Cash Back Credit Cards – What You Need to Know

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Cash back credit cards are cards that give you a portion of the money you spend on the card back in cash. This cash back may come at the end of each statement or it may come in the form of a check, depending on the terms of the card. The percentage of cash back you can receive usually varies depending on exactly where you use the card, but you can usually expect a minimum of getting back 1% of the total of your purchases.

You may also want to see the Advertising Disclosure for more information about the below cards.

Why Do Creditors Offer Cash Back Credit Cards

Cash back credit cards work by giving you a portion of your monthly spending back. Credit card companies offer cash back for several reasons. First, it may help them to lure customers. Customers often choose credit cards based on rewards and other perks, and a cash back credit card may be just the ticket to help a creditor woo a customer.

Second, offering cash back encourages customers to use credit cards more often. A customer who has a choice between paying cash for something or using a debit card or using a cash back card may always choose the cash back card because they feel that they are getting something back on their purchase. This is great for creditors, since their card gets used and they usually get to charge a transaction fee to the merchant. It is also a good business decision for creditors because many customers will use the cash back card and then not be able to pay the balance in full each month, so the credit card company will make money on the interest.

Never the less, cash back rewards are almost like free money for the responsible consumers. Here are a few cards that are worth having:

How Do Cash Back Credit Cards Work

Cash back credit cards tally the amount of money you spend in a given period on eligible purchases. Many cards offer cash back only on select items, or within select categories. For example, it is common for the cash back card to offer between one and three percent cash back on groceries, drug stores or gasoline purchases. Some cash back cards target only one specific area for cash back, touting themselves as the best card for those who make business purchases or the ideal card for people who drive a lot. Some customers will get several cash back cards and use each one to buy the items they get the biggest rewards for. This idea is OK, but remember that if you open a lot of credit cards, you may hurt your credit score.

Other cards will offer you cash back on everything, but this is usually a lower rate – around one percent, instead of a special card that offers you three percent but only on groceries and gas purchases. Still others offer you combination – one percent cash back on general purposes and a special promotional rate on “category” purchases.

Some cards will cap the amount of cash back you can earn, setting a maximum for the year. Others will allow you to earn unlimited cash back. Make sure you read and fully understand the terms and conditions of the particular card you are interested in to know what purchases you are rewarded for.

A Little Gotcha on Some Cash Back Credit Cards

Cash back usually comes in the form of a credit on your statement. You have to read carefully, but sometimes the credit is deducted from the total that reduces your total of cash rebate that you receive. Let me give you an example of what I mean. Let’s say the cash back reward on your card is 1% on everything you buy. If you buy $10,000 worth of goods every month, then the calculation is easy, as you get $100 back each month right?

Not so fast.

What ends up happening with some credit cards is that on month 1, you make $10,000 in purchases. Then in month 2, you will see a credit of $100 along with your $10,000 in purchases. So far so good. But in month 3, they will deduct the $100 from $10,000 and calculate your 1% based on $9,900, netting you only $99. This may or may not seem like a big deal to you, but since I rather have more money than less, I always ask for a check if that’s an option.

Using Cash Back Cards Wisely

There are a few things you should consider when selecting a cash back card or making purchasing decisions. First, you typically don’t want a cash back card with an annual fee. There are plenty of free options out there, and the fee may eat away at any savings or profits you might make from the cash back offer. Second, make sure you check your interest rate. You usually do not want to have an interest rate that is higher then the industry average, especially if you carry a balance. Compare the rates on a few cards, both those that offer rewards and those that do not, to determine which will be the best deal in your situation. In general, those who carry a balance shouldn’t look for a cash back card. Instead, a 0% balance transfer credit card might be the ticket for them.

You should also compare rewards programs before selecting a cash back program and think about your needs. If you travel frequently, a mileage card may offer you a better return on your money than a cash back program in the form of miles. Typically, cash back programs give you less than a mileage card or other point-driven program because, when giving cash back, the creditor actually has to give you the full dollar value. Calculate how much you spend on average per month and figure out what this means for cash back versus mileage rewards points before getting a card. You can also look into other types of rewards programs which may offer other incentives that are better suited to your spending needs.

Finally, don’t fall into the trap that just because you are earning cash back, it is always a good idea to use your credit cards. If you carry a balance or can’t afford something, the interest on the purchase will still often be far higher than what you are making on a cash back credit card. Do not be tricked into thinking you are saving when you are not. You still must spend wisely and use credit responsibly in order for a cash back card to be a good deal. If you are able to be responsible and pay off the balance in full each month, then a cash back card may be a great option for you. You may even wish to use your cash back card to pay for large purchases like rent if your landlord offers that service, as you can earn large amounts of cash rebates over the course of the year for expenses that you would be incurring anyway.

If you decide a cash back reward credit card is right for you, make sure you find one that gives you the best percentage back in the categories you spend the most in. You can track your spending for a few months and then compare offers to find the best deal.

Advertising Disclosure: Before you decide to sign up for a card, please note that MoneyNing has financial relationships with the credit card merchants mentioned here. This means that MoneyNing is compensated if you choose to utilize the links on this site to sign up for any particular credit card mentioned above.

Editorial Note: Rest assured that the content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

Also, here’s a note about the credit scores provided: This information is provided through a relationship with Credit Karma members have received approvals with these TransUnion New Account credit scores. Please note that because other factors may affect credit card approval, these approval metrics are only guidelines and approval is not guaranteed.

Finally, know this about the comments below: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

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  • Luis Cabrera says:

    Last week a beautiful saleswoman was offering cash back cards in a high traffic zone inside a nice shopping mall. She (honestly) told me that this kind of credit cards encourages customers to use credit cards more often. Almost any customer who has a choice between paying cash for something or using a debit card or using a cash back card may always choose the cash back card because they feel that they are getting something back on their purchase. This is great for creditors, since their card gets used and they usually get to charge a transaction fee to the merchant (that´s a great deal for them). It is also a good business decision for creditors because many customers will use the cash back card and then not be able to pay the balance in full each month, so the credit card company will make money on the interest, (that´s another great deal for them). At the end I decided to take the offer, so I need to learn how to use my brand new Chase Freedom Credit Card wisely.

  • Sonu says:

    Credit card is the best option for me for any kind of online transaction. while on shopping it also provide me reward points which is completely profitable..

  • Alex @ Credit Card XPO says:

    I personally like the Capital One Quicksilver Cash Rewards credit card. It gives me 1.5% cash back on every purchase, every day. With 0% intro APR on purchases and balance transfers, no annual fee, plus $100 bonus after I spend $500 on purchases within the first 3 months. Best of all, Capital One has recently lowered their qualifying standard from excellent credit to good credit!

  • CreditCardBonanza says:

    I think there are many other great cash back cards out there which have high rewards.

    For instance, the Barclay Arrival card effectively pays 2.2% cash back on every day purchases, or the Amex Blue Cash Preferred (not the Blue Cash Everyday) pays 6% cash back for groceries and 3% cash back for gas (but comes with an annual fee of $75.

    Or the U.S. Bank Cash+ card earns 5% on categories that you can select yourself (instead of annoying rotations). However, that card is rarely mentioned on blogs, as applications are in-branch only.

  • Rita P says:

    Well these offers are like magnets and they pull people to sign up. Getting cash back attracts everyone. Also I do support the idea of paying bills using cards and earning rewards. But at the same time keep in mind to pay off your credit cards regularly on the due date to maintain your credit score. These offers must not get you in trouble though, as it may affect your credit score if you miss to pay on time. So check your balance regularly and stay responsible.

  • Jimmy says:

    You folks are looking at these cards all backwards.

    I started using credit cards when I realized that instead of writing a check each time to buy something, I could save my money in the bank to earn interest, until it was time to pay the credit card bill. This made a lot more sense when interest rates were 5 to 7% per year. Then the reward cards came around, and I immediately switched to those to get the rewards for the spending I was doing anyway.

    I never looked at credit cards as an easy way to buy something I wanted now and make the minimum payment. I always chose a card to put the bill on and paid it off as soon as possible. I also stopped using that card for any other purchases because as long as the bill was not paid, I would pay interest on those, too.

    In short, if you can’t afford to pay off your credit cards every month, you shouldn’t be making the buys you are and you shouldn’t be using credit cards. Reward card interest rates are higher, too, so you really screw yourself with these.

  • Queen says:

    I really think that some of this is a way for most of you who are either borrowing on credit or just simply using some of these cards may want to consider the fine prints on some. When the economy went down most went into the red zone, due to your spending habits, but if you know your good and its worth it ….Remember, everything is done for a reason.

  • Brig says:

    I have the Venture Cap One card, and it has an annual fee of $59 after the first year. I have a duplicate card for my husband’s ccount, so we use it for everything. I get 2 points on every dollar purchase. It’s a travel card, so anytime I make a travel purchse I can use my points anywhere I want, trevleocity, any airline I close, any hotel, etc, or I can just put my travel expenses on my card and come back online after my trip and “erase” the amount with my points. Points never expire, I pay in full every month, and since I have got the card in August 2012, I have already “erased” $400 off my credit card. Not bad. I used to use the Chase Marriott card, but then I lawys had to stay at Marriott. There is also a cash back option for the Cap one Venture but it drops the value of your points down to $1 per point, instead of the 2 points on the dollar, so it’s more beneficial to use it to erase any travel/hotel/air expenditures. So far so good.

  • Steve says:

    You really just have to use it like a checking account, but plan on paying all of your bills, food such as groceries and restaurants, gas with the card to really get the rewards benefits. If you do this the cash rewards really ad up.

  • Architect says:

    You must read the fine print. I know BofA is pushing a cash rewards card, but it has several limitations on how much yo can earn per quarter (1-3% of $1,500). Since I charge almost everything on my card, this is an issue for me. I pay the full balance monthly, so the interest rate is a non-issue to me.

  • Sean H says:

    Good stuff on the using cash back credit cards wisely! People always think that the banks are doing us a favor but let’s be real…They know psychology of buying and they know what they’re doing…

  • Marbella says:

    Whatever you do, it’s you who pays your own cache back to yourself, in one way or another.
    It is not someone who gives you money.

  • The First Million is the Hardest says:

    Cash back cards are the way to go if you’re responsible and pay off your balance each month. But if you’re not that kind of person its very easy to get in trouble, as with any type of credit card.

  • Ella says:

    If you manage it well it’s a good thing, but only if you pay off the balance every month…

    • Carl Lassegue says:

      This is true with all credit cards, but with cash back credit cards people have more of an excuse to spend more.

  • Young says:

    The cash back option for credit cards sounds like a nice incentive to get people using their credit cards. Unfortunately, too many folks do not understand when to stop spending and end up in higher credit card debt.

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