Most of us expect a rewarding experience when using a credit card as there are so many great rewards programs. Among these, cash back programs are undoubtedly the best forms of reward. With several simple tasks, it can be a great way to get extra value and relieve the tension on your budget or credit score. In this guide, we’ll show you everything to make the most of these great programs and get money back to your account.
What is a cash back credit card and how does it work?
A cash back is simply a small amount of money provided by many credit card providers on their rewards credit cards. Whenever you purchase something like sneakers or fuel, you’ll get a percentage of the paid amount. In other words, cash back can be seen as an incentive or reward to give you a way of subtracting money off items you buy.
In general, every time use a cash back credit card to purchase something, you will get a small percentage of your spend back in cash. For instance, if your card pays 1% cash back and spends $100 in a store, you will get back $2. This amount is often paid annually, monthly, or immediately into your saving accounts or reduce the credit bills.
There is often a cap or limit on the amount you can get back on purchases through rewards programs or promotions. Thus, make sure to read all the conditions and terms carefully.
Types of cash back credit cards
In general, cash back credit cards can be divided into 3 main types:
– Flat rate cards
With this option, you’ll get a fixed amount cash back on every purchase, no matter where what and how much you buy.
– Tiered cards
The percentage of cash back can vary, depending on the amount and category of your purchases. For instance, you can get 3% back on supermarket purchases, 2% back at gas stations, and 1%s on other transactions.
– Rotating cards
These options offer a static rate for all purchases, but also give bonus cash back on transactions made in specific categories which change every quarter. In these cases, cardholders should activate quarterly to get their bonus, which is often limited at a few levels of spending.
How to redeem your cash back
In general, there are many ways to redeem your money from cash back rewards programs:
– Bank deposit: the most common method to get back your cash is to earn with your savings account or checking. Some programs might allow their cardholders to cash out the balance without requiring to have a minimum amount.
– Statement credit: another option is that you could choose to send your cash back into a current balance of the credit card.
– Gift card: a few service providers provide additional value by turning your cash back into eCertificates or gift cards for popular merchants such as Amazon or Walmart.
Benefits of cash back credit cards
Here are a few advantages that everybody can get when using cash back programs:
– Reduce your shopping bill
The greatest benefit of using a cash back credit cards is definitely the amount of money that you can get back after every purchase. Most programs offer a minimum percentage of 1 percent, meaning that you can save up to $100 for every $10,000 you spend. For some special categories, the rates can be higher, up to 5%. Using cash back credit cards can be an easier option for many people to spend smarter. Instead of purchasing everything with a debit card or cash, which often provides nearly zero rewards, this new method can help them save some money for shopping.
– Extra rewards on some spending categories
If you are a big fan of particular products such as sneakers, watches or clothes, then cash back credit cards can be a perfect option as many programs offer a high rate of return when you purchase more at a category. In some cases, you can receive up to 2 to 4 times more money back.
– No fee
Unlike many credit card programs which come with an exorbitant annual fee, most of the cash back credit cards are often available without an annual fee. Even when you have to pay a small charge for some services, these programs often offer a higher amount of cash back.
Which factors to consider when choosing a cash back credit card?
Before deciding to choose a cash back program, it is important to take every factor into consideration to ensure that is the best option for you.
– Annual fee
The first thing to ask when choosing a cash back credit card is: “Would the future rewards offset the annual fee? It makes no sense to pay a $50 or $75 annual membership fee if you can get back less cash during the year. If the program waives the fee after the first year, make sure to check the fee in subsequent periods.
– Spending limit
Many people often think that a 5% rate is always better than a 4% rate. However, make sure to check the spending limit as it can offset a higher rate.
– Benefits after initial sign-up incentives
Many companies provide a bonus of $200 to $300 when you start signing up for their cash back programs. However, they might require a threshold of spending to get the bonus. For example, you can only get $100 bonus after spending $1000 in the first months. Make sure to consider your shopping habits and budget to avoid wasting money on these programs just for a small amount of bonus.
Recommended cash back credit cards
– Discover it
What makes the Discover it cash back card an ideal option is that you can earn nearly 10% of money back during the first year without any fee. With its “first-year match” feature, you can earn 5% back for the first $1500 you spend in random categories which rotate quarterly. At the end of the first year, the service provider will match that 5% effectively, which means you can get up to 10% back in these categories. The bonus categories schedule in 2018 is as follows: wholesale clubs and gas stations from January to March, grocery stores from April to June, restaurants from July to September, wholesale clubs and Amazon from October to December.
– Wells Fargo
This option offers a flat rate of 1.5% on every purchase, but with the additional perk for cell phone protection which might covers for eligible theft and damage to your device whenever you pay a cellular bill with your credit card. There is a $200 bonus if you spend $1000 for the first 3 months as a cardholder. Also, you might directly redeem your money rewards from Wells Fargo ATMs.
– Chase Freedom
Without an annual fee, you can get the most out of its 5% cash back in different categories, which rotate quarterly yet being strategic with your purchases. The bonus program offers an amount of $150 after you buy $500 in the first 3 months.