Cash-back credit cards are a great way to earn rewards on your spending. There are three primary types of cash-back rewards — flat-rate, cash-back and rotating category — and you’ll need to weigh the different tiers of fees, welcome bonuses and rewards categories for each. The best way to maximize your cash-back potential is to carefully choose a card that suits your specific budget, spending habits and financial goals.
What is a cash-back credit card?
Cash-back credit cards offer a percentage of cash back on every qualifying purchase. If a credit card advertises that it offers “cash back,” it means you’ll get a percentage of the money you spend back on your statement in the form of cash or a statement credit. The more you spend, the more you earn.
What are the different types of cash-back credit cards?
The three main types of cash-back cards are flat-rate rewards, tiered bonus categories and quarterly rotating categories.
A flat-rate credit card is the most common and basic type of cash-back credit card. A flat rate card gives you the same percentage discount on every dollar you spend no matter the category of spending.
A cash-back credit card with bonus categories, also known as a tiered credit card, offers different cash-back rates depending on the type of purchase you’re making. You may earn more cash back on gas than you do on groceries, for example. Some tiered cards have customizable rewards categories.
A rotating category credit card offers 1% cash back on every purchase, except for the bonus categories of the quarter. In most cases, the card will offer 5% in cash back on these categories, and you’ll usually earn 5% back on up to $1,500 in spending per quarter.
How do I maximize my cash back?
No matter what type of cash-back credit card you choose, there are several steps you can take to maximize your cash back.
- Consider the types of categories you spend in. If you’re a big grocery spender, a card that offers an additional percentage of cash back on groceries may be your best option. Credit cards with no annual fee will not eat into your rewards.
- Look for a card with a welcome bonus. Not all cards offer bonuses for signing up. If you find one that does, make sure you’re spending enough money to unlock the welcome bonus and earn more cash back.
- Register for quarterly bonus categories. If you have a rotating category card, make sure you register for those quarterly bonus categories to get the additional cash back.
- Look for special offers. New cards are always offering bonuses. You’ll want to check the fine print, but these offers can help you maximize your cash back.
- Make use of shopping portals. Many cash-back cards offer shopping portals like BuyGiftCards and ShopDiscover, where you can shop online and earn an additional percentage of cash back.
- Avoid carrying a balance and pay your bill in full each month. You won’t enjoy the rewards of your cash-back card if you’re spending more in interest payments than you’re earning in rewards.
How do I redeem my cash back?
When it comes to redemption, each card is different. You can typically redeem credit card rewards for cash back, travel, gift cards, statement credits or shopping. You can also sometimes donate your points to charity. Some rewards credit cards may give you less value for your points if you redeem them for cash back.
You can maximize your cash back by redeeming your rewards for the highest value option, or you can choose a cash-back credit card to avoid overcomplicating things.
What is a credit card welcome bonus?
Though a one-time benefit, you can also maximize your cash back by unlocking a credit card’s welcome bonus. You can earn a credit card welcome bonus by spending a certain amount of money on the card within a specified period of time. You might need to spend $500 to $6,000 within the first three to six months after opening your account, but welcome bonuses can add hundreds of dollars back to your wallet.
What other benefits do credit cards offer?
Cash back isn’t the only benefit to help pad your wallet. Many credit cards offer indirect ways of saving you money, but you’ll have to find a card with benefits that suit your lifestyle. Some examples of common credit card benefits include:
- 0% introductory APR offers: These can help you finance a large purchase or transfer a balance to prevent interest charges on credit card debt. The best 0% introductory APR cards usually offer 18 to 21 months of reprieve.
- Annual statement credits: Some credit cards offer annual statement credits for purchases like TSA PreCheck, Global Entry, phone bills, ridesharing services or travel.
- Insurance and purchase protections: Travel credit cards in particular often offer baggage insurance, accident insurance, car rental insurance and trip delay insurance. Some credit cards also offer special purchase protections and extended warranties on your retail purchases.
It may make sense for you to keep a few credit cards in your wallet to take advantage of all the benefits that apply to you.
The bottom line
There are many different types of cash-back credit cards available, each with its own benefits and drawbacks. You can maximize your cash back by considering what type of card best suits your spending habits and taking advantage of sign-up bonuses, quarterly bonus categories, and special offers. You can redeem your cash back for cash, travel, gift cards, statement credits or shopping, but the value of your rewards will vary depending on the issuer and how you redeem them.
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