Christie Matherne, Credit Card Writer
There are 3 types of cash back credit cards: flat-rate cash back cards, cash back credit cards with tiered rewards, and cash back credit cards with bonus categories that change.
Each type is good for different styles of spending. With a bit of organization, the right combination of these types of cash back cards could also help you maximize your rewards-earning potential.
3 Types of Cash Back Credit Cards:
- Flat-rate cash back credit cards give cash back rewards at a single rate for all purchases. The best flat-rate cash back cards offer at least 1.5% cash back on all purchases, plus a signup bonus, with no annual fee.
- Tiered cash back credit cards give cash back rewards at different rates depending on the amount spent over a given interval, or based on whether a purchase qualifies for a set group of bonus categories that does not change. For instance, a tiered cash back credit card might offer 2% cash back on all purchases, up to $10,000 spent in a year, and then give 1% cash back on all other purchases for the rest of the year. Or, another type of tiered cash back credit card might offer 4% back on grocery store spending, 3% back for restaurant purchases, and 1% back on everything else.
- Bonus category cash back credit cards give higher cash back earning rates on specific types of purchases, which may include purchases from certain retailers or purchases that fit a certain theme. The types of purchases that qualify for bonus cash back usually change once per quarter. For example, cardholders might earn 5% cash back on bonus-category purchases, up to a quarterly spending limit, and 1% back on all other purchases. Bear in mind that some credit cards using bonus categories for cash back will require cardholders to activate the new categories every quarter, which can be a hassle.
Knowing which type of cash back credit card is right for you is a matter of how you spend your money, so it’s good to consider how likely you are to organize your spending around categories. If you’d rather not worry about spending categories or using different cards for different types of purchases, a flat-rate cash back card is what you want. On the other hand, if you don’t mind activating spending categories each quarter, you could benefit from a bonus category cash back credit card.
If you can handle more than one credit card, however, your options grow. You could use one tiered card for groceries only, for example, a bonus category card for different rewards-rich opportunities, and a flat-rate cash back card for everything else. A mixture of cash back credit card types can get you to another level of rewards, but only if you’re able to use several credit cards responsibly.
Blue Cash Preferred® Card from American Express
Ashley Wade, WalletHub Analyst
You could say there’s a fourth type of cash back credit card too: faux cash back credit cards. Some cards kind of sell themselves as giving cash back, but when you get down to it, they’re actually giving you points redeemable for cash back. Those points are usually worth 1 cent each anyway so it’s basically as good as cash. But still worth being aware of. Chase Freedom and Freedom Unlimited are a couple notable examples. Along those lines, store credit cards give discounts on what you buy at those stores, which isn’t really cash back but still close enough if you’re going to shop there anyway.
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