The cash-back credit cards allow you to earn back a percentage of your eligible purchases. Every time you buy something, your “cash back” will accumulate in your account at the specified earnings rate. So if you have a cash-back card that earns 2% back on all purchases, and you spend $100 per week, you will earn $2 a week, or $8 a month.
But like any financial product, cash-back credit cards have their advantages and disadvantages. Discover some of them down below!
Pros and cons of having Cash-Back Credit Cards
May have a sign-up bonus
Many cash-back cards give you a lump sum of cash if you spend a certain amount on the card within the first three months of card opening. For instance, you might earn $150 for spending $500 in the first 90 days. Some even offer to match your cash-back earnings for the whole first year you have the card.
Simple rewards that are easy to understand
With cash-back rewards, pretty much every point you earn is worth a penny in cash. That’s a lot less complicated than many travel rewards credit cards.
Most cash-back credit cards don’t have annual fees
That means you don’t have to make up for a fee you shell out every year.
Limited redemption options
Most cards don’t let you redeem your points for free flights or hotel nights, which can be worth more than the one-penny-per-point value you get with cash back.
Higher APRs than non-rewards cards
Whenever you’re earning cash back or rewards, expect the interest rate to be slightly higher than what you’d find on a non-rewards card. Ideally, you will pay your bill in full each month and this con won’t be relevant.
Some cards cap your earnings
For example, you may earn 3% on grocery purchases, but only for the first $3,000 spent each year. For each dollar you spend over $3,000, you’ll only earn 1%.
Cash-back cards are a good fit for most consumers because they offer an easy way to earn rewards on your everyday purchases. If you’re deciding between a cash-back card and a travel rewards card, the answer depends on your spending habits and your goal. However, there’s no rule that says you can’t have both.
Even frequent travelers can use cash-back cards as a secondary piece of plastic. Use your travel card for travel purchases and your cash-back card for everything else.
In general, it’s standard for flat-rate cash-back cards to offer 1.5% to 2% back. Choosing a good cash-back card often comes down to knowing your personal spending habits and how much attention you want to devote to reward-earning structures. If you’re considering cash-back credit cards with an annual fee, calculate how much you could earn with that card annually.