Cash back credit cards are a great source of rewards. More often than not, they help you earn rewards for the spending you would have done anyway. And, unlike cards that earn points or miles, cash back is extremely flexible. You can use it for cash, gift cards, merchandise, even travel.
As if that weren't great enough, most cash back credit cards offer rewards that don't expire. That means you can earn without worrying about losing your redemption capability.
To get the most out of credit cards with the best cash back rewards, find the card that rewards your particular spending patterns. Here's a list of some of the best out there so you can quickly find one that's perfect for you:
Best Credit Cards With The Most Cash Back
Fidelity® Rewards Visa Signature® Card Offers the 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.
There are restrictions on how you can redeem your earnings with this card. They must be redeemed into a Fidelity account. That could include a brokerage account, IRA, 529 savings plan, or cash management account.
These are all accounts that could multiply your earnings since they are interest-bearing accounts. And with the cash management account, you get even more flexibility. You can use that account anyway you want, not just for investing or retirement. Another great perk to this cash back credit card is that there is no annual fee.
Best Cash Back Card for Shopping
Citi® Double Cash Feature
Most cash back credit cards offer a basic 1% cash back with bonus cash back on certain purchases. Not the Citi® Double Cash Card. This card stands out with an unlimited cash back program. It delivers up to 2% cash back on everything that you buy. This is 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.
A cash back credit card is most appropriate for you if you're able to pay off the 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
Some cash back cards limit how much cash back you can earn during a certain time or on a certain spending category. Some even cap the purchase categories after a certain percentage is hit. Not Citi® Double Cash.
The Citi® Double Cash card is easy-to-understand, clear, and straightforward.
Best Card for Grocery Shopping
Blue Cash Preferred® from American Express Feature
If you're in charge of stocking up the food at home with groceries, you'll definitely need a good credit card with cash back rewards. The Blue Cash Preferred® from American Express is an ideal choice. With this card, you can earn 6% cash back at supermarkets up to $6,000 per year (1% thereafter). You can also earn 3% cash back at gas stations and select department stores and 1% back on everything else. Although the card has a $75 annual fee, this fee can be offset if you spend $1,250 at supermarkets.
Best Card For Seasonal Spending
Key Discover it® Card Feature
The 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 cash back credit card offers 5% cash back on certain categories that change every quarter (starting in January). All other purchases earn a flat 1% cash back. These categories may not be identical year to year, but they’re generally been similar. Usually, the categories are season appropriate. (For example, 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. Before you choose the credit card you want to use every day, first consider the card's other features.
Picking the Right Cash Back Credit Card
Many of these credit cards offer 1% to 5% cash back on purchases. Why the variance? Because the percentage usually varies based on the type of purchase. Usually, cash back credit cards offer a base 1% cash back on all purchases. Then you can get a bonus (higher percentage) for specific spending categories.
If you can line up your natural spending with these bonus categories, you can greatly boost your rewards. If the idea of going after variable spending categories is unappealing to you, then a general cash back card may be best.
Different Ways to Redeem Cash Back
Depending on the card’s program, how you can redeem your cash back will vary. Some mail a check, some give you direct deposit, and some offer statement credits. Some even allow you to redeem for gift cards, merchandise, travel, charitable donations, and more.
If you get a credit card from a brokerage, you may be required to deposit your rewards into a brokerage account. Fortunately, they also provide checking accounts that can be used to redeem cash back.
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.
Getting the Most Cash Back on Certain Categories
There are ways to rack up more cash back on specific spending categories. For example, with groceries, you can earn a lot of cash back if you use the right credit card. With the Blue Cash Preferred® from American Express, the average household would get back about $240 per year.
Cash back credit cards are subject to merchant categorization of purchases. If a purchase category on your credit card doesn't match that of the merchant, then you won't get cash back on that purchase. And, in most cases, where you buy matters.
For example, a box of cereal at the supermarket may be categorized as “groceries.” But that same box of cereal at a drug store may be categorized as “drug store.” If your credit card offers cash back for groceries, buying that box of cereal at the drugstore won't get you cash back.
How to Find a Retailer's Spending Category
Knowing the categorization method merchants use will help you maximize your cash back. Each merchant (restaurant, retailer, website, etc.) has its own merchant category code (MCC). This code may vary based on the card network (American Express, Discover, MasterCard or Visa). Furthermore, each merchant location could have a different MCC.
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. If you go to your credit card statement, you can look at a purchase category for any 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 strict with their cash back rules in terms of the matching of merchant codes. You must agree to this policy when you sign up for the card. You won't be able to dispute your case if the merchant code doesn't match.
Get Cash Back Bonuses When You Sign Up
Introductory bonus cash back credit card 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.
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 credit cards with the best cash back rewards 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 credit cards 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.
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 travel credit cards) will not impose this fee. Frequent international travelers can save a lot if they use a card that doesn't charge this fee.
No Taxes on Cash Back Earnings
Under current U.S. taxation code, consumers do not have to report earnings on their cash back 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.
Cash Back Credit Cards
|Cash Back Credit Cards||Notable Feature||Who It's Best For|
|Fidelity Rewards||Earn 2% cash back on all spending.||People who want to earn cash back and plans to use save it towards retirement.|
|Citi Double Cash||Earn up to an effective 2% cash back on all spending.||People who want cash back, but don't have major spending in any specific categories.|
|American Express Blue Cash Preferred||Extremely high bonus cash back rates on groceries and department stores.||People who spend more than $132 per month on groceries and prefer cash back rewards.|
|Discover it®||Earn 5% cash back on certain categories that change every quarter.||People who want to earn high amounts of cash back on season-appropriate items.|