How to choose a cash back credit card

Not sure how to choose a cash back credit card? Choose poorly and you could miss out on some of the most effortless credit card rewards out there. Choose well and you could put substantial cash back in your pocket.

Cash back credit cards reward you based on a percentage of every eligible purchase you make. Instead of calculating the cash value of points or miles rewards, you earn a straightforward amount that you can redeem as a statement credit, direct deposit or a check. Before applying for a cash back credit card, walk through the process to choose the best one for your needs.

Pros and cons of cash back cards

To understand whether a cash back card is even the right choice for you, let’s take a look at some of the pros and cons:

Pros

• Simple rewards structure
• Multiple redemption options
• Earns cash back on purchases you already make
• Bonus rewards on certain categories
• May have a valuable welcome offer
• Additional perks like discounts, purchase protections and reimbursements

Cons

• Often less valuable than other rewards
• Rotating categories may be hard to manage
• Cash back caps on certain cards or purchase categories
• Annual fee for cards with higher cash back rates

Now that you have the basics, let’s consider the factors to think about as you research and ultimately choose your card.

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Decide which type of cash back card is right for you

Cash back cards typically come in one of four types of cash back programs:

• Flat-rate
• Fixed bonus categories
• Rotating bonus categories
• Cardholder’s choice categories

There is no one-size-fits-all cash back card winner, as the credit card that can deliver the most cash back for you will depend on your everyday spending habits. While flat-rate cards can be a good choice for those who prefer a hands-off approach to earning cash back, you may be able to boost your overall return with a card that provides a higher cash back rate in certain fixed or rotating bonus categories.

Flat-rate cash back cards

When you know you’re earning the same rate of rewards for everything, using your cash back credit card becomes a no-brainer. Flat-rate cash back cards earn a fixed percentage — usually between 1 and 2 percent cash back — on all purchases. This makes it one of the simplest rewards structures to understand.

Whether you’re booking travel or buying groceries, you’ll earn the same rate of cash back on your purchases each time you swipe. These types of cash back cards are ideal for those who just started exploring credit card rewards or aren’t fans of keeping up with categories.

Plus, a card with a higher flat cash back rate can be lucrative if you qualify.

If you’re looking for a flat rate card, you might be wondering, “What is a good cash back rate on a credit card?” You should be looking for a card offering at least 1.5 percent cash back on all purchases. Some of the best flat-rate cash back cards offer a rewards rate of 2 percent — although there are times when a 1.5 percent card might better fit your spending.

Fixed bonus category cards

A fixed bonus category card, or tiered rate card, offers a higher cash back rate in specific categories — anywhere from 2 percent to 6 percent — and at least 1 percent cash back on all other purchases. Common fixed bonus categories include dining, groceries and gas station purchases.

Note, however, that bonus categories are often capped at a certain level of spending. So you may not get a good cash back rate on everything. These spending levels are typically enforced either quarterly or annually. After you’ve met the maximum spending limit, the base cash back rate applies to any additional spending in that category.

Fixed category cards are great for people who are highly aware of their spending and swipe the most within the higher bonus categories.

Rotating bonus category cards

Rotating bonus category cards offer higher cash back percentages (often 5 percent) in purchase categories that typically change every month or quarter. Some common bonus categories include home improvement stores, streaming services, drugstores, select retailers and wholesale clubs.

Many cards require you to activate bonus categories to get the higher cash back rate, so it’s a good idea to schedule calendar reminders so that you don’t miss out. Card issuers also often impose quarterly spending caps on this type of cash back, after which the base cash back rate (usually 1 percent) will apply for that category.

Cardholder choice cards

With fixed bonus categories and rotating bonus categories, you’re at the mercy of your card issuer when it comes to which purchases you earn a bonus rate on. But there’s a lesser-known option that puts you in the driver’s seat — cardholder’s choice cards.

These types of cash back credit cards work similarly to rotating category cards and let you pick which category you’ll earn a bonus rate on each month. You may need to set a reminder to choose your bonus category, but it might be worth it. You know what you spend your money on better than anyone else, and you know which purchases you have planned for the month ahead. So if you prefer a little more control over how you earn cash back, this might be the one for you.

Consider getting more than one cash back card

If several of the types of cash back cards appeal to you, you could consider carrying more than one. Managing multiple credit cards isn’t for everyone, but if you are responsible and organized, having a couple of cash back cards in your wallet offers a nice path to maximizing rewards on all your spending.

Know how to pair cash back credit cards

Assembling a toolbelt of credit cards can be part of an effective strategy to maximize your rewards. A common way to approach this is to pair one or more bonus category cards with a high-earning, flat-rate card. The bonus category card rewards your most frequent purchases while the flat rate card earns consistent cash back on everything else. As long as you can keep track of when to use each card, you’ll be in a position to maximize your cash back earnings.

Some cash back cards could even act as part of a travel rewards strategy. For example, the Chase Freedom Flex®* or Chase Freedom Unlimited® awards your “cash back” in the form of Chase Ultimate Rewards points. Then you can redeem those points for cash back or combine them with points earned on other Chase credit cards like the Chase Sapphire Preferred® Card. If you then redeem your rewards for travel through the Chase Ultimate Rewards program, or transfer them to a travel partner, they could be worth more than a cash redemption.

Determine whether you’re willing to pay an annual fee

It’s not hard to find a robust cash back credit card with no annual fee. However, some cash back cards with a higher rewards rate may charge an annual fee. Even with the added cost, you might enjoy the valuable perks and benefits that the card offers. Before you write off the cash back credit cards with an annual fee, run the numbers and see if the benefits outweigh the cost.

The cost of an annual fee can often be recouped by the cash back you’ll earn, annual credits or other card benefits. If the card you’re eyeing has an annual fee, take a look at the card’s rewards structure and benefits to determine if the fee will be worth it for you.

Pay attention to sign-up bonuses and APR promotions

The next factors you should consider when choosing a cash back credit card are the sign-up bonuses and APR promotions. If you were already going to get the credit card and spend money with it, then why not get the added bonus of a 0 interest period or extra cash back?

The most competitive cash back credit cards offer lucrative welcome bonuses ranging into the hundreds of dollars for meeting a defined spending target within the first few months of account opening. Others may grant you 0 percent APR for a limited time, which is perfect for planning out a large purchase. And, in some cases, you may have both offers available.

Welcome offers also make it easier to narrow down your choices as you compare cards. You may still want to take the standard interest rate into consideration for when your intro APR period ends in case you have to carry a balance. The current average credit card interest rate is more than 20 percent, which will add up quickly if you cannot make more than the minimum payment for any reason. However, paying off your credit card each month can help you avoid paying interest and take full advantage of your rewards.

Evaluate additional card benefits

The extra benefits and perks hiding in the card terms can make your cash back credit card more valuable when you put them to good use. When you’re choosing a cash back credit card, don’t base your decision solely on the rewards rate — look for these benefits as well:

• A welcome offer for new card members
• Travel benefits like travel insurance, trip cancellation/interruption coverage or car rental loss and damage insurance
• Purchase protection
• Extended warranty coverage
• Return protection
• Complimentary memberships or subscriptions (such as for food delivery services)
• Discounts or reimbursements on select products or services

Not all cash back cards will offer these benefits, and you may not be interested in many of these benefits anyway. Ultimately, you should consider whether you’d realistically take advantage of any of these perks and whether they’d be worth it for you.

Decide how you want to redeem cash back

Cash back credit cards usually allow cardholders to redeem cash back in the form of a direct deposit, check or statement credit to offset your balance. In addition to that, some cards may allow you to redeem cash back for gift cards, charitable donations, purchases with select merchants, as points toward travel purchases and more.

Remember, credit card rewards are only worth something when you redeem them. Twenty-three percent of cardholders hadn’t redeemed their rewards in the past year, according to CreditCards.com’s 2023 Credit Card Rewards Survey. When evaluating a cash back credit card, focus on how usable a card will be for you. Keep an eye out for issues like minimum cash back redemption requirements, cash back expiration policies and any other restrictions on how you can redeem cash back.

Compare top cash back cards

There’s no shortage of cash back credit cards with amazing benefits, valuable perks and high cash back rates. So when it comes to choosing the right one for your lifestyle, narrow it down and compare. There are few methods you can use to decide between cash back card options:

• Use the Bankrate Spender Type tool to identify the type of card that fits your spending
• List the top three to five cards that interest you
• Use Bankrate’s CardMatch tool to find cash back cards that match your credit profile
• Read through card reviews for the top cash back credit cards
• Plug your top three card choices into Bankrate’s credit card comparison tool

If you’ve narrowed it down to two cash back cards and aren’t sure which one to go with, you might find it useful to read in-depth card reviews comparing the two options. Here are a few top head-to-head cash back card comparisons:

• Chase Freedom Unlimited® vs. Capital One Quicksilver Cash Rewards Credit Card
• Wells Fargo Active Cash® Card vs. Citi Double Cash® Card
• The Blue Cash Preferred® Card from American Express vs. the Blue Cash Everyday® Card from American Express

Whether you use some of these tools and tips or all of them, it can be helpful to compare multiple credit card offers in one place. This allows you to clearly determine where the bar is and see which offers and benefits stand out from the crowd.

The bottom line

Now that you know how cash back credit cards work, you’re ready to start putting them to work for you. You’re already making everyday purchases that could add up to thousands of dollars each year, so why not earn some cash back on it?

When you know what a good rate is on a cash back credit card and how to make it work with your spending habits, you can use those rewards to your advantage. As long as you’re paying your bill in full every month, you’ll avoid the interest charges that could cut into your cash back. To take the next step in maximizing your cash back rewards, consider including a flat rate card and a category card to cover all your spending bases.

*The information about the Chase Freedom Flex® has been collected independently by Bankrate. The card details have not been reviewed or approved by the card issuer.