Best Cash Back Credit Cards

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.

Choosing between cash back rewards and travel rewards ultimately comes down to your spending preferences, the perks that specific cards offer, and how you plan to redeem rewards earnings. In general, people looking for flexible redemption options and rewards with clear values that can't be changed by the card's issuer should choose cash back rewards. But frequent travelers who enjoy perks such as free flights, airport lounge access, and hotel room upgrades have the chance to earn more total value from travel rewards.

With travel rewards credit cards, the number of points or miles you'll need to redeem for a free flight or hotel night, for instance, varies from issuer to issuer and card to card. Points/miles can also lose their value any time the card's issuer decides to raise the number needed to get a certain dollar amount in redemption value. Cash back rewards, on the other hand, are easy to understand and will retain their value because they're already expressed in terms of dollars and cents.

All told, cash back rewards are the better way to go for most people. However, there are a number of variables to consider on both sides. Not everyone always needs to choose between cash back and travel rewards, either. Having both a cash back credit card and a travel rewards card in your wallet can make sense in some situations.

Cash Back vs. Travel Rewards Credit Cards

When choosing between cash back and travel rewards, it's important to be realistic in how you're going to use the card. And whichever type of rewards you pick, make sure to pay your bill in full each month, or else you could end up spending more in fees and interest than the rewards are worth.

Bottom Line: Cash Back vs. Travel Rewards

• You should get a cash back credit card if you want to earn everyday rewards and enjoy straightforward, flexible redemption options.
• You should get a travel rewards credit card if you travel multiple times per year and are confident you'll earn enough in rewards to cover the cost of the annual fee – without overspending.
• You should have both if you can manage more than one account responsibly and want the best collection of earning rates for your biggest spending categories. Just make sure you pay your balances in full each month.

As long as you use your credit cards responsibly, you have the potential to reap lucrative rewards on your everyday purchases. Just be sure to actually put those rewards to use. Rewards that go unredeemed defeat the purpose getting the card in the first place.

Cash back credit cards are worth it if the value of the cash back is greater than the cost of the card. The best cash back credit cards with the highest rewards rates and signup bonuses sometimes have annual fees. In that case, you need to be sure the cash back that you earn will offset the cost of the annual fee (and then some). For cash back cards that have no annual fees, the cash back is free money as long as you don't get charged interest.

Many cash back credit cards let cardholders earn more cash back than the cost of the annual fee. However, what you really want is a card that allows you to earn cash back as efficiently as possible. Some cash back cards give a flat cash back rate for all purchases. There are also cash back cards that will reward you more for bonus categories, like gas, groceries, or dining. The highest flat cash back rate is 2.5%. For bonus categories, you can earn up to 6% cash back.

Wherever you spend the most money on your credit card will determine whether a flat-rate cash back card is better for you, or a card that'll earn you bonus cash back in specific categories. If you're looking for a new cash back card, check out the best cash back credit cards and find the one that's most worth it for you. But remember, as with any card, you need to be sure to use a cash back credit card responsibly for it to be worthwhile in the long run. 

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:

1. 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.
2. 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.
3. 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.

Some of the most common cash back bonus categories for credit card rewards are supermarkets, gas stations, dining, and entertainment. You may also see streaming services, internet services, wholesale clubs, drugstores, or specific retailers such as Amazon, Walmart or Costco. How many of these you'll see as bonus categories depends on the credit card, and whether or not it has rotating categories. They're usually not all available at once, in one package, though.

Some cash back credit cards change their bonus categories frequently - usually once per quarter. But credit card companies that issue cards with rotating rewards will usually release a “calendar” of cash back bonus categories. That's key because some credit cards will require you to activate or sign up for new bonus categories before you can start earning the bonus cash back rate on eligible purchases.

Other cash back credit cards have a tiered cash back system. This means your cash back bonus categories won't change from quarter to quarter, and may never change at all. So when you get approved for a tiered cash back credit card, the cash back categories you have are likely the only ones you'll see.

It's a good idea to enter the world of bonus categories with a method in mind. Keep track of when your credit card's bonus categories change, and set a calendar alert as a reminder to activate the new categories. You can also get more than one cash back credit card and use them according to the Island Approach. Label your credit cards by category, so you'll know which one you should use for certain purchases – like gas, groceries, or dining out, for example – when you open your wallet.

The biggest pros and cons of cash back credit cards are convenience, saving money and credit-building on the positive side, with the risk of overspending and hurting your credit standing as potential disadvantages. The main pros and cons of cash back credit cards are thus quite similar to the overall advantages and disadvantages of using credit cards.

There are other, more specific perks and drawbacks associated with cash rewards cards in particular, too. Other benefits of cash back credit cards include the fact that cash back is the most straightforward type of credit card rewards, the $0 annual fees that many cash back credit cards offer, and the availability of cash back credit cards to people of all credit levels. On the other hand, cash back cards may provide less overall value compared with travel rewards; even cash back rewards can expire sometimes; rewards cards of all types usually have high regular APRs; and some of the best options have annual fees.

When you boil down each side of the cash back coin, cash back credit cards have more stable rewards overall than other rewards credit cards. And, assuming you pay your balance in full every month, you're likely to profit from them. It's hard to argue with getting a percentage of your purchases back for free.

The many upsides of cash back credit cards are likely why 74% of Americans prefer cash back rewards over miles, hotel points, or even free gas. The cons are simply not enough to overcome the pros. That said, the cons should also be accounted for when you're shopping around for a cash back credit card.

Top 5 Pros and Cons of Cash Back Credit Cards

At a glance, it may seem like cash back credit cards are at least as troublesome as they are beneficial. And they certainly can be, if you pick the wrong card for your lifestyle. The key is to maximize the pros of a cash back credit card and minimize the cons in the context of your own personal habits and preferences.

Pros of Cash Back Credit Cards:

• Cash back is straightforward. Rewards from a cash back credit card are earned in dollar amounts, and redeem in dollar amounts, leaving little room for confusion.
• Credit card companies cannot devalue cash back. Cash back is the most stable form of credit card rewards because its units are in dollar amounts. The value of points and miles, however, are up to the card issuer, and can change at any time.
• Signup bonuses are common among cash back credit cards. Cash back credit cards can come with cash signup bonuses. Though these generally come with a spending requirement, a cash back card will give you a percentage of that spend back, plus the cash bonus.
• Many cash back credit cards don't have annual fees. There are definitely exceptions to this, but there are so many cash back credit cards on the market without annual fees, you'll have more than a few to choose from.
• Cash back credit cards often have 0% intro APR deals. If you want to make a big-ticket purchase but you're worried about a cash back credit card's high regular APR, find one with a 0% APR period on purchases. That gives you time to pay off the purchase without paying interest.

Cons of Cash Back Credit Cards:

• Limited total value compared to travel rewards. Travel rewards have the potential to be more valuable than cash back rewards, unit for unit, especially if you redeem them for travel. So if you travel frequently, you're likely to profit more with a good travel credit card than a cash back credit card.
• Potential for earning caps and enrollment requirements with bonus rewards categories. If a single cash back category is the reason you're applying for a certain credit card, check the card's terms for spending or earning caps in that category. Caps are usually a dollar amount within a certain timeframe, like a quarter or a year. Also, you may have to enroll to “activate” a new category every quarter with some cash back credit cards, so your earnings may not be automatic.
• Rewards expiration due to account closure, missed payments and/or inactivity. Some cash back credit cards have rules in their terms stating that you forfeit any earned rewards if you make a late payment or your account is closed for any reason. Some cash back rewards expire if you don't use the credit card for a certain length of time.
• High regular APRs are the norm with rewards cards. Even if a cash back credit card comes with a 0% APR intro period, it's likely to have a high regular APR. Paying interest can negate the overall value of cash back earnings very quickly.
• Some of the best cash back credit cards have annual fees. Though there are many free cash back credit cards, the ones that give the highest cash back rates - beyond 5% back - will more than likely charge an annual fee.

There are many kinds of rewards credit cards on the market today, from travel rewards cards to luxury hotel credit cards to simple flat-rate cash back cards. But unless you're specifically looking to save on frequent travel, cash back is king.

The best 2% cash back credit card is the Citi® Double Cash Card – 18 month BT offer. Citi Double Cash is the best 2% cash back credit card because it has a $0 annual fee and gives unlimited 1% cash back when buying something plus another 1% when paying for it, for a total of 2% cash back on all purchases.

For a rewards credit card, 2% cash back on everything is about the best you can aim for. That's why Citi Double Cash is the best cash back credit card on the market right now. But there are a few other great 2%+ cash back credit cards to consider when shopping for the best deal.

Best 2% Cash Back Credit Cards

• 2% cash back on all purchases: Citi® Double Cash Card – 18 month BT offer.
• 2% cash back at grocery stores and wholesale clubs: Bank of America® Cash Rewards Credit Card for Students.
• 2% cash back at Costco (plus 4% on gas at Costco): Costco Anywhere Visa® Card by Citi.
• 2% cash back at U.S. gas stations and U.S. select department stores: Blue Cash Everyday® Card from American Express.
• 2% cash back on $1,000 in combined restaurant and gas station purchases per quarter: Discover it® chrome.

At the end of the day, Citi Double Cash is the best 2% cash back credit card because it offers an unlimited 2% cash back rate on all purchases. Most 2 percent cash back credit cards put a cap on the amount you can earn with 2%+ rates. Or they only give the rate on certain categories of purchases.

Credit card rewards are not taxable in most cases. The IRS views credit card rewards the same way they view discounts, and discounts aren't taxable. Rewards credit cards give points, cash back, or miles on purchases, which you can then redeem for statement credits, gift cards, merchandise, and travel expenses. Because of that, it's like you're getting a small discount every time you make a purchase.

There are some situations in which credit card rewards may be considered taxable income. Many credit cards offer a signup bonus for new cardholders that is rewarded once they meet a minimum spending requirement. For example, you might get $150 for spending $500 within the first three months. If you receive a signup bonus for meeting a spending requirement, that bonus is not taxable. However, if you receive a bonus without meeting any spending requirement, then it is considered taxable income. To make it simple, if you've done nothing in exchange for the rewards, they're considered taxable.

Currently, though, there aren't any credit cards offering bonuses for nothing in return – at least any you have to worry about tax-wise. Even credit cards that don't have a high minimum spending requirement usually require that you make a purchase before receiving the bonus. Others just give you a gift card, which isn't considered taxable income, either.

When it comes to anniversary and referral bonuses, lines aren't as clearly drawn. Some anniversary bonuses require that you spend a certain amount each year to receive the bonus, or renew the card by paying the annual fee. In these cases, an anniversary bonus clearly falls into the “not taxable” category. Referral bonuses, on the other hand, likely will be considered taxable income. American Express and Chase even send out a Form 1099-MISC to file with the IRS after cardholders earn referral bonuses.

Business credit card rewards differ slightly in terms of whether they're taxable or not. While the actual rewards you get from your business credit card aren't taxable, the IRS will expect you to subtract them from the business expenses you report. You'll have to consider the rewards as discounts on your business expenses, which will reduce the amount you're able to deduct on your taxes.

To sum things up, the only times you have to be concerned about credit card rewards and taxes are if you have a business credit card or you receive a bonus without doing anything to get it. Other than that, you can enjoy the rewards you earn without a second thought.

The best credit cards for at least 3% cash back in major spending categories are:

• Blue Cash Preferred® Card from American Express
• Chase Freedom Unlimited®
• Discover it® Cash Back
• U.S. Bank Cash+™ Visa Signature® Card
• Capital One® Walmart Rewards® Mastercard®

All of these credit cards give 3% cash back, or more, on some types of purchases. There is no credit card currently on the market that gives 3% cash back on all purchases. The best flat-rate cash back credit cards typically give 2% cash back on all purchases.

The best $200 cash back credit card is the Bank of America Cash Rewards credit card because it requires just $1,000 spent in the first 90 days to qualify. Other cards with big signup bonuses require three times as much in initial spending. The Bank of America Cash Rewards credit card also offers 1 - 3% cash back on purchases, and it has a $0 annual fee.

Another good choice is Blue Cash Preferred from American Express. It offers a $300 bonus for spending $3,000 within the first 6 months. It has an annual fee of $0 intro 1st yr, $95 after. But in return, it gives 1 - 6% cash back on purchases – 6% at grocery stores (on the first $6,000 spent the first year); 6% on streaming subscriptions; 3% at gas stations; 3% on rideshare services, parking, tolls, trains, and taxis; and 1% on all other purchases.