A cash back credit card is a type of credit card that gives you a cash back for purchases made with your credit card.
Usually, a credit card with cash back will give you a small percentage of cash back, around 1%, on all purchases. Specific purchases, like groceries or gas can earn higher percentage rewards. With some cash back cards, you can earn up to 5% cash back on select purchases; 5% back is rare and usually the upper limit for this type of reward. Compare cash back credit cards below to see what kind of rewards you will get with different cards, and what kind of fees you can expect to pay for a credit card with cash back.
What is a cash back credit card?
A cash back credit card, (also known as a rebate card), is an incentive program by which a credit card company encourages you to use your credit card for all of your purchasing. When you make a purchase with your credit card, your credit card company automatically returns a small percentage of your purchase back to you. So if you spend $10 on a meal, you might see a return of $0.20 (2% cash back) on your next credit card statement.
Cash back credit cards tend to offer different returns on different types of purchases. However, for the most part, the amount returned remains the same between credit card companies:
2-5% back on groceries
2-5% back on gas
2-5% at specific retail locations that are partnered with your credit card
1% on all other purchases
Your creditor will either subtract your cash back from your monthly balance (an account credit) or they will send you a check (usually, you have to request this). Sometimes creditors have limits on when they will award payments. Sometime you have to wait until your rebate has passed a certain minimum amount, around $50, and sometimes you have to wait until the end of the calendar year (which might not be a bad thing if it defrays the cost of Christmas presents).
Cash Back Credit Card Considerations
Even the best cash back credit card will have some drawbacks that you should know about.
Require good credit
Credit cards with cash back can be very expensive and somewhat exclusive. As with any rewards card, you have to have a very good credit score in order to qualify for a credit card with cash back. Creditors are often hesitant to give rewards cards to people with bad credit scores because people with bad credit scores are considered high risk debtors. Creditors don’t want to offer incentives to high risk debtors because the credit card company may not be repaid in full or at all.
Also, a credit card with high cash back percentages is more likely to have annual fees. Make sure the annual fee on the card you want does not exceed the potential cash back you could earn with that card.
You should make sure that your spending habits are conducive to using a cash back credit car. Otherwise, you could end up spending more on fees than you end up saving through rebates. For example, if you don’t own a car, then it doesn’t make much sense to a get a cash back credit card with particularly good rewards for gas purchases.
There are also some limitations on how much you can save through cash back credit cards. Some credit card companies put caps around $250 or $300 on certain types of purchases, so you may only end up saving about $250 on gas purchases even if it seems like you should have saved more than that.
You may also want to consider how credit cards are able to afford cash back for their customers.