Cash back cards

Each time you use a cash-back credit card, the card issuer rewards you with a certain percentage of your purchase amount. For instance, if your card offers a 2% cash back rate on all transactions and you make an $80 purchase, you'll receive $1.60 as cash back. Similarly, if your card provides 5% cash back at gas stations, a $42 fuel purchase would earn you $2.10 in cash back.Cash-back cards typically display your accumulated earnings on your monthly statement or within your online account portal. You have the flexibility to choose when and how to redeem your cash back. Some cards automatically apply your cash back as a credit to your account.

When we talk about "cash back," it doesn't mean that the card issuer sends you physical dollar bills in an envelope. Instead, these rewards effectively put more cash in your pocket. The most straightforward way to use your cash back is to apply it as a credit that reduces your credit card account balance. For instance, if you redeem $50 worth of cash back, a $325 balance would decrease to $275. Many cards offer the option to have your cash back directly deposited into your bank account, and some even provide the choice to receive a paper check via mail upon request.It's important to note that each card issuer has its own specific rules regarding how you can redeem cash back. Some may impose a minimum redemption requirement, meaning you can't cash in your rewards until you've accumulated a certain amount, like $20 or $25. Others may allow you to redeem any amount at any time.

Cash-back credit cards typically fall into three basic types, each with its own approach to accumulating cash rewards:Flat Rate:These cards offer a fixed percentage of cash back on all purchases, regardless of the spending category.Tiered: Tiered cards provide higher cash-back rates in specific spending categories, like groceries or gas, while offering a standard 1% on other purchases.Rotating Categories: These cards feature rotating bonus categories with a high cash-back rate, often 5%, that changes periodically, usually every three months.Understanding these types helps consumers choose a cash-back credit card aligned with their spending habits and preferences.

Cash-back credit cards often offer higher rewards rates for specific types of purchases, typically based on where the card is used rather than the specific items bought. This feature is common for all rewards cards except flat-rate cards. Here are some common bonus categories:Supermarkets:Applies to various items purchased at supermarkets, including groceries, cleaning supplies, toiletries, and prepared meals.Gift cards for restaurants or retailers bought at supermarkets often count as supermarket purchases.Exclusions may apply to warehouse clubs and superstores like Target and Walmart.Restaurants:Encompasses a wide range of dining options, from fast-food restaurants and pizza delivery to upscale fine dining.The entire restaurant bill, including tips, usually qualifies for accelerated rewards.Gas Stations:Typically, covers purchases at traditional gasoline service stations (e.g., Mobil, Shell) and may extend to items bought at the associated convenience store.Exclusions may apply to gas stations affiliated with supermarkets or warehouse clubs.It's important to align your card choice with your regular spending habits, focusing on bonus categories where you consistently spend the most money. Other potential bonus categories include entertainment, drugstores, home improvement stores, wholesale clubs, mobile wallet purchases, and rotating categories that designate specific retailers for bonus rewards during certain quarters. Card issuers determine the eligibility of a purchase for higher rewards based on the retailer's merchant category code, reflecting the merchant's primary business.

Choosing the best cash-back credit card depends on your individual spending patterns. If you spend more on dining out than on groceries, a card offering 3% cash back at restaurants might be more beneficial than one offering 6% at supermarkets. It's essential to align the card's bonus categories with your regular expenses to maximize your cash-back rewards.