Cash Rewards Credit Cards: An Overview
There are few incentives that draw people in quite like the allure of free money. Yet, that is exactly what card issuers that offer cash rewards are doing – and with only mediocre results. Despite the popularity of cash-back rewards, a recent study from Cardhub.com estimated that Americans left roughly $57 billion dollars in credit card rewards on the table in 2014 and are projected to miss out on at least $60 billion in rewards in 2015.
Considering how easy these rewards are to earn and redeem, that’s a shame. In most cases, the only requirement to earn cash back is that you use your card to make a purchase. It’s as simple as that. And if you never want to pay interest (as you shouldn’t), you don’t have to either. All you need to do is pay your bill in full before it’s due and your rewards will be free.
Most rewards credit cards offer points based on a percentage of your everyday spending – usually somewhere between 1 and 5%. However, certain cards also offer a sign-up bonus to customers who spend a certain amount of money on the card within a time period of a few months. Since sign-up bonuses can be worth anywhere from $100 – $500, and you earn them in addition to regular rewards, it’s easy to see how using a cash rewards credit card can be a lucrative endeavor.
Featured Cash Back Credit Cards
Great For: Cash Rewards
Annual Fee: No Annual Fee
Credit Needed: Excellent/Good
- Earn cash back twice on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases.
- Balance Transfers do not earn cash back
- 0% Intro APR on Balance Transfers for 18 months. After that, the variable APR will be 13.24% - 23.24% based on your creditworthiness
- Click 'Apply Now' to see the applicable balance transfer fee and how making a balance transfer impacts interest on purchases.
- No categories to track, no caps on cash back, no annual fee*
Great For: Cash Back, Rewards, Low Interest, More
- American Express
- Bank of America
- Capital One
- US Bank
- and more...
The Blue Cash Preferred® Card from American Express is one of the best cash rewards credit cards on the market. You can earn cash back in the following amounts: 6% US supermarkets up to $6,000 per year in purchases, 3% US gas stations & select US dept stores, 1% other purchases. Terms and limitations apply. Get 100 Reward Dollars, redeemable for a $100 statement credit, after you make $1,000 in purchases with your new Card in the first three months. Cash-back is received in the form of Reward Dollars that can be redeemed as a statement credit. Plus, get one year of Amazon Prime after you sign up for a new membership with your Card and meet the spending requirement in the same time period. As an Amazon Prime member, you get unlimited Free Two-Day Shipping on millions of items. To top it off, this card features a 0% intro APR on purchases and balance transfers for 15 months, then a variable rate, currently 12.99% to 21.99%, based on your creditworthiness and other factors. There is a $75 annual fee. Terms and Restrictions Apply. Apply Now.
Blue Cash Everyday® Card from American Express – This card is the little brother to our top rated card; it features slightly lower cash rewards program, but there is no annual fee. The cash back program is as simple as it gets – you can earn 3% at US supermarkets, up to $6,000 per year in purchases, 2% at US gas stations & select US dept stores, 1% on other purchases. Terms and limitations apply. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit. Right now you can get 50 Reward Dollars, redeemable for a $50 statement credit, after you make $1,000 in purchases with your new Card in the first three months. Plus, get one year of Amazon Prime after you sign up for a new membership with your Card and meet the spending requirement in the same time period. As an Amazon Prime member, you get unlimited Free Two-Day Shipping on millions of items. This card also features a 0% intro APR on purchases and balance transfers for 15 months (making this one of the best balance transfer credit cards on the market), then a variable rate, currently 12.99% to 21.99%, based on your creditworthiness and other factors. Terms and Restrictions Apply. Apply Now.
TrueEarnings® Card from Costco and American Express – If you’re a member at Costco then there’s no reason not to own the TrueEarnings Card from Costco and American Express. Cardholders will earn 3% Cash back at US gas stations and on gasoline at Costco up to $4,000 per year in purchases, then 1%. Cardholders also earn 2% cash back at US restaurants; 2% cash back on eligible travel purchases, including at Costco; 1% cash back on other purchases, including at Costco. Terms and limitations apply; You will receive your cash back annually in the form of a reward coupon. There is no annual fee for Costco members. Terms and restrictions apply.
Different Types of Cards
It’s true that these offers can be highly profitable, but the big pay-off comes when you’re able to pick the optimal card for your needs and spending pattern. Although most cash rewards cards work the same way, several cards break the mold and offer unique perks and earning tiers. Here are a few of those unique cards, plus the most common types of cash rewards cards currently on the market:
Fixed Cash Rewards Cards – Some cards offer a fixed percentage of cash back on all of your purchases in every category – usually between 1 -2%. While these cards generally aren’t as lucrative over the long haul, some consumers prefer the simplicity of this earning strategy.
No Annual Fee Cards – No annual fee cards offer a ton of perks without charging an annual fee for use. This type of card usually works best for someone who is opposed to paying an annual fee or just wants to earn casual rewards on their everyday spending.
Rotating Rewards Cards – While some cards offer a set percentage of cash back on purchases, others offer more cash back on categories that rotate each quarter. Rotating rewards cards usually offer 1% cash-back on all purchases and up to 5% cash back on rotating “bonus categories.” Those categories change every quarter – and even from year to year.
Cards with Bonus Categories – While rotating rewards cards offer a higher bonus on categories that change each quarter, other cards offer bonus categories that don’t change. For example, some cards that fall under this umbrella might offer 1% cash back on everything, 2% cash back on dining and entertainment, and 3% cash back on travel. Some cards with bonus categories even let you select your own bonus category.
How to Select a Cash Rewards Credit Card
While any cash rewards credit card is better than nothing, choosing a card that is tailored to your needs will ultimately lead to more rewards. Here are some factors to consider as you narrow down your selection of cash rewards credit cards:
Consider your spending – If you spending tends to be high in areas like groceries or gas, it usually makes sense to choose a rewards card that offers more cash back in those categories. Look at the different cash rewards offers available and select the card with more earning potential where you spend the most.
Take annual fees into account – Paying an annual fee on a rewards card might make sense if you spend enough on your card each year. However, an annual fee can quickly eat away at your earnings if you don’t use your card very often. When weighing the pros and cons of choosing a card with an annual fee, always run the numbers. Only choose a card with an annual fee when you plan on earning more than enough rewards to make up for it.
Don’t forget the sign-up bonus – A card with a healthy sign-up bonus can help you earn a higher percentage of rewards over the course of a year – even when compared to a card that offers a higher percentage of cash back, but no bonus. Always do the math and make sure the sign-up bonus is a perk, not a hindrance.
Explore the rewards program – While some cash rewards cards offer several ways to redeem your points, others only allow you to redeem them for a statement credit. If you want a rewards card that lets you redeem your points for gift cards, travel rewards, merchandise, or airline miles make sure you know that ahead of time.
Know your limits – In addition to knowing the limit you can spend on your card, you also need to be aware of any limits on cash-back offers as well. These limits on “bonus category” earning can seriously diminish the rate of rewards you earn with your card. With most rotating rewards cards, for example, you only earn 5% cash-back on the first $1,500 you spend in the bonus category each quarter. That’s only $75.
Know your credit score – Almost all of the best rewards credit cards require excellent credit. If your credit score is mediocre, it might be wise to spend some time rebuilding your credit – and your score – before pursuing a card that offers rewards.
The decision to use a rewards credit card to earn cash-back on your everyday spending is almost a no-brainer. But, finding the best one? Now, that’s the hard part.
Just remember, the best cash rewards cards will provide you with a steady stream of fun rewards you can use for almost anything – and with minimal effort.
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