Why You Should Consider a Cash Back Credit Card This Year

Cash back credit cards are a good pick if you don't want to pursue travel rewards and prefer to reap your rewards in cash back statement credits or bank deposits. But they're not for everyone.

A 20 dollar bill morphs into a debit card.
Photo: C.J. Burton/Getty Images

Credit cards boast important advantages, offering convenience, providing fraud protection, allowing a payment grace period, and creating a system to track your spending. Additionally, many credit cards offer lucrative rewards just for spending—which can include points, miles, and cash back benefits.

Cash back credit cards are a good pick if you don't want to pursue travel rewards and prefer to reap your rewards in cash back statement credits or bank deposits.

"Deciding between card types depends on your lifestyle, individual spending habits and personal preferences for how you intend to use the card and how you'd like to earn rewards," says Jason Gaughan, credit cards executive at Bank of America.

For example, he says, if you don't drive much, a card that offers gas rewards as its main perk won't be of much use to you. "A good rule of thumb is to look for a card that makes it easy to earn rewards on the everyday purchases you would normally be making, or one that makes it easy to earn something you'll really need or enjoy," says Gaughan. "A pro of cash back cards is that if your lifestyle changes, your card won't have to."

Read on and decide if a cash back card is right for you.

01 of 08

What is a cash back card?

Just like it sounds, a cash back credit card awards you with a certain percentage of cash back on every purchase you make."Most of the time, your card issuer will award this cash back at the end of the monthly billing cycle," says Ted Rossman, senior industry analyst, with Bankrate.com.

Rossman says typical redemption methods include a statement credit which reduces your credit card bill or a deposit into your bank account. "Sometimes you can also redeem your rewards for gift cards or merchandise," he says.

Cash back credit cards vary in the marketplace. Some cash back credit cards give the same payout on all purchases. For example, 2 percent back on everything while others emphasize certain categories. "For instance, 3 percent cash back on travel and dining and 1 percent on everything else," explains Rossman.

02 of 08

Are cash back cards a better choice than travel rewards credit cards?

According to Rossman, most people prefer cash back. "Even though travel rewards can be more lucrative, they're usually more complicated to manage," he says. "You can't beat the simplicity and universal appeal of cash back." And cash back cards tend to charge lower annual fees. "In fact, most don't charge an annual fee at all," clarifies Rossman.

03 of 08

If you amass lots of points and don't spend them, is a cash card better?

The biggest tip here is to actually use your rewards, says Rossman. It sounds simple, but a Bankrate study reports that almost a third of rewards credit cardholders didn't redeem any of their rewards in 2020.

There are also other caveats to be aware of regarding travel reward cards.

"Points aren't always permanent," says Monica Eaton-Cardone, COO of Chargebacks911. "Depending on your card company your points could expire after five years and airline credit card miles often have expiration dates."

And be wary if you need to cancel one card and switch to another. "You ought to be very careful, because not all points are transferable," cautions Eaton Cardone. "By contrast, a cash back card doesn't have expiring benefits. As long as you keep your account open and in good standing, you'll continue to derive the cash back benefits."

04 of 08

In general, what are the advantages?

Simply stated, cash back cards represent an easy way to get money back on everything you buy. "They're very simple and straightforward. You don't need to spend a lot of time crunching numbers or matching your vacation days with the most lucrative travel redemptions," says Rossman.

And who couldn't use a little more cash, right? As a credit card expert, Rossman says for most people, he recommends a no annual fee 2 percent cash back card as a foundation, perhaps with another card or two that lean into categories you spend the most. Rossman says category-specific cards usually have a lower floor (perhaps 1 percent) but a higher ceiling in certain categories such as 6 percent on groceries or 4 percent at restaurants.

05 of 08

Are there annual fees?

It's not difficult to find lucrative cash back cards that do not charge annual fees. And sometimes you might even find that an annual fee is worth it.

"I pay a $95 annual fee to hold the Blue Cash Preferred Card from American Express, but I think it's well worth it because I get 6 percent cash back on up to $6,000 in annual spending at U.S. supermarkets," explains Rossman. He says his family spends enough on groceries that they come out ahead versus the Blue Cash Everyday card which only gives 3 percent cash back on up to $6,000 in annual spending at U.S. supermarkets. "We end up with $85 more by putting that $6,000 in spending on the Blue Cash Preferred, even after subtracting the annual fee," he says.

06 of 08

Are there cash back cards that offer welcome bonuses?

These offers are out there, but they don't tend to be as eye-popping as the bonuses on travel cards, especially those with hefty annual fees, but many cash back cards offer compelling sign-up bonuses and these tend to require less upfront spending, Rossman says. "Getting $200 for spending $500 within your first three months with the card is a common cash back card incentive," he says.

07 of 08

What are the standout cash back cards experts recommend?

As mentioned, Rossman is a big fan of no annual fee 2 percent cash back cards. Examples include the Wells Fargo Active Cash, the PayPal Cashback Mastercard and the Citi Double Cash Card (that one technically gives 1 percent cash back when you make a purchase and another 1 percent when you pay it off).

In terms of other cash back cards that emphasize certain categories, as stated Rossman favors the Blue Cash Preferred from American Express because of the grocery benefit.

He also has the Chase Freedom Flex which is most popular for offering 5 percent cash back on up to $1,500 in quarterly spending on rotating categories, but it also includes other benefits such as 5 percent cash back on travel booked through Chase and 3 percent on dining and at drugstores.

Another good choice is the Discover it Cash Back Card, which is a no annual fee rotating category 5 percent cashback card. And, Rossman says the recently introduced Citi Custom Cash is making waves for giving 5 percent cash back on your top eligible spending category each billing cycle (up to $500 in purchases). That's especially nice because you don't need to preselect the category, he points out.

08 of 08

Taking your cash back earning to a higher level

To further maximize your financial rewards, consider enrolling in a banking rewards program. For example, Gaughan explains that Bank of America's Preferred Rewards program provides members with a credit card rewards bonus of up to 75 percent on eligible Bank of America credit cards, which can boost your cash back earnings even higher. In addition, he says the program offers a suite of other perks and benefits such as savings interest rate boosters, no-fee transactions at non-Bank of America ATMs and discounts on home and auto loans.

Similarly, Rossman says the Fidelity Rewards Visa Signature Card is interesting, too, because you get 2 percent cash back that you deposit into an eligible Fidelity account. "This offers additional upside because you can turn your cash back into investments that gain value over time," Rossman says.

The bottom line:

Regardless of the type of credit card you choose, the golden rule of responsible credit card use is to pay off balances in full and on time each month. If you don't pay in full, you will be charged interest on balances you carry.

If you are carrying balances on your monthly statements, any rewards you reap, whether cash back, points or miles will be offset by interest and late fees if you aren't paying on time.

Was this page helpful?
Related Articles