Cash-Back Credit Cards

06 Jul 2020

What you should know about Cash-Back Credit Cards

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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!

Cash-Back Credit Cards
Are you aware of the pros and cons of having Cash-Back Credit Cards? (Picture: CNBC)

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

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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.

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