How Cash Rewards Credit Cards Work

Unlike travel rewards credit cards, you don’t have to be a pro at playing the credit card game to benefit. Cash-back cards are easy to keep track of and user-friendly. These types of cards typically fall in one of the following categories:

  • Flat Rate: A flat rate card usually offers 1.00–2.50% back on all purchases, whether you buy a trip to Italy or a gallon of milk. The Citi Double Cash Card is a good example, as it offers 2% back for every dollar spent. The benefit of flat-rate cash back is that you can keep a minimal wallet and have an easier time keeping track of your credit card spending.
  • Tiered: Tiered cards vary the cash-back rewards based on what you purchase. A tiered card might offer a flat 1% cash back on the majority of purchases and 3% back on gasoline spending. Many times, the higher-earning tier is capped. A tiered card can help you earn more, as long as you select a card that rewards you the most for what you spend the most on.
  • Rotating Categories: Credit cards with rotating cash-back categories usually have a set 1% cash-back rate and then a higher rate, like 5% back on select categories. These categories rotate with the quarters of the year. For example, you might earn 5% back on all grocery purchases in the first quarter of the year.

Common Cash Rewards Categories

New cards are released frequently and some issuers like to get noticed with attention-grabbing interest-free promotions, dollar-for-dollar rebates on rideshares and cash-back offers, like offering 6% back for your favorite streaming service. Most cards, however, offer year-round cash rewards in the same core categories:

  • Supermarkets (Spending at U.S. supermarkets only for American Express cards)
  • Restaurants
  • Gas stations (Spending at U.S. gas stations only for American Express cards)
  • Transportation
  • Wholesale
  • Entertainment

To find the best cash-back credit card, you need to keep track of your spending. Where do you spend the most money? If you spend more money on restaurants than groceries each month, then look for cards that will give you more back for dining out. If your spending is even throughout the cash-back categories, then a higher, unlimited, flat-rate, cash-back card might be a better choice for your finances.

Cash Rewards Credit Cards Versus Travel Credit Cards

Cash-back credit cards and travel cards are very similar. With travel-branded credit cards, you will earn more back when you spend on travel-related purchases, such as airfare or hotels. Most travel cards also offer the best reward rate when you redeem your rewards toward travel, either through the credit issuer’s travel platform or by transferring points to a travel partner.

Many times, redeeming travel rewards card points for cash means you are getting a lower cash-back rate. It is wise to know how far points will go toward travel versus cash before redeeming them. Travel credit cards can also come with more travel perks, such as access to airport lounges or travel insurance. With these perks can also come annual fees, so it is best to weigh the fee with the perks before signing up.

When trying to decide which card is best for you, consider how much travel you plan on doing. If you love the idea of traveling but aren’t gung-ho to explore the world just yet, a cash-back card, like the Citi Double Cash Card, might be an easier card to start with.

How to Compare Cash Rewards Credit Cards

Not all cash-back credit cards are the same. The card that your friend can’t stop raving about might not be a good fit for your spending habits. Here’s what you need to look at before deciding which card is for you:

  • Annual Fee: If the card has an annual fee, is it worth paying? Some annual fees seem expensive up front, but when you consider how much cash back you receive, along with other perks, you might realize it is worth paying. Remember, even if a card has $1,000 worth of perks that make a $250 annual fee seem worth paying for, it is only worth it if you actually use those perks. However, some credit cards, such as the Citi Double Cash Card, offer a lot of value without the expense of an annual fee.
  • Bonus Offer: Sign-up bonuses sweeten the pot. However, make sure you can afford to meet the sign-up bonus. If spending $4,000 in three months will put you into financial hot water, look for a card with a lower bonus offer spending requirement.
  • Redemption: How easy is it for you to redeem your cash back? Look for cards that make it easy to transfer your rewards back to your bank account or that will allow you to spend them on Amazon for the same redemption rate.
  • Intro APR: Looking to make a big purchase up front? A 0% intro APR can save you money on interest and give you more time to pay off your purchases or balance transfers.
  • Special Features and Benefits: Do the cards come with special perks that will save you money throughout the year?
  • Ongoing Rewards: Look for cards with regular opportunities to earn more back rather than choosing a card that only has amazing rewards during the first year.

Pros and Cons of Using a Cash-Back Card

Everything in life has its pros and cons, and cash-back cards are no different. Consider these points before making your decision:

Pros:

  • Simplicity: Cash-back cards are easy to keep track of and it is quick to convert your rewards to cash back in your bank account.
  • No or Low Annual Fees: Most cash back cards are no-annual-fee cards. The Citi Double Cash Card is a good example of a credit card with no annual fee.
  • Low Bonus Requirements: You won’t have to dish out a lot of cash to get the sign-up bonus.
  • Builds Credit: Credit cards can be used to improve your credit score.

Cons:

  • Lack of Travel Benefits: Travel perks usually come with the best travel cards.
  • Cash Back Can Expire: Some cards say cash back never expires but this is only true if you use your card regularly.
  • Low Sign-Up Bonuses: While you won’t have to spend a lot up front to earn the bonus, the sign-up bonus is also a lot smaller than what popular travel cards offer.
  • Fewer Perks: Travel and rewards cards usually offer more benefits.

How to Make the Most of a Cash-Back Card

Once you have decided on the right cash-back card for your wallet, you want to make sure you get the most out of the card. Here are a few tips to increase your perks after approval:

  • Plan to get the bonus. Divide the spending requirement by the sign-up bonus time frame to ensure you are spending enough each month. For example, if you must spend $3,000 in 90 days, plan how you will spend $1,000 each month without messing with your budget.
  • Use the shopping portal. Don’t forget to browse the card issuer’s shopping portal to increase how much cash back you can receive on a purchase. If you were already planning to send your mom flowers for Mother’s Day, you might as well use a vendor through the shopping portal that is offering 10-15% cash back when you use your card.
  • Look for rewards bonuses and multipliers. Keep your eye on special rewards bonuses offered throughout the year. For example, some cards were giving a $100 credit for spending $500 on select cruises.
  • Take advantage of rotating bonus categories. If your card offers rotating bonus offers, then spend a few minutes of planning to capitalize on them each year. For example, if your first quarter bonus category is 5% for groceries, consider spending more on groceries during those first three months. Buy extra pantry staples and meat to deep freeze, so that you can shop less in the months to come.

Methodology

We chose our best cash-back credit cards based on the total value they offer based on certain spending categories, preferences (flat rate versus rotating categories), sign-up bonuses, rewards rate and other features like no-interest offers for new purchases and balance transfers. Because everyone has a different idea of what they want from a credit card, we included as many different angles and issuers as possible.

While most cash-back credit cards don’t charge an annual fee, we included a few that do, but only because the card issuers offer enough value to make up for the fee on an ongoing basis. As you consider which card is right for you, compare these cards, as well as other top credit card offers, to make sure you get the best fit for you.

Cash Back Credit Cards FAQ

  • A foreign transaction fee is what your credit card issuer — such as Chase or American Express — charges when a transaction you make with your card processes in a foreign currency or passes through a foreign bank. To process these foreign transactions, your card issuer charges you a percentage of the amount of this transaction, typically 3%. You’ll commonly see foreign transaction fees listed on your card statement as a separate charge.

  • A statement credit is money paid to your account by your card issuer. It essentially works the same as a cash payment to your account. Some rewards card issuers like American Express often offer statement credits as a payout for cash rewards or other point redemption. Statement credit can be used to pay down your card balance or they can remain on your statement as a positive account balance for future purchases.

  • With rewards cards, the term “other purchases” typically refers to purchases made outside of bonus categories or spending categories. Cash rewards rates are usually lowest on spending categorized as “other purchases.”

  • The terms “bonus categories” and “spending categories” are often used interchangeably. But with cash rewards cards, bonus categories refer to any spending category that offers a cardholder accelerated earnings. While some card issuers offer permanent bonus categories, others feature rotating bonus categories that often change every quarter. As an example, the Discover it Cash Back Card offers 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, gas stations and when you pay using PayPal, up to the quarterly maximum when you activate.

  • Flat-rate cards have a set rate, usually 1%, 1.5% or 2%. You earn this flat-rate on virtually all of your purchases, from groceries to gas to airline tickets. This type of rewards card earning simplifies the process, but it also leaves a lot of rewards on the table when compared to other cards. Both the Citi Double Cash Card and the Capital One QuicksilverOne Cash Rewards Credit Card offer a flat rate on all spending. The Citi Double Cash Card offers 2% cash back on all eligible spending; whereas the Capital One QuicksilverOne Cash Rewards Credit Card offers 1.5% cash back on all purchases.

  • An annual fee is a set charge that occurs yearly. For cards with annual fees, the charge is applied to your account as soon as you are approved. You will see that same charge on your card anniversary. If you do not pay the annual fee in the billing statement you receive it, you will start to pay interest on it. Annual fees do not count for sign-up bonuses and they do not earn points or cash back. Occasionally, some card issuers refer to no annual fee cards as no-fee cards.

  • A credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO® Scores and VantageScore are the standard for credit scores. Good credit can be a valuable asset. It can help you save money and access affordable financing when you need it. Even if you have a sizable emergency fund, high credit scores can provide you with an extra safety net during times of economic uncertainty.

  • A balance transfer is a way to move your existing credit card debt onto a balance transfer credit card that has a lower or zero introductory interest rate. A balance transfer is an efficient option to help pay off debts faster.