When you look at the best cash back credit cards on the market, you’ll notice that they fall into two categories: flat rate cash back cards and bonus category cash back cards.
Flat rate cash back cards give you the same cash back rewards for every purchase. These rewards aren’t the highest rewards available, but they’re consistent — a good flat rate cash back card might offer 2% cash back, for example, or $20 cash back for every $1,000 you spend.
Bonus category cash back cards give you high rewards if you spend in a specific category — and low rewards for everything else. A bonus category cash back card might give you 5% cash back if you spend within the designated category, but only 1% cash back if you don’t.
As you can probably guess, there are advantages and disadvantages to both flat rate cash back cards and bonus category cash back cards. Which credit card should you choose? Here’s what you need to know:
Flat Rate Cash Back Cards
Pro: You earn the same cash back rewards for every purchase.
Whether you’re buying clothes, paying your utility bill, or filling your car up with gas, a flat rate cash back card will give you the same cash back rewards for every purchase.
Pro: You don’t have to keep track of which credit card to use for which purchase.
Remembering which card rewards grocery spending and which card rewards gas spending can be difficult — and if you have a bonus category cash back card that rotates categories every quarter, trying to remember which credit card to use for which purchase can get even more complex.
With a flat rate cash back card, you don’t have to ask yourself which card to use for which purchases — or blame yourself if you accidentally use the wrong card. You’ll have the peace of mind of knowing that you’re getting the same rewards for everything you buy.
Con: You could be missing out on higher value rewards.
Getting a flat cash back reward for every purchase is great, but since many credit cards offer bigger cash back rewards for certain categories of purchases, you could be leaving cash on the table. If you buy your lunch every day, for example, you could earn more cash back on your purchases by applying for a bonus category cash back card that rewards restaurant spending.
Bonus Category Cash Back Cards
Pro: You can earn higher levels of cash back on specific purchases.
A bonus category cash back credit card will give you higher cash back rewards than any flat rate cash back card — as long as you spend within the bonus category. If you put a lot of miles on your car, getting a bonus category cash back card that rewards gas purchases might be a smart move.
Pro: You can maximize your rewards by using different bonus category cards for different types of purchases.
Want bonus category cash back rewards on groceries, restaurants, and Amazon.com? Get credit cards that reward each category. Having multiple bonus category cash back cards in your wallet can help you maximize your rewards — and, if you use those credit cards responsibly and keep your balances low, can also boost your credit score.
Con: Your rewards for purchases that aren’t in the bonus category are usually very low.
Bonus category cash back cards give you big rewards if you spend in the bonus category — and very few rewards on all other spending. You’ll probably earn only 1% cash back on purchases outside of your bonus category, which is less than you’d earn with most flat rate cash back credit cards.
Con: You have to pay attention to which credit card you use for which purchases.
There’s nothing like splurging at an expensive restaurant and then realizing you paid for it with a card that rewards groceries. If you have multiple bonus cash back rewards cards, you have to keep track of which card you’re using to make sure you’re getting all of the bonus rewards you deserve.
Con: Bonus category cash back cards often have limits on how much you can spend in each category.
Pay attention to the fine print. Most bonus category cash back cards have a limit on how much you can spend in your bonus category before you stop getting the bonus rewards. You might be limited to $5,000 in purchases per quarter, for example, before your bonus cash back rewards drop from 6% to 1%.
Con: If your credit cards have rotating bonus categories, there might be periods when your highest bonus is for something you don’t regularly purchase.
Some bonus category cash back cards have rotating bonus categories. You might earn bonuses on grocery spending for three months, and then your bonus category might switch to home improvement stores. If you don’t spend a lot of money on home improvement, you won’t be able to take advantage of your bonus cashback rewards — and you might have to wait a few rotations to get bonus rewards for something you purchase more often.
Con: Rotating bonus categories often have to be activated.
Credit cards with rotating bonus categories often require you to “activate” your bonuses. If you don’t activate your rotating bonus categories, you won’t earn those bonus rewards — so you’ll have to remember to log into your account every quarter and click a few buttons. If you forget, or put it off, you could miss out on some big rewards!
Which Credit Card Should You Choose?
The great thing about flat rate cash back cards and bonus category cash back cards is that you aren’t limited to just one or the other. You can get a few bonus category cards that reward the categories in which you frequently spend, and a flat rate cash back card for all other spending. That way, you can maximize your cash back rewards — even when you’re making purchases that don’t fall into one of your bonus rewards categories.
If that sounds like too much effort, you could choose either a good flat rate cash back card or a good bonus category card and use it for the majority of your spending. You’ll still be getting rewarded for your purchases, even if you aren’t maximizing the amount of cash you earn on every single transaction.
If you want additional guidance on how to choose your next credit card, here are seven questions to ask yourself before filling out that credit card application. You can also check our all of our credit card comparisons.