Is a Cash Back Credit Card Worth It?

Depending on which credit card you choose, you could earn hundreds of dollars in cashback rewards.
Last updated Jul 15, 2020 | By Kat Tretina
Smiling man using credit card

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You likely use a credit card to pay your bills and shop because it’s convenient; there’s no need to write checks or carry cash. Instead, you just swipe or tap your credit card to complete a transaction.

But with cashback credit cards, there’s an added bonus: You can earn money just for doing your regular shopping. Over the course of a year, the amount of cash back you earn can be substantial.

If you’re wondering “is a cashback credit card worth it?”, here’s what you need to know to maximize your rewards.

How do cashback credit cards work?

A cashback credit card is one of the most popular types of credit cards available. With a cashback card, you earn a percentage of your purchase’s price every time you use your card to pay for a transaction.

At the end of your statement billing period, the card issuer credits you the cash back you earned during the previous month. You can redeem your cash back for electronic deposits to your bank account, statement credits, and even gift cards.

Let’s look at an example to see how it works. According to the Bureau of Labor Statistics, the average household spends $4,464 on food consumed at home. With the American Express Blue Cash Preferred Card, you can earn 6% cash back at U.S. supermarkets (on up to $6,000 per year) and select U.S. streaming services .

So, if you used your Blue Cash Preferred to pay for $4,464 worth of groceries over the course of a year, you’d earn $267.84 in total cashback rewards. That’s free money back in your wallet!

Pros and cons of cashback credit cards

Is a cashback credit card worth it? Here are six pros and cons to consider:

Pros

  • You can earn cash back on your routine expenses: If you use a cashback card with no annual fee and pay off your statement balance in full each month, you’ll earn free money on essentials like gas, groceries, and even your utility bills.
  • You could qualify for valuable sign-up bonuses: Many cashback cards offer lucrative sign-up bonuses. For example, Discover will match all of the cash back you earn during your first year as a cardmember with the Discover it Cash Back Card. There’s no limit to how much the company will match; if you earn $500 in cash back, Discover will double it to $1,000.
  • Some offer shopping benefits: When you use your cashback card to pay for your purchases, you may also get access to shopping protections, such as extended warranties and purchase protection.

Cons

  • You’ll likely need good-to-excellent credit to qualify for the best offers: The cashback cards with the highest rates of return typically require you to have good-to-excellent credit to qualify.
  • They may have a high APR: If you carry a balance, be aware that cashback cards can have higher-than-average APRs (annual percentage rates). To avoid costly interest fees, pay off your statement balance in full each month.
  • Cashback cards may have limited benefits: Cashback cards tend to offer few travel benefits. If you travel often, you may be better off with a travel rewards card so you can take advantage of perks like car rental insurance, airport lounge access, and travel accident insurance.

What are the different types of cashback cards?

There are several different types of cashback cards available, including the following:

Flat-rate cards

With a flat-rate card, you earn a fixed cashback rate on every purchase you make. For example, you’ll earn 1.5% cash back with the QuicksilverOne Cash Rewards Card.

Rotating-category cards

Rotating-category cards offer higher cashback rates on spending categories that change each quarter. Spending categories frequently include gas stations, restaurants, grocery stores, and home improvement stores. For example, the Chase Freedom Card allows you to earn 5% cash back in rotating bonus categories (up to $1,500 in combined purchases per quarter) and 1% cash back on all other purchases.

Bonus-category cards

Bonus-category cards offer a higher rate of return in certain spending categories year-round and a lower flat rate on your other purchases. For example, the Bank of America Cash Rewards Card allows you to earn 3% cash back on the category of your choice; 2% cash back at grocery stores and wholesale clubs (on the first $2,500 spent each quarter in the 2% and 3% categories combined); and 1% cash back on all other purchases.

5 cashback cards — compared

If you’re looking for a cashback credit card that works for your lifestyle, consider these five popular options:

Card name Welcome offer Best for Reward rate Annual fee
Chase Freedom Unlimited Earn a $200 cash back bonus after spending $500 in the first 3 months People who want to earn a flat cashback rate with no annual fee Unlimited 1.5% cash back on all purchases $0
Chase Freedom $200 cash back bonus after spending $500 in the first 3 months Cardholders who can remember to track and activate rotating spending categories 5% cash back in rotating bonus categories (up to $1,500 in combined purchases per quarter) and 1% cash back on all other purchases $0
Blue Cash Preferred By American Express Earn $150 cash back after spending $1,000 in the first 3 months Cardholders who spend a significant amount of money at supermarkets and gas stations 3% cash back at U.S. supermarkets up to $6,000 a year, 2% cash back at U.S. gas stations and select U.S. department stores, 1% cash back on other purchases $0
Capital One SavorOne Cash Rewards Earn $300 cash bonus after spending $3,000 in the first 3 months People who spend a significant amount of money at restaurants 8% cash back on tickets purchased through Vivid Seats (through January 2022), 4% unlimited cash back on dining and entertainment, 2% at grocery stores (excludes superstores like Walmart and Target), and 1% cash back on all other purchases $95
Capital One Quicksilver Cash Rewards Earn a $150 cash back bonus after spending $500 in the first 3 months People looking for a flat-rate card with no annual fee 1.5% cash back rewards on every purchase, every day $0

Common questions about cashback credit cards

Still have questions? Here are answers to some of the most common questions about cashback cards.

Which credit card gives the most cash back?

When it comes to the credit cards that offer the most cash back, you have to consider both flat-rate cards and bonus-category cards.

For flat-rate cards, you can typically expect rates of 1.5% cash back. The highest cashback rate we’ve seen is the Alliant Cashback Visa Signature Credit Card. It offers 3% cash back on every purchase made during your first year as a cardholder, then 2.5% cash back after that.

In terms of bonus-category cards, the Blue Cash Preferred Card from American Express offers the highest cashback rate. You’ll earn up to 6% cash back.

Why do credit cards offer cash back?

Credit card issuers offer cash back to encourage you to sign up for a new credit card. Because cashback cards tend to have higher-than-average APRs, they’re hoping you’ll use your card to rack up a balance and have to pay costly interest charges on it.

However, if you pay off your statement balance in full each month, you avoid those interest fees. In that case, any cash back you earn is free money.

Which is better: Points or cash back?

Which is better depends on your habits.

Are you a frequent traveler? Then you may be better off with a card that offers points or miles instead of cashback rewards. If you redeem your points for travel arrangements or transfer them to a loyalty program, your points could be worth more than cash back alone.

However, points are only worth it if you don’t mind shopping around and comparing redemption values. If you want a simpler rewards card, cash back is a better choice.

Is a cashback credit card worth it?

If you can stay disciplined and use a credit card only for necessary purchases, as well as religiously pay off your statement in full each month, a cashback credit card is definitely worth it. You’ll earn cash back for your routine expenses, helping you stretch your budget further.

By contrast, if your cashback credit card will encourage you to spend more than you should and you can’t afford to pay off your balances, it’s a good idea to skip applying for one.

Is there a limit to how much cash back you can earn?

While some cards have limits on how much cash back you earn, others don’t. When shopping for a card, make sure you check each option’s cashback limits and spending caps. There are many cards that offer unlimited cash back, helping you get the most value for your money.

The bottom line

Is a cashback credit card worth it? As long as you can use your card wisely, absolutely! Using a cashback credit card on your everyday purchases can help you earn valuable rewards and put more money back in your bank account.

Looking for a new card? Here are the best cashback credit cards of 2020.

Unlimited Cash Back

Benefits

  • $200 sign-up bonus
  • 5% cash back grocery store purchases for the first year (up to $12k)
  • 1.5% unlimited cash back on all other purchases
  • No annual fee
  • 0% intro APR on purchases