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Finding the Best Cash Back Credit Card for Your Needs

There are many different types of cash back credit cards. Explore all to find the best credit card that fits your needs and pocket.

By Megan Doyle | American Express Credit Intel Freelance Contributor

6 Min Read | September 22, 2020 in Cards

 

At-A-Glance

Cash back credit cards are the most popular type of reward card.

There are three types of cash back card: flat-rate, tiered, and rotating bonus.

Understanding each type’s pros and cons can help you find the best cash back card for you.

Our "What is Cash Back?" article explains how cash back credit cards offer an easy-to-use rewards system with a lot of flexibility. It’s no wonder that a recent survey found cash back cards are the most popular type of rewards credit card.1 After all, who wouldn’t want a straightforward way to earn a little extra money by spending money? 

 

But when there are so many cash back credit cards to choose from, how do you pick the best one? And why choose cash back rewards over points? 

 

Let’s explore what you need to know to help find the best cash back credit card for your needs. 

 

Cash Back Credit Cards Come in Three Types

There are three types of cash back credit cards, any one of which could be best for you:

  • Flat-rate.
  • Tiered.
  • Rotating bonus.

Each has different pros and cons.

 

Flat-rate. These cash back credit cards offer the same percentage back on every purchase made with that card, typically 1 to 1.5%. So, if you spend $1,000 every month you’d get $10-15 back – usually as a statement credit.2

 

Pros of flat-rate cash back cards:

  • Easy to understand – the reward is always the same.
  • Usually no annual fee.
  • Usually no limit to the amount of cash back you can earn.
  • Could be your best cash back credit card choice if your buying spreads by-and-large equally across many different spending categories.

Cons of flat-rate cash back cards:

  • Low overall cash back rewards.
  • You can miss out on bigger rewards if spend concentrates in one or two categories – say, groceries and gas.

Tiered. Tiered cash back credit cards offer a higher cash back percentage in certain spending categories like groceries or gas, and a lower rate on all other purchases. For example, you might get 3% back on groceries, 2% on gas, and 1% on all other purchases.3

 

Pros of tiered cash back cards:

  • Extra cash back rewards in specific categories.
  • Better rewards if you spend a lot on specific categories like travel, groceries, gas, etc., or if you’re willing to concentrate spending in one area.

Cons of tiered cash back cards:

  • More likely to have annual fees.
  • Rewards can be small outside of bonus categories.
  • There might be a limit on cash back in high-tier categories.

Rotating bonus. The spending categories on which you can earn higher cash back percentages change periodically with rotating bonus cards. For example, you might get 5% back on gas from April to June, and 5% back on dining from July to September. Other purchases usually get a 1% return. The higher reward category usually changes every three months or so, but you won’t receive the higher cash back percentage automatically – you typically must “activate” bonus rewards in advance. Most card issuers release a calendar of all bonus categories for each year, so you know what to expect and when to opt-in.

 

Pros of rotating bonus cash back cards:

  • Usually no annual fee.
  • Best cash back rewards in specific rotating categories.
  • Categories reflect everyday purchases, like gas, groceries, dining, and home improvement.

Cons of rotating bonus cash back cards:

  • Extra rewards from bonus categories not automatic – you must activate them in advance.
  • Cash back in bonus categories may be limited – you might receive 5% for the first $1,500 spent and 1% thereafter.

 

The Benefits of Cash Back Credit Cards Over Points Cards

Regardless of the type of rewards credit card you choose – points, miles, or cash back – you’ll be able to earn or save a little money by spending money. But there’s a difference between how cash back credit cards work versus points and miles reward systems.4

 

Rewards points and miles cards: You can usually only use points to buy things offered by the card issuer. Depending on the card, this can range anywhere from plane tickets to gift cards to gasoline. They’re also harder to understand, since the value of points and miles rarely equals a dollar – and the value can change depending on where you redeem your points.5

 

Cash back cards: You get cash back in the form of points that correspond directly to dollars and accumulate over time on your credit card statement. You typically use the points in set increments as a statement credit that helps pay your credit card bill, although you generally cannot use a statement credit against your minimum payment due. From time to time, the best cash back credit cards usually offer other ways to redeem your rewards, such as charitable donations, gift cards, and more. This is easier to understand than points, because cash back rewards have a clear exchange rate with dollars and cents – and a dollar’s a dollar! 

 

None of which should suggest that points and miles cards aren’t worth it, depending on your lifestyle. They can offer lucrative rewards if you’re a big traveler. Understanding and redeeming your points just requires a bit more effort – and math skills.

 

How to Choose the Best Cash Back Credit Card for You

When shopping for the best cash back credit card, it’s important to understand your lifestyle needs and spending habits. If you want to keep it simple, a flat-rate card could do the trick. But if you’ve got a long commute to work and fill up your gas tank several times a week, you might want a tiered card that offers a high percentage of cash back on gas. Or, if you have a big family, you might want to consider a card that offers a high cash back bonus for groceries. 

 

Ultimately, the best cash back credit card depends on what you need. 

 

But don’t forget – a credit card’s benefits go beyond its rewards. In fact, 36% of card members say they don’t fully understand all the benefits available to them, according to a 2019 study by J.D. Power.6 Be sure to check for any non-cash back perks, like whether it’s a card with no foreign transaction fees, or a card that offers free traveler’s insurance. 

 

As always, it’s a good idea to understand the card’s specific terms and conditions. This includes cash back-related stipulations like when and how to redeem rewards, if there are any limits to getting cash back, and whether or not your rewards will expire. It also includes the card’s other details, like APR, annual fees, balance transfer fees, and more.

 

The Takeaway

Cash back credit cards are a great way to earn money back on everyday purchases. But there are a lot of types to understand, and many cards to choose from. To find the best cash back credit card for your needs, it’s important to understand not only your spending habits, but the full range of benefits and conditions for each credit card.

Megan Doyle

Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.