Flat-rate cash back cards vs. bonus category cash back cards

The best cash back credit cards offer a great way to earn rewards on your spending while also giving you maximum flexibility in your redemption options. But not all cash back credit cards are created equal, and you’ll find a great deal of variety in terms of welcome bonuses, card benefits and cash back rates.

Compared to other types of rewards cards that give you points or miles — which have varying values depending on how you redeem rewards — cash back cards make it easy to know exactly how much you’re getting in return every time you swipe your card.

But the best cash back card for your needs depends on your spending habits and what you expect to achieve with a cash back card. Below, we’ll go over the two main types of cash back cards: flat-rate cash back cards and bonus category cash back cards (including rotating bonus categories).

Flat-rate cash back credit cards

Flat-rate cash back cards offer a fixed percentage back from all your purchases, regardless of what you buy. Many flat-rate cards offer a cash back rate of 1 percent to 1.5 percent, but the best flat-rate cards will typically give you 2 percent back, which means you’ll receive $2 for every $100 you spend with your card.

Pros of flat-rate cash back cards

• Hassle-free approach to cash back. Flat-rate cash back credit cards are simple. You won’t have to prioritize these cards for certain purchases in order to activate a certain bonus because you’ll receive the same amount back on every purchase.
• Every purchase is eligible for cash back. Think about that purchase you made last weekend at the flea market, the new tires you bought or the amusement park trip your kids have been begging for all summer. You will get cash back on every purchase no matter what.
• No spending cap. Cards with bonus categories sometimes cap the rewards rate once you hit a certain spending threshold. No such threshold exists with flat-rate credit cards. Your rewards rate will always stay the same.

Cons of flat-rate cash back cards

• Reward rates typically don’t exceed 2 percent. Most flat-rate credit cards offer 1 percent to 1.5 percent cash back on every purchase, but it’s becoming more common to come across a card that offers 2 percent cash back.
• You’ll receive a fixed amount of cash back on every purchase. While this may be a pro for consumers who prefer flexible spending, this isn’t for people who are trying to maximize their rewards. Regardless of the item purchased, cardholders will receive the same percentage back.

Who should get a flat-rate card?

Flat-rate cards are simple. They’re basically a set-it-and-forget-it rewards system since you won’t need to think about which card to use for different purchases. They’re a great companion for those who want one go-to card for all purchases.

Flat-rate cash back cards are best suited for those who don’t want to keep track of different bonus categories or remember to activate bonus categories. These cards are also a good choice for people who mostly use their cards to cover spending not typically covered by bonus categories, like bills and utility payments.

Bonus category cash back credit cards

Bonus category cash back cards offer higher cash back rates in specific purchase categories — such as purchases made at restaurants, at gas stations or on travel — and a lower, flat rate (usually 1 percent back) on any other purchases.

Some bonus cash back cards have rotating cash back categories that change each quarter, while others offer the same high rate year-round. Some cards also allow you to choose your own bonus spending categories or automatically offer bonus cash back on your biggest eligible spending category for the month.

Bonus categories are usually capped, with the cash back rate dropping down to 1 percent after you hit the threshold. There are often activation requirements for rotating cards in order to earn the higher rate, too.

For instance, the Discover it® Cash Back and Chase Freedom Flex℠* require you to activate your new bonus categories each quarter in order to earn the boosted rate. For reference, both the Discover it® Cash Back and Chase Freedom Flex offer 5 percent cash back (activation required) on up to $1,500 in purchases in rotating categories each quarter, then 1 percent back.

Pros of bonus category cash back cards

• Earn a higher percentage of cash back. Bonus category cards offer a higher percentage of cash back in select categories. Sometimes, these categories change quarterly, oftentimes offering 5 percent back on eligible spending, which is significantly more than the average 1.5 percent offered by most flat-rate cards.
• Variety of cash back categories available. Bonus category cards allow you to earn a boosted rate in a variety of categories. With a bit of planning, you can really maximize your cash back across an array of categories.

Cons of bonus category cash back cards

• Bonus categories might have a spending cap. This varies from card to card, but once you hit a certain spending threshold, your rewards rate might drop to 1 percent.
• You’ll only earn a higher rewards rate in specified categories. If a card only offers 3 percent back on dining and gas station purchases, you’ll likely earn 1 percent back (typically) on all other types of purchases.
• Rotating bonus categories can be hard to maximize. Since rewards categories typically change quarterly with these cards, it can be difficult to maximize rewards without planning your purchases in advance.
• Quarterly activations are sometimes required. Rotating bonus category cards require you to activate your new bonus categories each quarter in order to earn the boosted rate. If you fail to activate the bonus, you will not get the increased rate.

Who should get a bonus category card?

Bonus (and rotating) category cash back cards offer much higher earning potential than regular flat-rate cards, but they’re not for everyone. To make the most of these cards, you’ll need to understand your regular spending habits. If you’re the type of person who likes to keep track of your spending and enjoys optimizing which card to use for different purchases, then these types of cards would be a good fit.

If you’re considering a card that has rotating bonus categories, be honest with yourself — Will it be a burden to remember to activate your categories each quarter? The activation process is usually as simple as tapping a button, but some people might prefer a more hands-off rewards structure.

The bottom line

Choosing which cash back card is best for you comes down to what you expect to get out of your card. If you don’t care about earning as much cash back as possible — perhaps because it sounds like a hassle juggling several credit cards — then a single flat-rate card is probably your best choice.

However, if you want to maximize your cash back, a single credit card isn’t going to cut it. In this case, you’ll want to choose one or more bonus category cash back cards for your major spending and combine them with a good flat-rate card for everything else.

*The information about the Chase Freedom Flex℠ has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.