Unsure about how to select a cash back credit card? Making the wrong choice could mean missing out on easy rewards, while a smart decision could lead to significant cash back in your pocket.

Cash back credit cards reward you with a percentage of each eligible purchase you make. Unlike points or miles, which require calculations, cash back provides a straightforward amount that you can redeem as a statement credit, direct deposit, or check. Before applying, take the time to evaluate the options to find the best cash back card for your needs.

Pros and cons of cash back cards

To determine if a cash back card is right for you, consider the following pros and cons:

Pros:

  • Simple rewards structure
  • Multiple redemption options
  • Earn cash back on everyday purchases
  • Bonus rewards for specific categories
  • Potential for valuable welcome offers
  • Additional perks like discounts and purchase protections

Cons:

  • Often less valuable than other rewards programs
  • Managing rotating categories can be challenging
  • Some cards may have cash back limits on certain categories
  • Annual fees may apply for cards with higher cash back rates

With this overview, let’s explore the key factors to consider as you research and select the best card for your needs.

Decide which type of cash back card is right for you

Cash back cards generally fall into one of four categories:

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

There isn’t a one-size-fits-all cash back card, as the best option for you will depend on your spending habits. Flat-rate cards offer a straightforward approach for those who prefer simplicity, while cards with higher cash back rates in specific fixed or rotating categories may help maximize your overall rewards.

Flat-rate cash back cards

When you earn the same cash back rate on all purchases, using your cash back credit card is straightforward. Flat-rate cash back cards typically offer a fixed percentage—usually between 1% and 2%—on every purchase, making them easy to understand.

Whether you’re booking travel or buying groceries, you’ll receive the same cash back rate each time you swipe. These cards are perfect for those new to credit card rewards or those who prefer not to track spending categories.

A card with a higher flat cash back rate can be especially rewarding if you qualify.

If you’re considering a flat-rate card, you might be asking, “What is a good cash back rate?” Look for a card that offers at least 1.5% cash back on all purchases. Some of the top flat-rate cash back cards provide a rewards rate of 2%, although sometimes a 1.5% card may align better with your spending habits.

Fixed bonus category cards

A fixed bonus category card, also known as a tiered rate card, offers elevated cash back rates—ranging from 2% to 6%—for specific categories, while providing at least 1% cash back on all other purchases. Common bonus categories include dining, groceries, and gas.

Keep in mind that these bonus categories often have spending caps, typically enforced on a quarterly or annual basis. Once you reach the maximum limit, any additional spending in that category will earn the base cash back rate.

Fixed category cards are ideal for those who are mindful of their spending and frequently make purchases in the higher bonus categories.

Rotating bonus category cards

Rotating bonus category cards provide elevated cash back percentages—often around 5%—in categories that change monthly or quarterly. Common categories include home improvement stores, streaming services, drugstores, select retailers, and wholesale clubs.

To earn the higher cash back rate, many cards require you to activate the bonus categories, so setting calendar reminders can help ensure you don’t miss out. Additionally, issuers often impose quarterly spending caps, after which the base cash back rate (typically 1%) will apply to that category.

Cardholder choice cards

With fixed and rotating bonus categories, you’re often dependent on your card issuer for which purchases qualify for bonus rates. However, there’s a less common option that offers more flexibility: cardholder’s choice cards.

These cash back credit cards allow you to select the category in which you’ll earn a bonus rate each month, similar to rotating category cards. While you may need to set a reminder to make your selection, the ability to tailor your rewards to your spending habits can be beneficial. You know your spending patterns and upcoming purchases best, so if you prefer more control over how you earn cash back, this option might be ideal for you.

Consider getting more than one cash back card

If you find several types of cash back cards appealing, you might consider using more than one. While managing multiple credit cards isn’t for everyone, those who are responsible and organized can benefit from having a couple of cash back cards. This approach allows you to maximize rewards across all your spending.

Know how to pair cash-back credit cards

Building a diverse portfolio of credit cards can be an effective way to maximize your rewards. A common strategy is to combine 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 provides consistent cash back on everything else. As long as you keep track of when to use each card, you can enhance your cash back earnings.

Some cash back cards can also fit into a travel rewards strategy. For instance, the Chase Freedom FlexSM* and Chase Freedom Unlimited® offer cash back in the form of Chase Ultimate Rewards points. You can redeem these points for cash back or combine them with points from other Chase credit cards, like the Chase Sapphire Preferred® Card. If you redeem your rewards for travel through the Chase Ultimate Rewards program or transfer them to a travel partner, they may have a higher value than a straightforward cash redemption.

Determine whether you’re willing to pay an annual fee

Finding a solid cash back credit card with no annual fee is relatively easy. However, some cards that offer higher rewards rates may come with an annual fee. Even with this added cost, the valuable perks and benefits may make it worthwhile. Before dismissing cards with annual fees, calculate the potential benefits to see if they outweigh the cost.

In many cases, the cash back you earn, along with any annual credits or other benefits, can offset the fee. If you’re considering a card with an annual fee, review its rewards structure and benefits to determine if it aligns with your spending habits and is worth the investment for you.

Pay attention to signup bonuses and APR promotions

When selecting a cash back credit card, it’s important to consider sign-up bonuses and promotional APRs. If you’re planning to use the card anyway, why not take advantage of a 0% interest period or additional cash back rewards?

Top cash back credit cards often offer attractive welcome bonuses, sometimes worth hundreds of dollars, if you meet a specified spending threshold within the first few months. Some cards may also feature a promotional 0% APR for a limited time, which is ideal for larger purchases. In some cases, you might find cards that offer both incentives.

These welcome offers can help you narrow down your options as you compare cards. It’s also wise to consider the standard interest rate that applies after the introductory period, especially if you anticipate carrying a balance. With the average credit card interest rate exceeding 20%, costs can accumulate quickly if you only make minimum payments. However, paying off your balance each month allows you to avoid interest charges and maximize your rewards.

Evaluate additional card benefits

The additional benefits and perks outlined in the card’s terms can enhance the value of your cash back credit card when used effectively. When selecting a cash back card, don’t just focus on the rewards rate; also consider these valuable benefits:

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

Not every cash back card will include these benefits, and you may find some of them less relevant to your needs. Ultimately, assess whether you would actually utilize these perks and if they justify your choice.

Decide how you want to redeem cash back

Cash back credit cards typically offer cardholders the option to redeem cash back through direct deposits, checks, or statement credits to reduce your balance. Additionally, some cards may allow redemptions for gift cards, charitable donations, purchases with select merchants, points for travel, and more.

Keep in mind that credit card rewards are only valuable when redeemed. According to a 2023 CreditCards.com survey, 23 percent of cardholders hadn’t redeemed their rewards in the past year. When assessing a cash back credit card, consider how practical it will be for you to use. Pay attention to factors like minimum cash back redemption thresholds, expiration policies, and any restrictions on how you can redeem your cash back.

In Conclusion

You’re already spending money on everyday purchases that can total thousands each year, so why not earn cash back on those expenses? By understanding what constitutes a good cash back rate and aligning it with your spending habits, you can effectively leverage those rewards. As long as you pay your bill in full each month, you can avoid interest charges that would diminish your cash back. To further maximize your rewards, consider using a flat-rate card alongside a category card to ensure you cover all your spending needs.