What are the pros and cons of cash-back credit cards?

Don’t depart cash on the desk — put down a cash-back bank card as an alternative and earn rewards in your buy. That’s the headline incentive for why it is best to use a cash-back bank card. However earlier than you leap to open a bank card account, you’ll wish to perceive the professionals and cons and contemplate how a cash-back bank card compares to different sorts of rewards playing cards.

What’s a cash-back bank card?

A cash-back bank card is a rewards card that gives you money again in your purchases. Typically, you earn the cash-back rewards as a share of eligible buy quantities — a 2% money again card provides you $2 value of rewards for each $100 you spend, for instance. 

Relying on the cardboard, you may obtain these rewards as factors or cents within the card issuer’s rewards program. Moreover, there could also be numerous redemption choices to your cash-back rewards, similar to a switch to your checking account, examine, assertion credit score to decrease your card’s steadiness or present playing cards. And a few playing cards will let you redeem your money again for as little as 1 cent, whereas others would require a minimal redemption quantity, typically $25 value of rewards.

Execs of cash-back bank cards

• It’s simple to grasp the worth. Factors and miles can rapidly get complicated as their worth will depend on the rewards program and your redemption selections. With money again, a greenback is a greenback.
• Lower your expenses total. Each greenback in cash-back rewards you earn can go towards paying down your invoice or constructing your financial savings.
• Plenty of choices don’t have an annual price. Though there are exceptions, a number of the finest cash-back playing cards don’t cost an annual price. Many journey rewards playing cards do.  

Cons of cash-back bank cards

• Money again is likely to be value lower than journey rewards. With some high-value redemption choices, similar to reserving first-class flights and luxurious motels, the worth of miles and factors can far exceed cash-back rewards. 
• May need international transaction charges. Money-back playing cards usually tend to have international transaction charges than journey rewards playing cards. 
• Might encourage overspending. As with different rewards bank cards, you may end up justifying purchases since you’ll earn cash-back rewards. 

Sorts of cash-back playing cards

There are 4 broad sorts of cash-back bank cards rewards buildings:

• Flat-rate: Flat-rate playing cards provide the similar reward charge on all of your purchases. With cash-back playing cards, this tends to be 1%, 1.5% or 2% money again in your purchases — and you might want a superb or higher credit score rating to qualify for the highest playing cards. Nevertheless, there are some methods to earn extra. For instance, the Financial institution of America® Limitless Money Rewards bank card
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  The knowledge for the Financial institution of America® Limitless Money Rewards bank card has been collected independently by Blueprint. The cardboard particulars on this web page haven’t been reviewed or supplied by the cardboard issuer.
  
  earns a base charge of 1.5% money again on purchases, and gives as much as a 75% bonus for Financial institution of America Most well-liked Rewards members, which brings the utmost doable rewards charge as much as 2.62%.
• Tiered: Tiered rewards playing cards supply outlined ranges of cash-back rewards relying on buy class. As an illustration, the PayPal Cashback Mastercard®
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  The knowledge for the PayPal Cashback Mastercard® has been collected independently by Blueprint. The cardboard particulars on this web page haven’t been reviewed or supplied by the cardboard issuer.
  
  gives 3% money again when trying out with PayPal and a pair of% money again on all different purchases. Different tiered playing cards might have extra tiers or extra particular necessities — similar to one charge at supermarkets, one other at gasoline stations and a base charge for all non-bonus purchases. 
• Rotating: A rotating cash-back card has a number of tiers of rewards, however the bonus rewards classes rotate all year long. The Chase Freedom Flex℠
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  The knowledge for the Chase Freedom Flex℠ has been collected independently by Blueprint. The cardboard particulars on this web page haven’t been reviewed or supplied by the cardboard issuer.
  
  is a well-liked instance that gives 5% money again on as much as $1,500 in classes that rotate quarterly (requires activation), 5% money again on journey bought by Chase Final Rewards®, 3% money again on eating and drugstores and 1% money again on all different purchases. 
• Dynamic: Some tiered cash-back bank cards have dynamic bonus classes that change based mostly on the place you utilize the cardboard — the Citi Customized Money℠ Card
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  The knowledge for the Citi Customized Money℠ Card has been collected independently by Blueprint. The cardboard particulars on this web page haven’t been reviewed or supplied by the cardboard issuer.
  
  gives 5% money again on purchases in a high eligible spend class every billing cycle, as much as the primary $500 spent every month and 1% money again on all different purchases. There are additionally cash-back bank cards that allow you to change and select your bonus classes, such because the Financial institution of America® Personalized Money Rewards bank card
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  The knowledge for the Financial institution of America® Personalized Money Rewards bank card has been collected independently by Blueprint. The cardboard particulars on this web page haven’t been reviewed or supplied by the cardboard issuer.
  
  .

You may also come throughout cash-back playing cards which are categorized by the highest tier of their tiered rewards program. For instance, a eating bank card may supply a excessive bonus cash-back charge on eating purchases, whereas a gasoline cash-back card provides you bonus money again at gasoline stations. 

All the time on the highway? Get rewarded on the pump with one in every of our picks for finest gasoline bank cards.

Who cash-back bank cards are finest for

Money-back bank cards could also be finest for somebody who:

• Doesn’t wish to pay an annual price.
• Isn’t concerned with studying about bank card or loyalty rewards applications.
• Needs to make use of rewards to pay down bank card payments.
• Doesn’t journey typically.

If that sounds such as you, then you might wish to begin fascinated about which sort of cash-back card you’d desire and start systematically evaluating the completely different choices obtainable.

However remember that most of the finest cash-back playing cards are geared toward folks with good or higher credit score. Should you’re simply beginning out in your credit score journey or in case you are rebuilding from broken credit score, it’s doubtless an issuer may deny your software.

That mentioned, there are nonetheless choices to think about in the event you’re new to credit score or in case your credit score is lower than stellar, similar to a pupil bank card or secured bank card that earns money again.  

Unsure what your rating means? Learn our article explaining a superb credit score rating.

Money-back vs. factors: Which is best?

Money-back playing cards and rewards factors playing cards each have execs and cons, and there are each nice and horrible playing cards inside both group. 

Should you’re a superb match for a cash-back card and qualify for a high card, that is likely to be finest. Nevertheless, in the event you often journey or are up for studying extra about maximizing rewards, playing cards that use points-based rewards applications might supply extra flexibility — and probably extra worth. These embody the Amex Membership Rewards, Bilt Rewards, Capital One Miles, Chase Final Rewards® and Citi ThankYou Rewards applications.  

For instance, relying on the specifics of this system, you could possibly redeem factors for money again, to guide journey by the issuer’s portal or switch the factors to a associate resort or loyalty program. 

There may even be occasions when you should use fewer factors to guide an award flight or resort keep in contrast with paying money. As an illustration, you may discover {that a} night time at a resort costing $200 solely requires 10,000 factors in the event you first switch the factors to the resort’s loyalty program after which guide an award night time. 

Journey playing cards, similar to airline and resort playing cards, may additionally supply perks that you just don’t obtain with cash-back playing cards, similar to free checked baggage or automated standing in a loyalty program. These advantages could make the cardboard value having, even in the event you use a cash-back bank card to your on a regular basis purchases.