Last Updated on June 1, 2021 by Mark P.
As anyone who has been recently looking at credit cards knows, there are many different options out there. There’s so much variation with the amounts of cashback you get, the stores where you get the most cashback, and even how frequently you can cash out your cashback! Cash back credit cards are, arguably, one of the most competitive sectors in the industry. Each company is consistently trying to outdo the other!
As a consumer, though, all you care about is getting the best deal. You want the card is going to give you the most cash back on your purchases. Fortunately, despite the countless cards on the market now, picking the best cash back credit card is easier than it looks. Here’s everything you need to know to snag the perfect deal!
Table of Contents
- What Are Cash Back Credit Cards?
- What Are the Incentives Credit Card Companies Are Offering?
- Why Are Cash Back Credit Cards the Best?
- The Best Cash Back Credit Card Deals Typically Outweigh Other Reward Systems
- What Should You Look For in One of These Cards?
- How Do Credit Card Companies Afford Cash Back?
- How You Can Score the Best Cash Back Credit Card Deal
- Capital One® Quicksilver® Cash Rewards Credit Card
- Capital One® Savor® Cash Rewards Credit Card
- Blue Cash Preferred® Card from American Express
- Wells Fargo Cash Wise Visa® Card
- Citi® Double Cash Card
- Chase Freedom Unlimited®
What Are Cash Back Credit Cards?
Before getting into what you need to know about these cards, it’s worth recapping what cash back credit cards are. These accounts take all the purchases that you’ve made during a given timeframe and get their sum. Then, they provide a portion of that as “cash” back. Typically, these cash payments accrue until some amount, at which point you can withdraw to your bank account or use the money to pay your credit card bill. As a quick example, if you have a 1% cashback card and make $1,000 worth of purchases on it, you’ll get $10 from those purchases.
The history of cash back credit cards is a fascinating one. Throughout modern history, merchants always used various rewards as an incentive for making purchases at their store. A retailer might have a promotion like “spend this much and get a free product.” These types of programs are still commonplace to this day.
In the 1980s, airlines began offering frequent flyer miles. The success of this program led other industries to re-think about “rewards” as a way to encourage people to sign up.
The first credit card to offer rewards just for using it was the AT&T Universal Card. The Discover card, launched by Sears and Roebuck in 1986, created the first real cash back card as we know it today. Since then, the idea of getting cash back has become increasingly popular. Most card issuers today have some rewards program!
It’s worth noting that Sears unintentionally crippled the Discover card by making Sears locations accept only Discover. Other merchants and card issuers retaliated by refusing to take this new credit card with an incredible new loyalty system. Other card issuers eventually included these rebates, eliminating the Sears Discover card’s advantage.
What Are the Incentives Credit Card Companies Are Offering?
As mentioned earlier, credit card companies are working very hard to develop incentives for people to use their cards over competitors. Right now, credit card incentives tend to fall under four main categories:
- Cashback: With every purchase, receive a 1-5% rebate on it. Discover, Chase, Bank of America, and many other financial institutions offer these cards.
- Point Rewards: This isn’t cashback per se, but it acts like it. You might get 1 point per $1 spent, and 100 points might get you a $5 gift certificate. American Express’ Membership Rewards program is the most prominent example of a point rewards system.
- Travel Rewards: These rewards are similar to points, except that they’re limited for travel. The Southwest card, for example, gives you some points per purchase, which you can then redeem towards free flights.
- Low Interest Rate / 0% APR Welcome Offers: Some banks will have low-interest credit cards, enabling you to worry less about any balance you might carry. Some even let you transfer a balance or make purchases interest free for the first few months.
Within each of these categories, banks and other financial institutions have various offerings that target different populations.
Why Are Cash Back Credit Cards the Best?
Given the list above, why do people pick cashback as their preferred incentive? You might be thinking, “I like to travel, so I should get a travel card.” Or, “I shop at Best Buy all the time, I should get their point rewards card.”
Those types of cards aren’t poor choices by any means, but they lack one essential component that only cashback cards have: flexibility. Only a cash back credit card can put money into your savings account with every single purchase.
Let’s consider an average household for a few minutes. Let’s say this household spends $2,000 per month on their credit cards – not a high amount of money, but not a low one either. Now, let’s suppose they put that on a cash back card with an average of 2% back. Every month, this family would get $40, for a total of $480 for the whole year.
That’s nearly $500 in a year, just for spending like they always would!
Instead, suppose that the same person has a travel card with an identical rebate amount, just in travel points instead. Then, the customer has $500 in travel credits at the end of the year.
What would you rather have: $500 in cash that you can use anywhere, put in the bank, invest, etc., or $500 in travel credits you must use to buy a flight?
Most people would answer the cash!
The Best Cash Back Credit Card Deals Typically Outweigh Other Reward Systems
Many people are under the misconception that travel cards and point cards give people more. After all, needing to use your points for a Southwest flight, for example, must mean that you get a much better rate of return than having money deposited into your account.
For the most part, that’s no longer true. Continuing with the above example, Southwest doesn’t issue its card. Chase does. So Chase doesn’t necessarily have an incentive to give anything above the amounts that their traditional cash back credit cards offer.
Consider American Express’ Membership Rewards Program. Each dollar equals one point with many of the cards. To get a $10 Apple gift card, you’ll have to spend 1,176 points at the time of this writing. That’s less than 1% back! As we note on our top credit cards for cash back page, the Quicksilver card by Capital One gets you unlimited 1.5% cashback! By receiving the rewards in cash, you don’t have the Membership Rewards’ restrictions (i.e., must be used for travel, gift cards, and other limited product categories).
The above example is not unusual. Usually, the freedom, flexibility, and rate of cash back that you can get from these cards exceed what you can get from other point systems.
It is worth noting that there is one exception to this rule: cards with a lower interest rate. If you plan on carrying a balance, no amount of rewards will exceed what you can save by having a lower interest rate. If you make the minimum monthly payments, the difference between even a 20% APR and 25% APR is significant, with the latter taking many more months to pay off. Using standard terms (3% minimum payment), at a 20% APR, a $5000 balance would take 251 monthly payments and cost $5,990 in interest. Conversely, a 25% APR would take 352 monthly payments at a whopping $10,847 in interest!
No amount of cashback will make up for the interest you’ll pay at a higher APR. Therefore, if you’re planning on carrying a balance, stick with the cards with the lowest interest rates.
What Should You Look For in One of These Cards?
Given that cash back cards tend to be the best option for most people, the question then becomes: what should you look for in one of these cards? How do you know that you’re getting the best deal?
The most noticeable feature that these cards have that shows you’re getting the best deal is the amount of cashback you receive. A credit card with a 1% rebate back is better than a card with 0.5% cashback!
However, gauging these cards becomes trickier when it’s not a straightforward 1% vs. 0.5% back. Some cards give you more cashback in specific categories. For example, a credit card might give you 1% on all purchases, 2% on gas, and 3% on groceries. Discover has rotating 5% categories that range from dining out to Amazon.com shopping during the holidays.
For these cards, to see if it’s a better deal, you’ll need to estimate your expenditures and calculate the amount of cashback you’ll receive. Of course, these don’t have to be “to the penny” calculations, but a rough approximation will do to see if you’ll get more with one card over the other.
It’s worth noting that you can maximize your cashback by having specific cards for various purposes. Perhaps you have the 1.5% card for your everyday purchases and then put expenditures that get higher cashback with another card on that other card. That way, you’re always maximizing the amount of cashback you can get!
You should also evaluate some of the other perks that cashback cards offer. Some offer 0% APR on all purchases for a year. Others will offer more cash back on specific sites. To get the best deal, you’ll need to consider what the card offers outside of just the cashback metric.
How Do Credit Card Companies Afford Cash Back?
You might be wondering how credit card companies can afford to give these rewards. After all, if you pay on-time, every time, you’re not paying the credit card any interest. So how do they make money to give you these rewards?
When you swipe your credit card at a merchant, the bank charges the merchant a fee. Typically, this fee is something along the lines of 2-3% of the transaction. So, all that credit card companies are doing is passing some of this fee on to you, the consumer. Instead of pocketing the full 2-3%, they keep 1-2% and give you the other 1%.
The other way, of course, that credit card companies make money is through people paying interest. It’s more profitable for the company to give you 1% cashback in the hopes that you’ll have a balance that has a 25% APR. Of course, if you plan on keeping a balance, please check out our top credit cards for balance transfers instead! You’re better to pay minimal money in interest to start. Then, once you have the balances paid off, you can upgrade your card to get maximum rewards.
How You Can Score the Best Cash Back Credit Card Deal
With all this in mind, you can now score the best cashback credit card deal out there. To do so, follow these steps:
- Understand your finances. Figure out where you spend most of your money. That’s where you’ll benefit the most from cashback! If you pay nothing at restaurants, then having a card with 3% cashback at restaurants won’t help you.
- Understand your credit score. You’ll need to know if you have the minimum credit score to qualify for these cards. Usually, the top cashback cards have the most exclusive requirements. You’ll usually need 680 or above to have a successful credit application. If you have less than 680, you might still qualify for a cashback card, but it won’t be quite as good as the ones that you can get with a higher score.
- Look at some of the most popular cashback credit cards out there. Look for ones with the highest cashback combined with other perks, like 0% APR for the first few months. Check the cashback categories and make sure you’ll be able to take advantage of all the benefits the card has to offer!
- Check the minimum credit score required to apply. If your score exceeds the minimum, put in an application! If not, then look at some other cards as well. (Side note: if you need to improve your credit score, you can always check out one of our top credit cards for bad credit).
That’s it! When you do get one of these cards, use it wisely! Pay your bill in full each month and use it for every purchase. That way, you’ll maximize your returns without paying any interest!
Highlights: One-time $150 cash bonus after spending $500 within 3 months from account opening. Earn unlimited 1.5% cash back on every purchase, every day, no rotating categories and no signups required. Cash back doesn’t expire as long as your account is open. Redeem cash back for statment credits, or gift cards. $0 Annual Fee. 0% intro APR on purchases for the first 15 months, 0% APR on Balance Transfers for the first 15 months then variable APR after that. Balance transfer fee is 3%. Travel worry-free with No Foreign Transaction Fees. Good-excellent credit needed. More Details & Apply
Highlights: Earn a one-time $300 cash bonus when you spend $3000 within the first 3 months from account opening. Earn unlimited 4% cash back on dining and entertainment, 2% at grocery stores, and 1% on all other purchases. Plus, through May 2020 earn 8% cash back on tickets at Vivid Seats. Now through Dec. 2019 receive a monthly statement credit for a Postmates Unlimited membership. No rotating categories or sign-ups needed to earn cash rewards. $0 intro for the first year, $95 annual fee each year after that. Travel worry-free with No foreign transaction fees. 16.74% – 25.74% variable APR with No Transfer Fee. Good-Excellent credit needed. More Details & Apply
Highlights: Limited-time Special offer: Earn $300, normally $250, back after spending $1,000 in purchases in the first 3 months of account opening; received in the form of a statement credit. Earn 6% cash back at US supermarkets, up to $6,000 per year in purchases, then 1% once limit is reached. Earn 6% Cash Back on select U.S. streaming subscriptions. Earn 3% cash back on transit, such as taxis/rideshare, parking, tolls, trains, and buses. Earn cash back on additional cards for anyone 13 or older. Car rental insurance coverage. Travel protection. 0% intro APR on purchases and balance transfers for 12 months, 14.74% to 25.74% variable APR after that. $95 annual fee. Good-Excellent credit needed. More Details & Apply
Highlights: Earn a $150 cash rewards bonus after spending $500 in the first 3 months from account opening. Earn unlimited 1.5% cash rewards on all purchases. Earn 1.8% cash rewards on qualified digital wallet purchases such as Apple Pay or Google Pay during the first 12 months from account opening. No rotating categories or sign-ups required and cash rewards don’t expire, as long as your account is open. When you pay your monthly cellphone bill with your Wells Fargo Cash Wise Visa Card you get up to $600 protection on your phone against covered damage or theft, (subject to $25 deductible). $0 Annual Fee. Good-Excellent credit needed. More Details & Apply
Highlights: Earn cash back twice! Earn 2% on every purchase: Earn unlimited 1% cash back when you purchase, plus an additional 1% as you pay down those purchases. You must pay the minimum balance due to receive cash back offer. 0% intro APR on Balance Transfers for the first 18 months, 15.74%– 25.74% variable APR after that. Transfers must be completed within 4 months of account opening and are subject to 3% fee of the amount of each transfer. $0 annual fee. Good/Excellent credit needed. More Details & Apply
Highlights: Special limited-time offer! Get a $200 Bonus after spending $500 on purchases in your first 3 months from account opening. Earn unlimited 1.5% cash back on every purchase, no rotating categories or sign-ups required. No minimum in order to redeem for cash back, and rewards don’t expire as long as your account is open. 0% intro APR for 15 months from account opening on purchases and balance transfers. then 16.99%–25.74% variable APR after that. 1-year extended manufacturer’s warranty protection on eligible products. Fraud alerts and fraud protection. Get your free credit score, updated weekly with Credit Journey. $0 annual fee. Good/Excellent credit needed. More Details & Apply