Cash back credit cards work by returning a percentage of every purchase made. Some cash back credit cards reward cardholders with the same percentage back on every type of purchase. Others give bonus cash back in designated spending categories. Most cash back credit cards give cardholders the choice of redeeming cash back rewards earnings for a statement credit to pay part of the account balance, a paper check, gift cards and more. In some cases, you can also redeem a credit card’s cash back rewards for a bank account deposit.
The best cash back credit cards require good or excellent credit for approval, though there are options for people of all credit levels. Similarly, some cards charge annual fees in return for higher earning rates, but many cash rewards cards have no annual fee.
More generally, cash back is one of the three big types of credit card rewards. The others are points and miles, which you’ll see more often with travel cards. On that note, a credit card doesn’t have to be a “cash back credit card” to give cash back. Plenty of rewards credit cards, including some that offer miles and points, have cash back as a redemption option. Redeeming travel rewards for cash back often results in a lower redemption rate, however. True cash back rewards earned with a cash back credit card, on the other hand, are very versatile and don’t fluctuate in value. You can learn more below.
Here’s how cash back credit cards work:
Cash back with every purchase: The average cash rewards card offers about 1% back on all purchases. Some cards offer more cash back in certain spending categories.
Chances for extra cash back: Many cash back credit cards offer initial rewards bonuses for spending a certain amount within the first few months your account is open. Some cards also have bonuses for referring a friend or meeting an annual spending threshold.
Redeeming your cash: Cash rewards can usually be redeemed for a statement credit, check or direct deposit. You may also be able to redeem for a bank account deposit and set up automatic redemption.
Restrictions: Some credit card companies make you earn a minimum amount of cash back before you can redeem.
Cash back expiration: Sometimes, credit card cash back will expire a certain number of months after you earn it or after your card has been inactive for a certain period of time. Usually, it won’t expire as long as your card stays open.
Rewards devaluation: Unlike points and miles, whose value is set by the card issuer, cash back can’t be devalued.
Fees. Most cash back credit cards have no annual fee. Many have no foreign transaction fee. Some charge both types of fees, however.
Some of the best cash back cards on the market include Citi Double Cash, Capital One Quicksilver, Wells Fargo Cash Wise and Amex Blue Cash Preferred.
For limited or fair credit, try Capital One QuicksilverOne. And for bad credit, a good choice is Discover it Secured Credit Card. There are plenty of options for students and small business owners, too.