What is a Cash Back Credit Card? (And Why Your Wallet Needs One)

Feel like you’re spending too much? Continue leaving money on the table, or start saving on every purchase.
Last updated May 18, 2020 | By Matt Miczulski
Cash Back Credit Cards

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You don’t have to be a travel-rewards aficionado to benefit from using a rewards credit card for your day-to-day spending. Your purchases, big or small, all have earning potential. Everything you’re already spending money on — be it gas, groceries, restaurants, you name it — can be purchased using a cashback credit card, and it’s one of the easiest ways to save money.

Think about this: If you go grocery shopping, check out, and drive home, only to realize you didn’t scan any of the coupons you brought with you, there’s a good chance you’ll view that as lost savings. But that’s exactly what happens when you don’t use a rewards credit cards for every purchase — you leave money on the table.

The wonderful thing is that the rewards credit card space is a competitive one, which means there are plenty of options to choose from — and one that’s bound to fit both your spending style and financial goals.

But before settling on any old cashback credit card, and in order to maximize your savings, you may want to start with the simple question: “What is a cash back credit card?” Glad you asked.

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What is a cashback credit card?

A cashback credit card is just one type of rewards credit card. It’s designed to incentivize you to spend more with your credit card, and less with cash or debit cards. These cards are also designed to make credit card companies more money. This is because every time you purchase something from a merchant, the merchant must pay the credit card company a processing fee on that transaction. It would be unwise to think credit card companies aren’t in the business of making money, but that doesn’t mean you can’t benefit from each transaction too.

Most cashback credit cards tend to pay anywhere from 1.5%-2% of your purchase in cash back, with some cards offering up to 6% cash back. Some may have limitations on how much cash back you can earn in a given time period or what sort of purchases you can earn on, while others reward you for every purchase you make, no matter how much you spend. But because you aren’t limited to having just one credit card, you can easily maximize your earning potential with just a little bit of planning and organization.

That said, cashback credit cards are best for those who pay their balances in full every month, otherwise the cash you receive won’t come anywhere near the cost of paying interest. But when you practice smart financial habits, the rewards are undoubtedly valuable.

How does a cash back credit card work?

While the things you purchase may differ, the actual process of earning cash back is generally the same. We’ll keep it simple and use a trip to the grocery store as an example:

  • Step 1: You head to the grocery store and do your regular shopping. When you’re ready to check out, you reach into your wallet and pull out your new cash back credit card.
  • Step 2: After you swipe your card, your credit card issuer automatically tracks your spending and notes that you earned cash back on your purchase.
  • Step 3: When your credit card issuer awards cash back, typically every statement cycle, your cash back is automatically added to your rewards balance.
  • Step 4: You can choose how and when to redeem your cash back based on the redemption methods offered by the card.

“Redeem” and “redemption” — what do those even mean? Keep reading.

How do you get your cash from your cash back credit card?

When you’re ready to cash out your earnings, you’ll see your rewards balance right on your credit card’s dashboard once you’re signed into your account. From here, it will take just a few clicks to get your cash. Keep in mind that some cards set a minimum amount that must be reached before you can cash out your earnings. Others allow you to redeem as soon as you receive your cash back.

Most credit cards offer a handful of redemption options to choose from to give you full control over what you do with your earnings. In other words, your cash back will accrue until you choose to withdraw it, and there is more than one way to actually receive your earnings. So when you hear “redemption” or “redeem,” it simply means the form of payment you choose to receive your earnings.

While these may vary from card to card, the following are typical options for redeeming your cash back:

  • Statement credit: When you redeem for a statement credit, the cash back amount you choose to redeem is applied to the balance on your card, essentially paying off some or all of the purchases you’ve made.
  • Direct deposit: You can choose to have your cash back deposited directly into your bank account, putting your earnings right back into your pocket.
  • Check in the mail: If prefer to receive your cash back earnings in its physical form, go ahead and have your credit card issuer cut you a check.
  • Gift cards: Many credit card issuers give you the option to redeem cash back for gift cards. Depending on the credit card, you may be able to purchase a gift card at a discount, though they could be more expensive as well.
  • Donate to charity: Some credit card issuers make it possible to redeem your cash back as a donation to a charity. Exactly which charity will vary from card to card.

Who are cash back credit cards good for?

Cashback credit cards are good for anyone who practices smart use of their card. This means avoiding carrying a balance from month-to-month and paying your bill on time. Otherwise, the interest rate on the card will likely far exceed the percentage of cash back you receive.

If you always pay your balance in full and on time, not using a rewards credit card like a cash back card means you’re leaving money on the table.

Are there different types of cash back credit cards?

Why yes, there are. Three types, actually — each with its own set of benefits and drawbacks. But since there are several types of cashback credit cards, that means you have options for maximizing your earnings depending on your spending habits.

You’ll also find that each of the individual credit cards that fall within these categories offers its own perks and earnings structure. So for example, not only does Chase offer different cash back cards than Capital One, but each card Chase offers also differs in how you can earn. This gives you a wide-ranging selection to choose from. So it’s important to do your research on all the cards available, and also examine your own spending and goals, as well.

But, to start you off, here are the three types of cashback credit cards:

Revolving category cards

These types of cash back cards have a revolving bonus category (or categories), that typically change every quarter. This means for three months you can earn a certain percentage, often 5%, when you spend within that category.

Take the Chase Freedom, for example. Here are the card’s quarterly categories for all of 2019:

Year/Quarter Bonus categories
2019 - Q1 Gas stations, tolls, drugstores
2019 - Q2 Grocery stores, home improvement stores
2019 - Q3 Gas stations, select streaming services
2019 - Q4 Department stores, PayPal, Chase Pay

These types of cards often have a per-quarter spending cap. For example, you may only earn 5% cash back on up to $1,500 in spending per quarter. Once you reach that cap, your earning rate will lower, usually to 1% cash back. But that doesn’t mean these cards aren’t worthwhile. In the example of the Chase Freedom, if you max out the 5% bonus each quarter, you can earn up to $300 for the year, plus any additional earnings.

You’ll typically also earn 1% on all purchases that fall outside the bonus category. While it might not be as much as the 5% you can earn from the bonus category, it still gives you a way to always earn a little something.

Aside from the Chase Freedom card, another example of a revolving category credit card is the Discover it Cash Back card.

Eye-popping Cash Back

Benefits

  • $150 sign-up bonus
  • No annual fee
  • 0% intro APR on purchases and balance transfers
  • 5% cash back in rotating bonus categories


Tiered category cards

Tiered category cards typically come with assigned cashback categories, but the earnings rate for each category is tiered. So, for instance, you might earn 6% cash back on groceries, 3% back at gas stations, and 1% on everything else. These cards also often have a per-year spending cap that once reached will lower your earnings rate for those categories to 1%.

Examples of tiered category cards are the Blue Cash Preferred Card from American Express or the Capital One® Savor® Cash Rewards Credit Card.

#1 Cash Back at Supermarkets

Benefits

  • $250 statement credit welcome offer
  • 6% cash back on U.S. streaming services and at U.S. supermarkets
  • 3% cash back at U.S. gas stations and on eligible transit
  • 0% intro APR on balance transfers and purchases
  • Terms apply


Unlimited flat-rate cards

With an unlimited, flat-rate card, you’ll typically find a lower earnings rate, but these cards also don’t tend to come with a cap on the amount you can earn. Not to mention you won’t have to track any categories along the way. So while you may not earn 5% on certain spending, you can generally earn between 1.5%-2% on every purchase and not have to sort through your credit cards every time you’re in the checkout line trying to remember which card is for which thing.

Examples include the Chase Freedom Unlimited and the Citi Double Cash Card.

Unlimited Cash Back

Benefits

  • $150 sign-up bonus
  • No annual fee
  • 0% intro APR on purchases and balance transfers
  • 5% cash back on Lyft rides
  • 1.5% cash back on all other purchases


What is the highest paying cashback credit card?

The cashback credit card space is a competitive one, and you can find credit cards offering anywhere from 1.5%-6% cash back.

The Blue Cash Preferred Card from American Express, for instance, offers 6% cash back at U.S. supermarkets (on up to $6,000 per year) and select U.S. streaming services, while the Chase Freedom offers 5% cash back on rotating categories. The lower earnings rates are typical on flat-rate cash back cards like the Chase Freedom Unlimited, which offers an unlimited 1.5% cash back on all purchases.

While 6% cash back is above average, the 1.5%-2% cash back that is typical is better than you’re likely getting in your savings account — and definitely better than what you’re getting if you’re not currently using a cashback credit card at all. In fact, depending on how much you spend and the cards you choose, cash back credit cards can be fairly lucrative.

In 2018, for instance, Americans spent an average $7,923 on food per year, according to data from the Bureau of Labor Statistics . If you were to only use a flat-rate card like the Chase Freedom Unlimited for your food spending, which earns 1.5% on all purchases, you’d earn $118.85 in cash back for the year on food alone. Add in the rest of your expenses, and you can see how quickly your cash back can add up.

That said, if you were to use the Blue Cash Preferred Card from American Express, which earns 6% cash back at U.S. supermarkets (on up to $6,000 per year) and select U.S. streaming services, your earnings would be even higher. Out of that $7,923 Americans spent on food in 2018, $4,464 of it was spent on groceries. At a rate of 6%, you’d earn $267.84 in cash back on groceries.

How do you pick a cashback credit card?

There is no one “right” cashback credit card; the right card will depend on your spending habits. To determine a good starting place for your first cashback credit card, take a look at your previous month’s expenses and consider where the bulk of your spending is going.

  • If you spend the most on gas each month, or groceries, for example, a category-based cashback credit card might deliver the most value.
  • If you want to be rewarded for all your spending, without earnings limitations or the need to track categories, a flat-rate credit card will likely be your best bet.
  • If you want to maximize your earnings, using a category-based card in conjunction with a flat-rate card will ensure most, if not all, of your spending is earning cash back.

There’s nothing wrong with any of these choices — it’s all a personal preference. The important thing is that you’re getting money back when you weren't before!

There are also some other special things to take into consideration before applying for a card, such as the card’s welcome bonus, annual fee, and special perks. That’s right, you might have to pay to use some of these cards — but some of these cards will also reward you with a big bonus for signing up. Let’s look at some of the best cards out there so you can decide which one is a good fit for you.

The 6 best cashback credit cards we recommend

Card name Welcome bonus Reward rate Annual fee
Chase Freedom $150 cash back bonus after spending $500 in the first 3 months 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
Chase Freedom Unlimited Earn a $150 cash back bonus after spending $500 in the first 3 months unlimited 1.5% cash back on all purchases $0
Blue Cash Preferred Card from American Express Earn a $250 statement credit after spending $1,000 on purchases in the first 3 months up to 6% cash back $95
Discover it Cash Back Automatically get an unlimited dollar-for-dollar match of any cash back you've earned at the end of your first year 5% cash back in quarterly rotating categories (including gas stations, grocery stores, restaurants, and Amazon.com), up to quarterly maximum; 1% cash back on all other purchases $0
Capital One® Quicksilver® Cash Rewards Credit Card Earn a $150 cash back bonus after spending $500 in the first 3 months 1.5% cash back rewards on every purchase, every day $0
Capital One® Savor® Cash Rewards Credit Card Earn $300 cash bonus after spending $3,000 in the first 3 months 8% cash back on tickets purchased through Vivid Seats (through January 2022), 4% unlimited cash back on dining and entertainment, 2% at grocery stores, and 1% cash back on all other purchases $95

Chase Freedom

The Chase Freedom card allows cardmembers 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. As mentioned, categories need to be activated every quarter, otherwise you’ll miss out on the 5% earning potential. Category announcements can be exciting, especially if they align with your spending, but you may also not want to have to remember to activate them each quarter.

After reaching the $1,500 in combined purchases per quarter, you’ll continue to earn an unlimited 1% cash back on those purchases. On all of your spending outside of these categories, you’ll earn an unlimited 1% as well.

There’s no annual fee with this card, and your cash back rewards never expire. New cardmembers can receive a $150 cash back bonus after spending $500 in the first 3 months. In addition, you'll have a 0% intro APR on purchases for 15 months and 0% intro APR on balance transfers for 15 months.

Chase Freedom Unlimited

Similar in name to the Chase Freedom, the Chase Freedom Unlimited sets itself apart as being a flat-rate cash back credit card. With an unlimited 1.5% cash back on all purchases, instead of the rotating categories you get with the Chaser Freedom card, you earn cash back no matter what you’re spending on. 

As a new cardholder, you can earn a $150 cash back bonus after spending $500 in the first 3 months, and you'll also have a 0% intro APR on purchases for 15 months and 0% intro APR on balance transfers for 15 months. There’s no annual fee for this card, so all of your earnings will stay right in your pocket.

As you can probably guess, pairing the two cards is a great way to ensure that most, if not all, of your day-to-day spending is covered by a cash back-earning credit card. You’ll be able to maximize your spending within certain categories with the Chase Freedom, while always having the Chase Freedom Unlimited handy to ensure you earn on every other purchase.

Blue Cash Preferred Card from American Express

The Blue Cash Preferred Card from American Express is a tiered category card that rewards for spending in a handful of categories. This can be a great option if the categories align with your normal day-to-day spending.

You can earn 6% cash back at U.S. supermarkets (on up to $6,000 per year) and select U.S. streaming services and 3% cash back at U.S. gas stations and eligible transit expenses. This is in addition to the 0% intro APR on purchases for 12 months and 0% intro APR on balance transfers for 12 months.

When you sign up as a new cardmember, you can earn a $250 statement credit after spending $1,000 on purchases in the first 3 months.

Discover it Cash Back

Like the Chase Freedom card, the Discover it Cash Back card’s earning structure is made up of quarterly rotating categories. Turn to this card for your spending and you can earn 5% cash back in quarterly rotating categories (including gas stations, grocery stores, restaurants, and Amazon.com), up to quarterly maximum; 1% cash back on all other purchases.

There’s no annual fee, but you do have to remember to activate your cash back category each quarter. This card can be a great option if you enjoy the thrill of having new categories to earn cash back with, but could also prove burdensome if you don’t want to have to remember to activate each category.

While there’s no sign up bonus, you’ll automatically get an unlimited dollar-for-dollar match of any cash back you've earned at the end of your first year with no extra work needed on your part.

Capital One® Quicksilver® Cash Rewards Credit Card

The Capital One Quicksilver Cash Rewards Credit Card is another flat-rate credit card that rewards you with unlimited earnings on your everyday spending, no matter what you purchase. Earn 1.5% cash back rewards on every purchase, every day, and there’s no annual fee to boot. Sign up as a new cardmember, and you can earn a $150 cash back bonus after spending $$500 in the first 3 months.

With a 0% intro APR on purchases for 15 months, it can be a great option if you’re looking to make a major purchase, but don’t have the funds readily available to immediately pay off your balance.

Capital One® Savor® Cash Rewards Credit Card

Foodies will rejoice knowing there’s a cash back credit card designed specifically with them in mind. Ready for this?

When you use the Capital One Savor Cash Rewards Credit Card, you can earn 8% cash back on tickets purchased through Vivid Seats (through January 2022), 4% unlimited cash back on dining and entertainment, 2% at grocery stores, and 1% cash back on all other purchases.

Hungry for more? When you sign up, you can earn $300 cash bonus after spending $3,000 in the first 3 months. There is a $95 annual fee for this card, but you’ll also receive a monthly statement credit for a Postmates Unlimited monthly membership through December 2019.

The top 2 business cashback credit cards we recommend

Cash back isn’t reserved only for consumer credit cards. In fact, there are a ton of great business credit cards that offer cash back as well. Businesses aren’t just “companies” either. They can also be for people who take on side hustles or freelance work. If this sounds like you, you might be able to benefit from opening one of these business cash back credit cards.

Capital One® Spark® Cash for Business

If you like the idea of having a no-frill, flat-rate cash back credit card to cover your business expenses, you might want to consider what the Capital One Spark Cash for Business card brings to the table. While there are no fancy perks or bonus categories you have to remember or enroll in, this card offers a straightforward solution to your business spending: you earn a flat 2% cash back on every purchase, every day with no cap on your earning potential.

While there is a $95 (waived first year) annual fee, you can also earn a $500 cash bonus after spending $4,500 in the first 3 months. Employee cards come at no additional cost, and you can rest easy knowing you’re covered by a handful of protection perks, such as an auto rental collision damage waiver, purchase security, and an extended warranty.

Chase Ink Business Cash Credit Card

You don’t have to be a big spender to benefit from the Chase Ink Business Cash Credit Card. If the bulk of your spending is on internet, cable, phone services, and office supplies, you should find plenty of value in this card. You’ll earn 5% cash back at office supply stores and on internet, cable, or phone services (up to $25,000 combined annually); 2% cash back at gas stations and restaurants (up to $25,000 combined annually); and 1% cash back on everything else. There’s also no annual fee for this card, employee cards are free, and you can earn $500 bonus cash back after spending $3,000 in the first 3 months.

Up to 5% Cash Back

Benefits

  • $500 cash back sign-up bonus
  • No annual fee
  • 0% intro APR on purchases for 12 months
  • Up to 5% cash back


So, what is the catch with cashback credit cards?

None, really. Like any credit card with rewards, you want to use it wisely and pay off your balance in full every month. But with good financial habits it’s a win-win situation.

You don’t have to change your spending habits to benefit from a cashback credit card. You simply earn on the spending you already do.

The bottom line on cashback credit cards

If cashback credit cards are new for you, start simply and pick one card. A good place to start might be a straightforward, flat-rate cashback credit card that rewards you for all your purchases, such as the Chase Freedom Unlimited. You won’t have to keep track of categories, and your earnings rate won’t drop after hitting a spending cap.

Spend some time using your first cashback credit card, whichever one you choose, and see how it best aligns with your spending habits, but also where it falls short. Once you’ve identified any additional opportunities for earning cash back, you can then look to add a second card.

As you get more comfortable, you may decide to add even more cards into the mix, or you may not, and that’s fine, too. The point is you’re taking charge of your finances in a simple way to get money in your account and that’s just too easy to pass up.

Eye-popping Cash Back

Benefits

  • $150 sign-up bonus
  • No annual fee
  • 0% intro APR on purchases and balance transfers
  • 5% cash back in rotating bonus categories