Travel rewards credit cards can earn sizable returns if you’re willing to track point values and optimum redemption options. But sometimes, you just want to earn rewards in a way you can easily understand—dollars and cents. These cash-back credit cards keep things simple while still providing something extra: you’ll find options with low introductory APRs, no annual fee and other perks and benefits for added value.
What Is Cash Back on a Credit Card?
A cash-back credit card allows cardholders to earn a percentage back on eligible credit card spending. Typically, a cardholder can redeem rewards for money, issued as a statement credit, a check sent via mail or deposited directly into a qualifying bank account.
Many types of cards offer cash-back rewards, including ones earning the same flat rate on everything you buy, ones offering tiered rewards where certain areas of spending earn higher rewards than other categories and cards offering elevated rewards in specific categories that change quarterly.
How Do Cash-Back Credit Cards Work?
When you make an eligible purchase with a cash-back card, you’ll earn a percentage back on your spending. The exact amount depends on your particular card’s terms. Depending on your card, those earnings may accumulate in your card’s rewards account until you redeem them according to your issuer’s requirements. Some cards allow you to redeem your cash earnings in any amount at any time while others require a minimum balance to cash out.
The exact way you’ll receive your cash back also varies by card. Many cards provide cash-back earnings as a statement credit against your balance. Others may also offer cash back as a direct deposit or check.
Why Do Credit Cards Give Cash Back?
Card issuers offer cash-back rewards to incentivize use of a card. Though benefits including fraud protection, convenience and the ability to easily build and maintain good credit history are all a standard part of credit cards, earning cash back allows a consumer to take a cut of the transaction fees charged to vendors.
Transaction fees generate upward of $160 billion in revenue for banks, card issuers and card networks. These fees, though only typically 2% to 4% of a transaction amount, are split among the banks, card issuers, fintech companies and card networks involved in facilitating the purchase. With cash back, the customer is effectively cut in on the transaction fee.
How To Get Cash Back From a Credit Card
Typically, you’ll need to make a request to redeem cash back from your credit card after you’ve earned it by logging into your issuer’s app or website.
Once you’re in your card rewards account, select the amount of cash back you’d like to redeem. You may also have the option to select how to get your cash back. Typical options include as a statement credit, online deposit to a linked bank account or a check mailed to your address.
Types of Cash-Back Credit Cards
Generally, three kinds of cash-back credit cards rule the market: flat-rate, tiered-rate and rotating category credit cards.
Flat-Rate Credit Cards
Flat-rate cash-back credit cards earn the same percentage back on your eligible spending, typically anywhere from 1% to 2%, without any spending caps or category restrictions.
Tiered-Rate Credit Cards
Tiered-rewards cash-back cards earn different amounts back in different areas of spending. For example, some cards offer elevated rewards on dining or travel and a lower rate on other areas of spending.
Rotating Category Credit Cards
With rotating bonus category cards, you will earn higher-than-average rewards, typically about 5%, on specific areas of spending up to a quarterly maximum. After that, the rewards rate will drop to 1%. All other purchases on the card typically earn 1% cash back. Bonus categories typically change every three months.
How Much Cash Back Can You Get?
For the most part, the amount of cash back you can earn depends on how much you spend on your card and the rewards rate offered by the card. If you spend $5,000 per year on a card that earns 2% cash back on every purchase, you’ll earn $100 in cash back. Someone spending $25,000 on the same card would earn $500.
You can earn more cash back by using credit cards that offer higher earning rates on select categories. For example, if you spend $5,000 on groceries on a card that offers 6% on that category, you’ll earn $300 in cash back—a much larger reward for the same spending.
Common Cash-Back Bonus Categories
Many cash-back bonus categories focus on rewarding everyday spending in areas such as dining, groceries and gas. Some cards allow you to choose your own category or reward the category in which you spend the most. Others focus on more obscure categories. Common categories include:
- Dining
- Groceries
- Gas
- Travel (including flights, hotels and car rentals)
- Home improvement or home furnishings
- Utilities
Pros and Cons of Cash Back Credit Cards
Cash-back credit cards are an excellent way to earn rewards with every qualifying purchase on your credit card. There’s generally no learning curve required and you can claim your rewards with a few clicks in your online account—sometimes they’re even provided as a statement credit automatically. You can also easily calculate your earnings so you know precisely what to expect. But compared to the alternatives, it’s easy to see why some opt for cards with complex points and miles systems.
Finding the Best Cash-Back Credit Card for You
There are many great cash-back cards on the market, but the card that will earn you the greatest rewards depends on your spending habits. Before committing to a card, take a look at your budget and see where you spend most frequently. Then choose the card that best fits your lifestyle.
How To Make the Most of Your Cash-Back Credit Card
Leveraging multiple cash-back credit cards can mean earning elevated rewards across multiple bonus categories. For instance, you could earn a card rewarding gas purchases at 3% cash back and another earning 4% cash back on groceries and yet another earning 2% cash back on all other purchases. Where the first two cards likely only reward non-bonus category spending with 1% cash back, you can pair multiple cards to reward the major spending you do across all categories.
Bottom Line
Cash-back cards generally fall into one of three categories:
- Flat-rate rewards, such as 2% cash back on every purchase.
- Rotating-category rewards, such as 5% cash back on a selection of purchase categories that update every quarter, then 1% cash back on remaining purchases.
- Fixed-category rewards, such as 6% cash back on groceries, 3% cash back on gas or 2% cash back on restaurant purchases, then 1% cash back on remaining purchases.
The best type of cash-back card will vary depending on your purchase habits. If you have a large amount of purchases in a specific category such as groceries or gas, it makes sense to find a card that offers bonus cash for your frequent purchases. But if you want a “set it and forget it” card, a flat-rate cash-back card will likely make more sense for you. If you want to maximize your cash-back earnings, consider pairing a flat-rate card with one that offers a bump for where you shop most often.