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

Before you sign up for this type of credit card, make sure you know what you’re getting into.

  • Ashley Tate

Wish you could get paid for shopping? You can, say rewards-card issuers, who promise to give you back a percentage of your credit-card purchases every month (sometimes after you earn a preset minimum, ranging from $20 to $100). You receive the “cash back” in the form of a check, a credit toward your balance, or a gift card, says Ben Woolsey, the director of marketing and consumer research at the credit-card–comparison site CreditCards.com. Issuers offer deals to fuel customer loyalty, says Woolsey. Should you bite?

The pros: If you have a stellar credit score (720 or higher), you’ll qualify for the cards with the best rewards: 1 to 1.5 percent cash back on all purchases or up to 6 percent back in specific bonus categories, like dining, or at designated retailers. Some issuers offer a cash bonus for spending a certain amount within a specified time period (around $50 to $200), which means even more money in your wallet.

The cons: Cards with the most lucrative rewards (such as American Express’s Blue Cash Preferred, which pays 6 percent back on groceries) levy an annual charge of $50 to $100. Interest rates are higher, on average, than for standard cards. Some issuers cap how much cash back you can accrue in a year. And earnings in bonus categories are usually not automatic; you must enroll online each quarter to get them.

The verdict: It depends. Consider these cards if you spend a lot in categories that offer cash back, like gas or clothes, says credit-card expert Beverly Harzog, the author of Confessions of a Credit Junkie ($16, amazon.com): But if you carry a balance, “opt for a low-interest card or you’ll spend more on interest than you’ll ever get in cash back.”