Credit card enthusiasts like me are very passionate about credit card rewards of all shapes and sizes. We love transferable points like Chase Ultimate Rewards®, Amex Membership Rewards® and Capital One Miles because of the flexibility they provide – whether you want free airfare, hotel stays, car rentals or a host of other things, transferable points are very valuable. .
But you know what is the most flexible of all? Straight cash. You can use cash to pay for airfare and hotel stays; You can use it for car rentals and cruises. Or you can use it to pay your electricity bill, or your rent, or an oil change that you keep putting off because you don’t want to lose a hundred bucks.
Cash is king and always will be. Unless you have a strong desire to travel, you should regularly use cashback credit cards. That’s why.
What are cashback credit cards?
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Cashback cards can be considered the gateway to the world of credit card rewards. It’s the perfect tool for those who don’t have the time or patience to learn how to maximize things like Air Miles and Hotel Points.
So what is cashback? Simply put, this is the simplest reward system with easy-to-understand repayment options. Think of it like a small discount on every purchase you make. Depending on how often you swipe, you may find that you have a decent amount of savings without even trying.
Types of cashback cards
Not all cashback credit cards are the same. You need to have a good understanding of your spending habits before applying for one of these cards if you want to get the most bang for your buck.
Let’s take a look at four genres that cashback cards fall into. And keep in mind that you can unlock more than one type!
1. Bonus categories
Many cashback credit cards offer bonus tiers, from gas stations to restaurants to online retail shopping. Basically, they encourage you to use the card for those specific expenses.
For example, the Blue Cash Preferred® Card from American Express gives you the following return rates (with an annual fee of $95):
- 6% Cashback at US Supermarkets (up to $6,000 spend, then 1%)
- 6% back on select US streaming subscriptions
- 3% back at US gas stations and in transit
- 1% back on all other purchases
As you can see, the card is just spectacular for very specific purchases. The 6% refund at supermarkets almost guarantees that the card will cover your monthly groceries. You can effortlessly earn $360 in cash per year just for these expenses.
Shop around to find a cashback card that suits your lifestyle. Chances are you’ll find two or three options that will earn you a bonus for almost every dollar you spend. Definitely worth opening them all if you will be responsible for using your credit card!
2. Alternate categories
Cashback credit cards that offer rotating bonus tiers reward you handsomely for everyday purchases, but you should be aware of two reasons:
- Categories change every quarter. You will need to periodically check the schedule of the bonus categories of the card to be aware of which purchases are currently receiving bonuses.
- You will have to activate the card every quarter or you won’t earn any bonus money at all.
An example of a cashback card with rotating categories is the Discover it® Cash Back card with no annual fee. It returns 5% cash on spending up to $1,500 in various categories after card activation (then 1%). He earns 1% on all other purchases.
This year, the card offered grocery stores, fitness/gym memberships, gas stations, Target, restaurants, and PayPal as bonus categories. As you can see, super general expenses.
You just need diligence to keep up with the bonus categories.
3. Individual categories
There is a rare breed of cash back credit cards that truly adapt to your spending to help you claim bonus money without all the mental effort.
There are several aspects that these cards use to help you.
Choose your own categories
As the name suggests, these are cards that allow you to choose in which categories you want to receive cashback.
An example is the Bank of America® Customized Cash Rewards credit card, which returns 3% cash back in one category of your choice each calendar month:
- Canteen
- Gas
- Online shopping
- Pharmacies
- Travel
- Household/Furnishing
If you know you’ll be spending a lot on food and online shopping next month this month, you can adjust your categories accordingly.
Automatically selected categories
These are cards that analyze your purchases on your behalf, so you don’t have to manually select every time.
An example is the Citi Custom Cash℠ card, which gives you a 5% cash back on spending up to $500 in the category you spend the most in (then 1%) from the following list:
- Grocery stores
- Restaurants
- gas stations
- Pharmacies
- Select broadcast
- Choose a trip
- Select transport
- Live Entertainment
- Home Stores
- Fitness clubs
With this card, you don’t even have to choose your favorite category – the card will detect which category you’ve used the most and automatically add a bonus to it.
4. Fixed rate
If you want simplicity, the fixed-rate cashback card doesn’t require any brain cells to use. With it, you will earn the same amount of money for every purchase, no matter what. There are no bonus categories you need to worry about.
But there is a trade-off: these cards often have lower earning rates than others. The best thing you can do with these cards is 2% money back on all purchases.
For example, the Citi® Double Cash Card gives you 1% cashback when you make a purchase and another 1% cashback when you pay for that purchase – effectively 2% cashback on everything.
Don’t get me wrong, this is a fair income. But with a little effort, you can get a lot more (as you can see above).
However, everyone should have a fixed rate cashback card in their wallet. They are great for purchases that don’t qualify for bonuses with any other card. Things like medical expenses and insurance payments are examples of payments that don’t fall under the bonus category of another credit card. This makes it an ideal candidate for a 2% fixed cash back credit card.
How to get cashback
So how does cashback work? Each cashback credit card has different rules, so we can’t cover them all. But at the same time, as a rule, there are only a few basic ways to get your money back.
Credit/Check/Direct Deposit
When you’re ready to cash out your hard-earned rewards, you can usually request a check to be mailed to you, a loan statement on your credit card, or a direct deposit to a bank account of your choice.
With one exception (which we’ll get to in a second), you should not consider getting your money back in any other way.
Please note that some cashback credit cards require you to accumulate a certain amount of cashback before you can use it.
Gift Cards/Products
Many credit cards will allow you to get your money back through some sort of online portal for gift cards or merchandise. This is a bad idea for one very simple reason: you are depriving yourself of a refund when you do this.
If you want a Chili’s gift card, it’s best to just buy this from your credit card and redeem the cash as a loan statement to offset that purchase. This way you will at least get a refund for buying a gift card. If you exchange cash for a gift card, you will not receive any rewards because you have never made a purchase.
Travel
Some credit cards, such as those issued by Chase and Citi, offer an online travel portal where you can exchange your money for flights, hotels, car rentals, cruises, and more.
But there is a secret you must know. Some cards that are marketed as “cashback” don’t actually earn cash. They earn points that can be redeemed for huge amounts.
For example, Chase Freedom Unlimited® is a cashback card that gives you the following:
- 5% cashback on trips purchased through the Chase Travel Portal
- Cashback 3% for purchases in restaurants and pharmacies
- 5% cashback on all other purchases
In fact, the card earns Chase Ultimate Rewards® points, which you can cash out at a rate of 1 cent per point. If you also have a Chase Ultimate Rewards® card, such as a Chase Sapphire Preferred® card, you can convert Chase Freedom Unlimited® rewards into Air Miles and Hotel Points. That being said, you can often get a value of over 2 cents per point, so if travel is one of your primary goals, this is the way to go.
What to look for in a cashback card
There are a few things to keep in mind when choosing a cashback credit card:
- Annual fee – The idea of paying an annual fee for just a tiny piece of plastic can be repulsive — even intimidating. But these cards have earning rates and ongoing benefits that can benefit you far more than what you pay for them every year.
- year – Some of the most generous APR zero interest credit cards are also cash-in credit cards. If you like it, it might be worth sacrificing a higher earning rate in favor of a longer initial APR window with zero interest. Check out our selection of the best Zero Interest APR Starter Card options.
- Specific categories − If you are a road warrior, you can appreciate a high yield cashback credit card at gas stations. If you have a large family, you may want a card that offers big bonuses for shopping at grocery stores and wholesale clubs. Determine your spending habits before making your choice.
- Sign up bonus – Many cashback cards offer around $200 after meeting minimum spending requirements. If you can find one that offers more, that’s a great deal. Check out our selection of the best credit card sign up bonuses.
- Personal credit card or small business credit card – Smaller business cards often have even more generous welcome bonuses and earning rates than personal cards. You must have a business to qualify for a small business card, but it doesn’t have to be a multi-million dollar business. Even things like freelancing, driving for DoorDash or Uber, or babysitting can be considered small businesses. Check out our selection of the best business credit cards.
bottom line
Regardless of your financial goals, cashback should be part of your credit card strategy. They are easy to use, the rewards are easy to use and you have 100% flexibility with them. You can use them for an effective discount on your purchases; you can use it as an artificial savings account and save it every year for a special occasion; you can use it in tandem with travel rewards to pay for things that are not covered by points while on vacation, such as food or entertainment.
Just be sure to evaluate your costs so you don’t apply for a card that won’t serve your lifestyle.