How to choose a cash back credit card

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Navigating the often confusing world of credit card rewards can be frustrating, particularly if you’re a credit newbie trying to figure out which award flight or hotel stay will give you the biggest bang for your buck (or, more accurately, your miles or points). A cash back credit card could be the answer to your problems, as it can help put money in your pocket without the need for calculators or spreadsheets.

Since there are so many options at your disposal, here’s how to choose a cash back card that meets you where you’re at.

The basics: What is a cash back credit card?

Cash back credit cards are a type of rewards credit card that refunds you a certain percentage of every eligible purchase you make. For example, spending $500 on a card that has a 1 percent cash back rate would earn you $5. Though that may not sound like much, rewards earned with one of the best cash back credit cards can add up over time, especially if you swipe it consistently and pay your balance in full each month (which will prevent interest charges from eating into your returns).

Some cardholders might find that cash back cards offer a number of advantages over other rewards credit cards. For instance, points and miles vary in value depending on how they are used, but cash back is generally worth the same amount when traded in for a statement credit, direct deposit or check. Some credit cards let you redeem your cash back for stuff such as gift cards or merchandise, but those will typically be your least lucrative options. Cash back is also more flexible than points or miles, as you can choose to directly deposit your rewards into your bank account and then spend it on anything you wish.

What types of cash back cards are there?

Speaking of flexibility, cash back cards can have a variety of earnings schemes, giving you the opportunity to really maximize your rewards. You have three different types of cash back programs from which to choose: flat-rate, fixed bonus categories and rotating bonus categories.

The latter two usually have higher rates on certain types of spending and 1 percent on all other purchases. Which credit card gets you the most cash back is largely based on your everyday spending habits.

Here’s how each form of cash back works:

Flat-rate

Flat-rate cash back cards earn you a fixed percentage (usually between 1 percent and 2.5 percent) of all eligible purchases, whether you’re booking long-awaited travel or spending a ton on groceries for a big family. This simple rewards structure makes it easy to get cash back on your everyday expenses and a card with a flat cash back rate on the higher end of that percentage range can be very lucrative if you qualify. The Alliant Cashback Visa® Signature Credit Card, for example, has one of the highest cash back credit card rates you’ll find, with a flat 2.5 percent on up to $10,000 in qualifying spending each billing cycle, with maximum cash back earnings of $250 during the same period. That said, only Alliant Credit Union members are eligible to apply.

While flat-rate cards can be a good choice for those who prefer a hands-off approach to earning rewards, you may be able to boost your overall returns with a card that provides cash back in a handful of fixed or rotating bonus categories.

Fixed bonus categories

The Blue Cash Everyday® Card from American Express is an example of a cash back credit card that offers bigger rewards in certain purchase categories, such as restaurants. Amex Blue Cash Everyday cardholders earn 3 percent cash back at U.S. supermarkets (on up to $6,000 in purchases per year, then 1 percent), 2 percent cash back at U.S. gas stations and select U.S. department stores (including Macy’s and JCPenney) and a flat 1 percent on everything else.

Pairing one or more tiered cash back cards that reward your most frequent purchases with a high-earning flat-rate card is one of the best ways to maximize your cash back earnings.

Rotating bonus categories

If you’ve ever wondered which credit card gives you the most cash back rewards, the answer is likely a rotating bonus category card. These cards offer higher cash back percentages (typically 5 percent) in purchase categories that change every quarter. Common bonus categories include everything from home improvement stores and streaming services to drugstores and wholesale clubs.

Card issuers often impose spending caps on this type of cash back. The Chase Freedom Flex℠, for instance, earns 5 percent cash back on up to $1,500 in activated bonus-category purchases each quarter. After that, the cash back rate reverts to 1 percent. Many cards also require you to opt-in or activate the bonus categories to get the higher cash back rate; you may want to schedule calendar reminders so that you don’t forget.

What to consider when choosing a cash back credit card

While cash back is probably the least complicated rewards currency there is, your choices within this credit card category can vary widely in terms of rewards systems and other features. By figuring out what to look for, you can better understand how to choose a cash back credit card that meets your needs.

Here’s what to consider before adding a cash back credit card to your rotation:

Cash back rate/rewards structure

First things first, you’ll want to take note of the card’s cash back rate and overall rewards structure. Pay attention to the small details like if the cash back rewards are flat-rate, if the rotating bonuses require quarterly activation (they usually do) and if there is a spending cap on how many rewards you can earn.

Annual fee

Many of the strongest cash back credit cards have no annual fee, but some issuers will charge you for the privilege of holding their card in your wallet. If the card you’re eyeing has one, crunch the numbers to see how much you’d have to shell out to recoup that out-of-pocket expense in rewards.

For example, the Blue Cash Preferred® Card from American Express carries a $95 annual fee after the first year ($0 introductory annual fee for the first year) and features a bonus 6 percent cash back rate on  U.S. supermarket purchases (up to $6,000 per year in purchases, then 1 percent). If you max out that category, which works out to just $500 a month on groceries, you’ll get $360 in cash back, more than offsetting the fee. And that’s not even considering the 3 percent at U.S. gas stations and transit and 1 percent on everything else.

Redemption options

Credit card rewards are only worth something when you actually cash them in—a Bankrate survey found that 31 percent of cardholders didn’t redeem any rewards in 2020. To avoid leaving money on the table, evaluate the card with an eye toward usability. Keep an eye out for issues like minimum redemption requirements and cash back expiration policies when evaluating a cash back credit card.

Additional benefits

Depending on your goals, other features to look for in a potential cash back credit card may include welcome offers, intro APRs on purchases or balance transfers (plus the related fees), and its ongoing interest rate, as well as insurance or purchase protections such as extended warranty or trip cancellation/interruption coverage. Consider whether you’d actually take advantage of those perks and how much they might be worth to you.

Credit score requirements

Check your credit score for free to get a better gauge of your approval odds and keep in mind that new inquiries have the potential to lower your scores by a few points. While the drop is temporary, there’s no use in incurring a hard credit pull if you’re unlikely to get a favorable response to your application.

Spending habits

Think about your current spending habits, as well as any big purchases you have planned in the near future, to see if they line up with the card’s cash back categories. If you plan to use more than one credit card so you can take advantage of different rewards, decide if you’re willing to keep track of which credit card to use at which store in order to get the maximum cash back rate on every purchase.

Cash back credit cards to consider in 2021

These are some of the most rewarding cash back credit card offers currently available from Bankrate’s partners.

Citi® Double Cash Card: Best for simple, flat-rate rewards

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

A perennial favorite, the Citi Double Cash Card has one of the highest overall rates of return you can find on a cash back credit card with no annual fee. In addition to a 0 percent introductory APR on balance transfers for 18 months (13.99 percent to 23.99 percent variable APR thereafter) this card has plenty of redemption options such as PayPal Pay with Rewards and Shop with Points at Amazon.com. The Citi Double Cash is perfect for those who don’t want to do anything extra to maximize their rewards earnings.

Discover it® Cash Back: Best for rotating cash back categories

  • Welcome offer: Automatic Cashback Match for the first year
  • Rewards rate: 5 percent cash back on activated bonus-category purchases (on up to $1,500 in quarterly spending, then 1 percent); 1 percent on all other purchases
  • Annual fee: $0

The Discover it® Cash Back distinguishes itself among cash back cards thanks to rotating bonus categories and a generous sign-up offer that matches all of the rewards you earn in your first year as a cardholder. You’ll also score an introductory 0 percent APR offer on both balance transfers and purchases for 14 months (11.99 percent to 22.99 percent variable APR thereafter), making this a great choice if you’re planning to make any large purchases soon. If that spending qualifies for bonus rewards based on Discover’s rotating-category calendar, you’ll reap even more benefits.

Blue Cash Preferred® Card from American Express: Best for groceries

  • Welcome offer: Earn 20 percent back on Amazon.com purchases within the first six months of card membership, up to $200 back. Plus, earn $150 back after you spend $3,000 in purchases on the card within the first six months of card membership. You will receive cash back in the form of statement credits.
  • Rewards rate: 6 percent cash back on U.S. supermarket purchases (up to $6,000 per year, then 1 percent) and on select U.S. streaming subscriptions; 3 cash back percent on U.S. gas station purchases and transit, including taxis, ride-shares, parking, tolls, trains, buses and more; 1 percent on all other purchases
  • Annual fee: $95 ($0 introductory annual fee for the first year)

With tiered rewards for different types of spending—including a whopping 6 percent back at U.S. supermarkets (on up to $6,000 in spending per year, then 1 percent)—the Blue Cash Preferred Card from American Express offers multiple ways to accumulate cash back through your regular purchases (plus bonus rewards when you shop with Amex Offers). The Blue Cash Preferred, which carries a $95 annual fee after the first year, also comes with a free ShopRunner membership (enrollment required) and no interest on purchases for your first 12 months as a cardholder (13.99 percent to 23.99 percent variable APR thereafter).

Amazon Prime Rewards Visa Signature Card: Best for online shopping

  • Welcome offer: $150 Amazon gift card upon approval
  • Rewards rate: 5 percent cash back (tracked as points) at Amazon.com and Whole Foods Market; 2 percent back at restaurants, gas stations and drugstores; 1 percent on all other purchases
  • Annual fee: $0 ($119 Amazon Prime subscription required)

While the Amazon Prime Rewards Visa Signature Card doesn’t have a traditional annual fee, it does require an Amazon Prime membership ($119 per year). But with a strong 5 percent cash back rate at Amazon.com (and Whole Foods Market), as well as good rewards on gas station and drugstore spending, fans of online shopping should have little trouble earning it back. You’ll have a ton of ways to use your rewards, too, from statement credits and direct deposits to travel and gift cards, all with no minimum redemption requirements.

Chase Freedom Unlimited®: Best for an easy-to-earn sign-up bonus

  • Welcome offer: $200 cash bonus after you spend $500 on purchases within your first three months
  • Rewards rate: 5 percent cash back on Lyft purchases (through March 2022); 5 percent back on travel purchased through Chase Ultimate Rewards; 3 percent back on dining at restaurants, including eligible takeout and delivery; 3 percent back at drugstores; at least 1.5 percent back on other purchases
  • Annual fee: $0

The low spending threshold on the Chase Freedom Unlimited®’s welcome offer gives new cardholders the chance to earn a cool $200 pretty quickly after opening their account (after spending $500 on purchases within the first three months). But the potential to pair the Freedom Unlimited with another Chase card that earns Chase Ultimate Rewards is where things get really interesting, as you’ll then be able to use your cash back to book travel in the Chase Ultimate Rewards portal boosting its value by as much as 50 percent. There’s a range of additional perks for being a cardholder, including a free three-month DashPass subscription and Chase’s Pay Yourself Back tool.

The bottom line

The best cash back credit card for you is one you’ll be able to swipe regularly and that rewards you for the kind of spending you do the most. Regardless of the cash back card you choose, remember to pay your bill in full every month. With current APRs hovering around 16 percent, interest charges can erase the cash back you earn faster than you might imagine. Bankrate has plenty more cash back advice to help you pick the right card for you and make the most of your rewards.

The information about the Alliant Cashback Visa Signature Credit Card and the Amazon Prime Rewards Visa Signature Card has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.