Credit cards have made shopping more fun and rewarding in many ways. First, you can purchase anything without having enough money in balance, and second, you can get rewards for those purchases. A cash back credit card is just another type of credit card, where credit card companies offer you cash rewards or incentives for your spending. Cash back usually ranges from 1% to 2% but greatly varies based on the types of purchases you make. Cash back allows cardholders to save money on their purchases.
How Do Cash Back Credit Cards Work?
Cash back credit cards work on the “spend and earn “concept, which means you earn back a certain percentage of what you spend using your credit card. Cash back is either paid annually or monthly based on which credit card you own. There are many ways to avail cash back like it could be deposited directly to your bank account, credited to your credit card balance, or converted into reward points or vouchers or gift cards, or used for buying merchandise or booking travel or hotel.
Basically, there are two types of cash back credit cards: one that offers the same cash back on every purchase and the other that offers different cash backs on different purchases.
Features of Cash Back Credit Cards
Just like every credit card, cash back credit cards boast various features such as:
- No Annual Fees
- Big Signup Bonuses
- Rewards Redemption Options
- Intro APR
- Base Cash Back Rate
- Purchase Protection
- Extended Warranties
Types of Cash Back Credit Card
There are three types of cash back credit cards, including flat-rate cash back credit card, tiered cash back credit card, and bonus category cash back credit card. Before you get one, use this guide to understand which card best fits your needs.
- Flat-Rate Cash Back Card: These cards allow you to earn the same cash back on every purchase regardless of how much you spend or where you spend. If your spending isn’t limited to a category and you want to avoid multiple reward rates, this card could be a good option. Example: Citi Double Cash Card and American Express Cash Magnet Card.
- Tiered Cash Back Credit Cards: These cards offer multiple and more cash backs in select spending categories. They are a much better option for those who do not hesitate to spend more. Some tiered cash back credit cards come with a standard cash back rate, also called “Accelerated Rewards” on select categories such as groceries, dining, entertainment, and travel. Example: Blue Cash Preferred Card from American Express and Capital One Savor Cash Rewards Credit Card.
- Bonus Category Cash Back Credit Cards: These cards too offer more cash backs in select categories but at specific times of a year. Also, these cards pay a flat rate on every other category you spend on. Bonus category cash back credit cards are also known as ‘Rotating-Bonus-Category Cash back Credit Cards’ because cash back rates here keep rotating at set intervals and need to be activated quarterly. Looking at its features, this card is not for everyone. Example: Discover it Cash Back and Chase Freedom.
Conclusion
Cash back credit cards are becoming very popular among people who are always in search of places that offer the best cash backs. Choosing a cash back credit card depends on how much you wish to spend or where you want to spend. By understanding your spending behavior, you can get the best deal.
Always keep one thing in your mind that if you do not pay your credit card debt on time, you will lose all the cash backs in the form of interest rates or fees charged. If you know how to use the right card at the right place, you have a better chance of making most of these cards.
