Best Cash Back Credit Cards of 2016

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.

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MyBankTracker
Monday, 02 May 2016 4:20 AM
<p>Katia, the student version of the Discover it card has a less attractive balance transfer intro APR than the regular version.</p><p>Credit card issues tend to offer less-friendly terms to people who are considered riskier borrowers (e.g., students and people who low or bad credit). Therefore, with the student version of the Discover it card, the introductory APR is for a shorter term and you'll even notice that the regular APR range tends to be a little higher as well.</p>
MyBankTracker
Monday, 02 May 2016 4:17 AM
<p>Ana, all purchases at a U.S. supermarket will earn the higher cash back rate through the Blue Cash Preferred card. This applies even if you are buying toiletries and gift cards at the supermarket.</p>
MyBankTracker
Monday, 02 May 2016 4:16 AM
<p>Lucy, you're referring to a secured credit card when you have to put money down as a security deposit. Even with a secured credit card, the rules for applicants under 21 years old still apply. So, you'll still have to show enough income (the lender decides how much income is enough) or you'll need a co-signer.</p>
katiayoung
Saturday, 30 Apr 2016 12:32 PM
<p>What is the difference between the Discover It card on here, and the one on the best card for Students page? On there, it says the balance transfer is 10.99% for 6 months. Here it says 0% for 12 months.</p>
disqus_IYKrUxW1Xy
Thursday, 28 Apr 2016 7:15 PM
<p>I will definitely have to look into the American Express Blue Cash Preferred Card, as I'm in charge of grocery shopping for my own , and extended family, groceries. But sound like you'd have to look at the list of what gets the cash back and match it to the stores, correct?</p>
disqus_IK833n1mzI
Monday, 25 Apr 2016 7:48 PM
<p>As a college student, would I have to put some money down on a new credit card? I don't have any credit as of now, and I DO have a job. Would I need a co-signer?</p>
MyBankTracker
Friday, 22 Apr 2016 3:17 PM
<p>Citi Double Cash is definitely one of those cash back credit cards that people cannot complain about -- it's so simple and easy to understand. If you were to have only one credit card, Citi Double Cash is definitely a great choice.</p>
Friday, 22 Apr 2016 2:52 PM
<p>We use the Citi Double Cash Card, and are very, very happy with it. And it's wonderful to be able to not have a time limit/cap on when you get or use the cash back. We've been able to pay for vacations with this, as opposed to using those cards that give you travel points. This is the only credit card we have and use, other than our normal bank cards.</p>
MyBankTracker
Tuesday, 19 Apr 2016 2:42 PM
<p>This is the tough decision to make because the quarterly 5% cash back categories are not identical from year to year. If you were to stick with Chase Freedom, you'd have to make a note to take advantage of the 5% cash back categories. But, if you do, it can easily outweigh the overall 1.5% cash back.</p>
MyBankTracker
Tuesday, 19 Apr 2016 2:34 PM
<p>Chase Freedom Unlimited was launched in March 2016, likely to compete with the many general cash back credit cards out there offer more than 1% cash back on all purchases. Among them include Citi Double Cash, Capital One Quicksilver, Barclaycard Cash Forward and Fidelity Rewards Visa Signature.</p><p>Existing Chase Freedom credit card customers can convert their cards to the Chase Freedom Unlimited card. However, not everyone would like to convert their accounts because they may be getting more cash back from the quarterly 5% cash back categories.</p>
Monday, 18 Apr 2016 6:20 PM
<p>Was wondering the same thing. Also have the Freedom card, and am realizing now that the Chase Freedom Unlimited may actually be a better fit.</p><p>Anyone have find the 1.5% cash back is working better than the rotating 5%?</p>
Monday, 18 Apr 2016 2:32 AM
<p>Hi, I have a Chase freedom credit card, I heard they have now a new card Chase freedom unlimited card. Why is Chase bank not just upgrading to current credit card holders to this card?!</p>
MyBankTracker
Wednesday, 13 Apr 2016 9:45 PM
<p>Maria, do you currently have any debt? If not, you are in a great position to earn rewards or cash back on your baby expenses.</p><p>The Citi Double Cash card is a good general cash back credit card for those expenses, especially if you are shopping at many different places for baby purchases. If you're going to be shopping through Amazon, the Amazon Rewards Visa is a good fit. Or, if you expect many baby-related purchases to be made through supermarkets, American Express Blue Cash Preferred is definitely worth it. (TRICK: use the card to buy branded gift cards at supermarkets, such as Baby R Us.)</p>
MyBankTracker
Wednesday, 13 Apr 2016 9:28 PM
<p>Which Chase cash back credit card are you referring to? (They have two now.)</p><p>As for a good alternative to the Walmart credit card, take a look at the Citi Double Cash card, which gives an effective 2% cash back on everything that you buy.</p>
Wednesday, 13 Apr 2016 8:49 PM
<p>I have a baby coming soon and I'd like to manage my expenses better, which specific card is best for my situation?</p>
Sunday, 10 Apr 2016 3:49 PM
<p>I have walmart cash back credit card and thinking to get a card with more options, how does it compare to Chase cash back credit card?</p>