Finding the Best Cash Back Credit Card for Your Needs

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.
  
  

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.