If you regularly use a credit card when you shop, it pays to optimize your spending by considering a card with a rewards program. When you decide to add a new card to your wallet, carefully review the various card offers available to you.
Many cards offer cash back rewards, while others accumulate points or miles whenever you make eligible purchases with the card. If you’re spending on certain things anyway, why not reap the benefits of those rewards?
With cash back credit cards, just as with any type of credit card, responsible use is key. Experts recommend using your card for planned purchases within your budget, and then paying back your balance in full each month. That way, you’ll enjoy cash back rewards while avoiding interest charges.
Cash back credit cards have their own unique features and earnings opportunities, so if you decide you want to earn cash back, there are a few things you need to know. Start with this overview on how cash rewards credit cards work, so you can select the best cash back card for you.
What is a cash back credit card?
A cash back credit card is a type of rewards credit card that allows the cardholder to earn a percentage of cash back when they make eligible purchases.
In most cases, the cash back balance will accumulate until you redeem it for a statement credit, request payment by check, or initiate a deposit into your bank account.
Cash back credit card vs rewards credit card
When comparing these cards, it’s important to know that a cash back credit card is actually a rewards credit card with a specific purpose. Cash back cards are also often the simplest ways for cardholders to earn credit card rewards.
Other types of rewards credit cards, like travel cards that award points and miles, may involve number-crunching to determine the best redemption value. But not with cash back. You’ll know right away that a certain purchase will get you a certain cash back percentage.
Types of cash back credit cards
There are different types of cash back credit cards. The simplest earns flat-rate cash back rewards. This means you’ll earn the same percentage of cash back on purchases you make. Flat-rate cash back cards typically offer between 1% and 2% back.
Some cash back credit cards offer a different rewards rate for different spending categories. The idea with these cards is that if you tend to do most of your spending on everyday purchases, you could earn bonus cash back above the standard rate. For example, you may see a card offering 3% cash back at grocery stores, 2% back at gas stations and for streaming services, and 1% on other qualifying purchases.
Other cash back credit cards have rotating categories. In one quarter, you may earn a bonus rate of 5% back at department store retailers, but in the next quarter, that bonus spending category shifts to supermarkets. Optimizing your spending on these cards takes a bit more planning. You’ll also want to pay attention to the terms. For example, the bonus category may require activation each quarter, which takes commitment on your part.
How to earn cash back
The beauty of a cash back credit card is that earning cash back is simple. All you have to do is use the card to make qualifying purchases. You will then accumulate your rewards according to your card’s terms.
Some cards accumulate your cash back throughout the month and add it to the cash back balance at the end of the billing cycle. Others will add the cash back to your cash back balance within two or three days of the purchase.
Even with varying terms and conditions, the automatic nature of earning cash back rewards make them a simple option for those interested in a rewards card.
What is an eligible purchase?
In most cases, an eligible purchase is basically merchandise you’d buy from a retailer or any services you may pay for. Cash advances and balance transfers are typically excluded from earning cash back because they’re not purchases. In addition, if you return any merchandise or a service provider refunds your money, any cash back earned on the original purchase will be deducted from your cash back balance.
Check for earning caps
Some cash back credit cards allow you to earn unlimited cash back rewards, while others are capped at a specific amount annually. With rotating category cards, for example, you may only be able to earn the bonus rate up to a certain amount per quarter.
How to redeem cash back
Redeeming cash back rewards is a fairly simple process that can vary depending on the card. Here are some of the potential options.
Automatic redemption: Many cash back credit cards allow you to set up automatic redemption. When you do, any cash back you earn will be applied as a statement credit in the next billing cycle.
Redemption when you reach a particular threshold: You may be able to set up your account, so you receive a statement credit when you reach a particular increment like $25 or $50.
Manual redemption:If you prefer to let your cash back accumulate before you redeem it, you can let it add up and then request a statement credit or check when you’re ready.
For most cards, you can either receive a statement credit that reduces your balance owed, request a paper check through the mail, or redeem your cash back for a bank direct deposit. For a deposit, you may need to have a checking or savings account with the credit card’s issuing bank.
In addition to statement credits or payments, some cash back credit cards let you redeem your rewards for select gift cards or put the cash towards online shopping purchases. Redemption options vary by card, so be sure to research the terms when considering which cash back credit card is best for you.
Does cash back expire?
Most credit card issuers have moved away from offering rewards that expire, but there could be circumstances that may nullify your rewards. Just like with other terms and conditions, it’s important to find out if your cash back has an expiration date.
For example, most cards will require you to keep your account active. If you don’t use the card at all for a long period of time, the bank may close your account and cancel out your cash back balance. All it takes to keep a card active is making one purchase. As long as you do that, your cash back should remain intact.
You need to also keep your account in good standing by paying your minimum payment on your credit card bill on time each month. If you default on your card by missing consecutive payments, you may lose your cash back.
Benefits of cash back cards
Cash back credit cards can have a number of other perks beyond earning rewards on your purchases. Here are some common benefits available on cash back cards.
Some cash back credit cards offer new cardholders the opportunity to earn a lump-sum cash reward via a sign-up or welcome bonus. Typically, you must meet a minimum spending requirement within the first few months of opening the card account. Once you meet that spending requirement, you’ll receive your cash back within a set number of billing cycles.
0% introductory APR
When you open some cards, your Annual Percentage Rate may be 0% on purchases for a limited time. This gives you some time to pay off a large purchase without additional interest charges. Once the intro period ends, the regular APR rate will apply. Sometimes, this introductory rate also applies to balance transfers. You may have to pay a balance transfer transaction fee, but then once your balance is moved over, you’ll have a period of time to pay down the debt at 0% APR.
No annual fee
Some cash back rewards cards don’t charge an annual fee. Earning rewards without a fee is a nice benefit. Some cards with annual fees may offer a lot of value, if you do a certain level of spending and optimize how you use the card.
Whether it’s an extended warranty, protection in case your purchase is lost or stolen, or cell phone protection, credit cards offer a variety of benefits for shoppers. Be sure to explore whether the cash back rewards cards you’re considering have offers like this.
How do I apply for a cash back card?
Applying for a cash back credit card works the same way as with any other card. Before you apply, first assess your creditworthiness to make sure you have a good chance of approval. You can do that by reviewing a free credit report or your credit score.
Once you’re ready to apply, you can start at the credit card issuer’s website and choose the cash back card of your choice. There should be an easy-to-find application link that leads to a form. On that form, you’ll answer basic questions about your personal contact information, income, and debt obligations.
If you receive a credit card offer in the mail, you can apply using the direct link or QR code on the offer letter. This will take you to a form that’s pre-populated with some of your information or you can simply fill out the paper application and mail it back.
If you want to apply for a cash back card offered by a bank, you may be able to do it in person. Just visit a local branch and meet with a teller who can help process your application.
Once the bank receives your application, your approval process will vary based on how you applied. You may be approved within a few minutes if you applied online or in person, or it may take up to a few business days if you sent your application by mail. You’ll receive your physical card by mail several days later.
After you activate your card, you’re now ready to start spending and earning cash back rewards.