertainment, 2% on groceries and 1% elsewhere.
There's no annual fee for this card, plus the Capital One SavorOne Cash Rewards credit card charges no foreign transaction fees.
Bank of America® Cash Rewards Credit Card
With this card, you can earn 3% cash back in the category of your choice including gas, online shopping, dining, travel, drug stores or home improvement/furnishings. You also earn 2% cash back at grocery stores and wholesale clubs and unlimited 1% cash back on all other purchases.
However, there are limits to how much you can earn. You'll earn 3% and 2% cash back only on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter and 1% beyond that.
You'll also get a $200 signup bonus after spending $1,000 within 90 days of account opening. There's no annual fee for this card, but it does have a 3% foreign transaction fee.
Blue Cash Preferred® Card from American Express
The Blue Cash Preferred® Card from American Express has a myriad of ways to earn cash back.
This card offers you $250 cash back after you spend $3,000 within six months of account opening. Terms apply. It also gives you 6% cash back on up to $6,000 spent each year at U.S. grocery stores (1% after) and 6% cash back on select US streaming subscription services.
You can also earn 3% on transit including rideshares, taxis, parking, tolls and trains, and 3% on gas. You earn 1% cash back on all other purchases.
There's a $95 ($0 introductory annual fee in the first year) annual fee for this card, along with a 2.7% foreign transaction fee. Terms apply.
HSBC Cash Rewards Mastercard®
If you're looking for solid annual bonuses combined with no annual fees, the HSBC Cash Rewards Mastercard® may be a good credit card for you.
This card offers an annual 10% bonus on all cash rewards that you earned in the previous year. It also gives you 3% cash back on your first-year spending up to $10,000. So essentially, you'll earn 3.3% in the first year up to that $10,000 threshold. After that, you'll earn a not-too-shabby 1.5%.
There are no annual fees and no charges for making international transactions.
The Best Cards for Rotating Bonus Categories
Chase Freedom FlexSM
*This offer has expired or is no longer available.
This card offers you $200 in cash back after spending $500 within three months of account opening. You'll also earn 5% cash back on up to $1,500 spent each quarter at merchants in featured categories and 1% cash back on all other purchases.
However, maximizing your cash back involves some work on your part. The featured merchant categories change each quarter, and you have to go online to “activate” them in order to receive the bonus.
There's no annual fee for this card, but it does have a 3% foreign transaction fee.
Here's another card that offers you 5% cash back on up to $1,500 spent each quarter at merchants in featured categories, and 1% cash back on all other purchases. Discover will also match the cash back you earn during your account's first year.
And as with the Chase Freedom® card, you need to do some legwork here too. The featured merchant categories change each quarter and you have to go online to “activate” them in order to receive the bonus.
There's no annual fee for this card. There are also no 3% foreign transaction fees.
U.S. Bank Cash+™ Visa Signature® Card
The rewards you can earn with the U.S. Bank Cash+™ Visa Signature® Card are very customizable.
With this rotating category card, you get to pick two bonus categories for 5% cash back. There are 11 categories to choose from. So if you're a total foodie who spends a bit at Whole Foods, you can ramp up your rewards with every grocery store visit. But you can also choose to earn at restaurants as well, for those days you don't feel like cooking. This bonus is limited to purchases up to $2,000 per quarter. After that, you'll earn 1%.
But that's not all. You can also pick yet another category to earn 2% cash back unlimited. And all other spending will garner 1% rewards.
You'll also get a $150 new cardmember bonus after spending $500 in eligible net purchases during the first 90 days of account opening.
There are no annual or foreign transaction fees with this card.