Cash back cards are defined as those that reward the card holder with cash value when used. Depending on the card and the redemption method, you may have to accumulate a minimum cash back balance -- often as little as $25 -- before you can redeem that cash back.
Unlike rewards points or miles, the advantage of earning cash back is the flexibility of the rewards -- as cash, you can spend it on anything you want as opposed to being limited to gift cards, merchandise or travel. With most credit cards, the cash rebate earnings do not expire, so you can save up as much as you wish without the worry that you need to redeem them.
1. Best Card for the Most Cash Back
Fidelity Rewards offers top cash back rate on all purchases
The Fidelity Rewards Visa Signature credit card provides the top cash back rate that can apply to any kind of purchase. You earn 2% cash back on everything that you buy. The earnings must be redeemed in a Fidelity account, including a brokerage account, IRA, 529 savings plan or Cash Management account. However, through the Cash Management account, the cash back can be redeemed to be used in any way that you want -- not just for investing or retirement savings. Like many other cash back credit cards, this card has no annual fee.
Picking the right cash back credit card
Many of these credit cards offer 1% to 5% cash back on purchases, where the actual cash back percentage may vary based on the type of purchase. Usually, cash back credit cards offer a base 1% cash back on all purchases while certain categories may earn much more cash back.
For consumers who show specific spending patterns, they may earn more cash back by taking advantage of higher cash back rates in certain spending categories. For others, a general cash back credit card tends to be more appropriate.
Different ways to redeem cash back
Depending on the card’s program, cash back can be redeemed as a paper check, statement credit or direct deposit into a bank account of your choice. Some credit cards even allow cash back earnings to be redeemed for gift cards, merchandise, travel, charitable donations and more.
Brokerage-issued credit cards may require that cash rewards to be deposited into an investment account. Fortunately, they also provide checking accounts that can be used to redeem cash back.
2. Best Card for Shopping
Key Citi Double Cash Card Feature
Most other cash back credit cards offer a basic 1% cash back on purchases with bonus cash back on certain purchases. The Citi Double Cash Card stands out with an unlimited cash back program that delivers up to 2% cash back on everything that you buy -- ideal for shoppers who don’t have any sort of recognizable spending pattern. It pays 1% cash back on all purchases while you earn another 1% cash back when you pay the credit card bill. The card has no annual fee.
Tip: With the Citi Double Cash Card, you shouldn’t redeem your cash rebates as statement credit because it reduces how much you’ll pay toward your credit card balance. In that case, your earnings would be less.A cash back credit card is most appropriate for you if you are able to pay off the entire credit card balance on a monthly basis. (The easiest way to do this is to set up automatic payments.) Otherwise, the interest charges that you pay will negate or exceed your earnings. If that was the case, you would be better off with a low-interest credit card.
No bonus or changing categories
Unlike some cash back credit cards which put a limit on how much cash back you can earn during a certain time period or on a particular spending category (e.g., travel, gas, groceries, etc.), the Citi Double card does not. Further, credit card companies will often cap purchase categories that offer 3% back or more. The Citi Double Cash Card doesn’t.
The card is simple, straightforward and uncomplicated.
3. Best Card for Grocery Shopping
Key American Express Feature
For the people who are in charge of stocking the refrigerator and pantries at home, the American Express Blue Cash Preferred Card allows you to earn 6% cash back at U.S. supermarkets up to $6,000 per year (1% thereafter), 3% cash back at U.S. gas stations and select U.S. department stores and 1% back on everything else. Although the card has a $75 annual fee, it is offset by spending $1,250 at supermarkets.
Getting the most cash back on groceries
The average American household spent nearly $4,000 on groceries in 2014, according to BLS data. As a major part of your budget, you stand to earn a large amount of cash back if you use the right credit card for groceries. With the American Express Blue Cash Preferred Card, the average household would get back about $240 per year.
Cash back credit cards are subject to merchant categorization of purchases. If the category for a purchase isn’t listed as the same for both the merchant and the credit card company, you will not earn cash back on that purchase.
For instance, a box of cereal at the supermarket may be categorized as “groceries” while the same box of cereal at a drug store may be categorized as “drug store.” If your credit card offers bonus cash back at “groceries,” buying that box of cereal at the drugstore will not generate the extra cash back.
How to find a retailer's spending category
Knowing the categorization method of a particular merchant will help you to maximize the cash back that you earn with that merchant. Each merchant (e.g., restaurant, retailer, website, etc.) has its own merchant category code (MCC), which can vary based on the card network -- American Express, Discover, MasterCard or Visa. Furthermore, each merchant location could have a different MCC.
Tip: With the Blue Cash Preferred Card, you can purchase gift cards to other retailers (e.g., Amazon, The Gap, Best Buy, etc.) at a supermarket and these gift cards will still be classified as “supermarket” purchases. Therefore, you’ll earn the 6% cash back on these gift cards. This is a creative example of how consumers can use their knowledge of MCCs to earn more cash back.The MCC of a merchant can be identified in one of 3 ways:
- Use the online Visa supplier locator tool. Visa is the only one of the major card networks that provides a searchable public directory of merchants and their MCCs. You can use it to look up your most-visited merchants.
- Review past credit card purchases. Through online banking or a monthly statement, you can look at a purchase category for any given credit card transaction. You may consider making a small purchase at a retailer as a test to find the MCC of that particular location.
- Ask an associate at the merchant location. A sales clerk or store manager can often provide the store’s MCC.
Credit card issuers are very strict with their cash back rules regarding the matching of merchant codes in order to calculate rewards. Consumers must agree to this policy when they apply for the card, so they cannot dispute their cases when consumers thought they missed out on a cash back opportunity.
Cash back bonuses when you sign up
Introductory bonus cash back offers are commonly used to attract new credit card customers. To earn the bonus, new customers have to spend a specified amount on new purchases during a certain period of time. It's another way to earn bonus
4. Best Card For Your Everyday Spending
Key Discover it Card Feature
Discover it card has the best combination of a great cash back program, no annual fee, low APR and card benefits. The card also has a number of other perks such as free FICO scores, no penalty APR and no foreign transaction fees.
Earn 5% cash back on seasonal purchases
Discover it’s program offers 5% cash back on certain categories that change every quarter (starting in January) while all other purchases earn a flat 1% cash back. These categories may not be exactly identical from year to year, but they’ve generally been similar. Usually, the categories are season appropriate (e.g., earn 5% cash back on gas during the summer months or 5% cash back on online shopping during the holiday season).
“Discover it” is one of a handful of credit cards that runs a program with this cash back format. However, credit cards can be more useful than just providing a way to earn rewards on your spending. To be a credit card you can carry around all the time and use everyday, you must consider the card’s other features.
Convenient perks such as free credit scores and no foreign transaction fees
In 2014, banks started to give out free FICO credit scores to their credit card customers. These are the credit scores that are often used by lenders to measure your creditworthiness. Normally, a FICO credit score costs roughly $20 each. Discover it, among some other credit cards, offer it for free on a monthly basis.
Most credit cards apply the penalty APR when a credit card customer doesn’t pay the bill on time. It overrides whatever existing interest rate may be on the card. Typically, this penalty APR is 29.99%, which is very high for a credit card. Only a few credit cards will waive this penalty APR.
A foreign transaction fee is charged whenever you use your credit card to pay for a purchase outside of the U.S. Most credit cards charge a 3% fee for these foreign transactions, but some credit cards -- especially those that are travel-related -- will not impose this fee. Frequent international traveler can save plenty of money if they tend to use their credit cards abroad.
No taxes on cash back earnings
Under current U.S. taxation code, consumers do not have to report cash back earnings on their credit cards. According to IRS Publication 550, taxpayers are only required to report account-opening bonuses if these bonuses involved deposit accounts at a savings institution.
How to Get the Most Out Of Your Cash Back Rewards
Credit card rewards can be a huge perk for your finances, but go for a good cash back card and it’s a win-win all around. The right piece of plastic will put the most green in your wallet, simply from you being a frequent and responsible borrower.
But how can you tell if you’re getting the most out of your rewards? Here are a few ways you can maximize your rewards and get more cash in hand.
Consider Investing Your Rewards
Most cash back cards reward users an average 1-5% on their purchases. While it’s nice to pocket that cash, why not use the power of compound interest to increase your earnings?
One basic option is to open a high yield savings account or a short-term CD, both of which offer more competitive APYs than a standard deposit product. You can even use the cash you get back to jumpstart more critical investments such as an IRA or HSA (bolstering your retirement and healthcare savings).
Make Cash Back = A Zero Card Balance
If you keep a rolling balance on a cash back credit card, you’re going to lose any money you earn in rewards (and then some) to high interest rates.
Like any credit card, don’t spend more than you can afford to pay back by the end of your billing cycle. And if you keep your spending manageable this way, you may even be able to use your rewards to help pay down your monthly balance. Who knows? There may be some months where your rewards foot the entire bill.
Choose Your Cash Back Card Wisely
Not all rewards cards are exactly alike. It’s best to choose the one that best fits your lifestyle and rewards you for the things you already do.
For instance, some cash back rewards cards are perfect for everyday spending and may even give you a boost during the holiday shopping season. However, if you’re an avid traveler, a miles card may be the better choice for you, since the points may prove more valuable in the end.
Don’t Let Your Cash Rewards Expire
Sometimes, we’re so busy racking up rewards that we assume they’ll be there to redeem when we need them. That’s not always the case.
Your best bet when vetting the best cash back card is to read the terms and fine print to avoid being hit with surprise expiration dates. Go in asking these questions: When do your rewards expire? Do they expire at all? Are there any spending limitations?
If you already have a card with a rewards expiration date, you don’t necessarily need to give it up if it works for you in every other way. Rather, make a habit of cashing out your rewards quarterly or annually (even if you don’t need them yet) so you don’t miss out on a dime of your rewards.