2 percent cash back is king: Why 1.5 percent isn’t good enough anymore

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Cash back rewards incentivize credit card users to put purchases on plastic more than they might have without them. Many cardholders figure if they’ll be spending money anyway, why not get cash back, discounts and perks in the process?

For a while, flat-rate cash back cards mainly offered between 1 and 1.5 percent back, on the high end. But now, more cards are offering 2 percent cash back, and it could be worth it to check out your options for a new everyday spending credit card. If you are in the market for a better cash back credit card, the good news is you’ve got plenty to choose from.

Why do cards give you cash back?

Before we jump into reasons why you should rethink your cash back credit card strategy, it might be useful to understand why you get cash back from your credit cards in the first place.

Whenever you use a credit card for a purchase, the merchant pays an interchange fee, typically between 1 and 3 percent of the transaction total. This interchange fee goes, in part, to the payment processor, such as Visa or Mastercard, and the credit card issuing bank. Part of that fee could also be returned to the cardholder as a “rebate” in the form of cash back.

As you can see, there’s money to be made when you swipe your card, and cash back on purchases can be an incentive for cardholders to pay with a credit card.

Rethinking your credit card cash back strategy

In light of many changes to how consumers are earning and spending rewards, card issuers are starting to up the ante when it comes to credit card rewards and benefits. As a result, rewards rates for flat-rate cash back cards, rotating cash back and tiered cash back cards are increasing.

With these options, it’s not uncommon to find rewards rates approaching higher limits. For example, the Capital One Savor Cash Rewards Credit Card offers 4 percent cash back on dining, 3 percent on grocery store spending and 1 percent on all other purchases.

There are other tiered cards that don’t have an annual fee but still offer high cash back rates, like the Chase Freedom Flex℠. It offers 5 percent back on grocery store purchases (on up to $12,000 spent in the first year, and not including Walmart and Target) and activated bonus category purchases each quarter (up to $1,500 in purchases, then 1 percent).

If you are looking to stick with a flat-rate cash back card, on the other hand, you’ll earn a lower rate but have consistency in cash back across all your spending, not just designated categories.

Flat-rate credit cards that offer 2 percent back

If you are considering a new cash back card, it’s helpful to go over some of your options. Here’s what you can expect in terms of credit cards offering at least 2 percent cash back on your purchases.

Citi® Double Cash Card: Best for responsible card use

Quick highlights:

  • Rewards rate: Unlimited 1 percent as you buy, plus another 1 percent when you pay for your purchases
  • Welcome offer: None
  • Annual fee: $0

If you are looking for a card that helps you cultivate healthy credit card use, the Citi Double Cash Card has a unique way for cardholders to do just that. For one, there’s an 18-month 0 percent introductory APR on balance transfers that could help you pay down any higher-interest debt you are carrying (13.99 percent to 23.99 percent variable APR thereafter).

The card also offers up to 2 percent unlimited cash back. You earn 1 percent cash back rewards on all purchases; then, you earn another 1 percent in cash back when you pay off your purchases. In this way, you can earn more back as you pay down your balance, not just when you spend on the card.

Wells Fargo Active Cash℠ Card: Best for extra perks

Quick highlights:

  • Rewards rate: Unlimited 2 percent cash rewards on purchases
  • Welcome offer: $200 bonus cash rewards after spending $1,000 in purchases within the first three months
  • Annual fee: $0

Not only can you get a consistent 2 percent cash rewards with this card, but there’s a generous welcome bonus, intro APR for purchases and balance transfers and extra card perks. The Active Cash Card carries cellphone protection up to $600 (subject to a $25 deductible), auto rental collision damage waiver coverage, zero liability for unauthorized purchases and roadside dispatch.

This card also offers Visa Signature benefits. These benefits include travel perks like Visa Signature Concierge Services and additional perks at Luxury Hotel Collection properties along with travel and emergency assistance services, extended warranty protection and online product registration for easier claim filing.

PayPal Cashback Mastercard®: Best for online shopping with PayPal

Quick highlights:

  • Rewards rate: 2 percent cash back on all purchases
  • Welcome offer: N/A
  • Annual fee: $0

The PayPal Cashback Mastercard is another card with a higher rate for cash back. For this card, you’ll need a PayPal account to earn and redeem cash back rewards. If you don’t mind this requirement, then you can enjoy using this card without an annual fee.

Bank of America® Unlimited Cash Rewards credit card: Best for Bank of America loyalists

Quick highlights:

  • Rewards rate: Unlimited 1.5 percent cash back on all purchases
  • Welcome offer: $200 online bonus cash rewards after spending $1,000 in purchases within the first 90 days
  • Annual fee: $0

Technically, this card offers only 1.5 percent back by default. However, if you are part of the Bank of America Preferred Rewards program, you’ll get a boosted amount of cash back—up to 2.62 percent back depending on your checking, savings and investment account balances. The card also offers an introductory 0 percent APR for 15 billing cycles on purchases and any balance transfers made in the first 60 days (A 3% fee (min. $10) applies).  13.99% – 23.99% variable APR on purchases and balance transfers.

Alliant Cashback Visa® Signature Credit Card: Best card for Alliant Credit Union members

Quick highlights:

  • Rewards rate: 2.5 percent cash back on all purchases (on up to $10,000 in qualifying purchases each billing cycle, with a maximum cash back earning per billing cycle of $250)
  • Welcome offer: N/A
  • Annual fee: $0 for the first year, then $99

The Alliant Cashback offers a whopping 2.5 percent cash back on all purchases, but it is limited to $10,000 in qualifying purchases each billing cycle. The maximum cash back you can earn per billing cycle is $250. After the first year, there’s a $99 annual fee, and you must be a member of the Alliant Credit Union to be eligible for this card.

Making the most of your flat-rate cash back card

While earning 1 or 2 percent back from your credit card may not seem like a lot, there are ways that you can still maximize your cash back. One strategy is to pair your card with another that offers bonus cash back on categories where you spend more.

For example, the Blue Cash Preferred® Card from American Express offers 6 percent cash back at U.S. supermarkets (up to $6,000 in purchases per year, then 1 percent), 6 percent back on select U.S. streaming subscriptions, 3 percent cash back at U.S. gas stations and 1 percent cash back on all other spending. Supermarkets and gas stations tend to be high spending categories for many consumers, so this card could help you rack up rewards.

Another option is to pair your flat-rate card with a card where you can “pool” points for boosted redemption values on your points, especially when redeeming points for travel-related spending. For instance, Chase, American Express and Citi have card combinations that work together for this approach. It’s a tad more advanced in terms of credit card strategy, but it’s worth considering when the time is right.

See related: Best credit card combinations to maximize rewards

The bottom line

If you’re using a flat-rate cash back credit card that offers less than 2 percent back, then you might be missing out. As more cards increase their cash back offerings, keep an eye out for the best credit cards offering more cash back than the industry average of 1 or 1.5 percent.

If you are ready to learn more about higher-earning cash back cards, check out Bankrate’s CardMatch tool, which can match you with credit card offers that are best for your credit profile. If you’re eligible for credit cards with higher rates of cash back, this tool can help you find them. Plus, you’ll get new credit card updates delivered to your inbox to help you choose the right credit cards for your needs.

All information about the PayPal Cashback Mastercard®, Capital One Savor Cash Rewards Credit Card and the Alliant Cashback Visa Signature Card has been collected independently by Bankrate and has not been reviewed or approved by the issuers.

Written by
Aja McClanahan
Personal Finance Writer
Aja McClanahan is an author, blogger and speaker on personal finance and entrepreneurship. Aja is the author of "How a Mother Should Talk About Money with Her Daughter."
Edited by
Senior Editor, Credit Card Product News