Cashback credit cards let you earn extra cash every time you spend money. While the premise is straightforward, some cashback cards offer more rewards than others. Savvy cardholders can maximize the amount of cash they receive back from everyday purchases by comparing cards and picking the right ones based on how you spend your money.
Knowing how these cards work can help you save a lot of money and give you more flexibility with your finances. Check out various credit and debit cards below to find the one that meets your requirements.
MoneyLion can help you explore a wide variety of credit card options tailored to different needs and preferences.
What is cashback on a credit card?
Cashback on a credit card refers to receiving cash instead of points or other rewards for every purchase. You can choose to have cashback rewards deposited into your checking or savings account. Many credit card issuers even give you the option to receive a check in the mail.
What does cashback mean?
Cashback means you will receive a percentage of your purchase back as cash. If you have a 2% cashback credit card and make a $100 purchase, you will receive $2 in cashback from the credit or debit card issuer.
Although an extra $2 isn’t life-changing, your purchases will add up. According to the Bureau of Labor Statistics, the average “consumer unit” spent $72,967 in 2022. Consumer units include families, friends living together, and people who live alone. Receiving 2% cashback on those expenses will give you an additional $1,459.34 per year.
Benefits of using cashback credit cards
Cashback credit cards offer several advantages. These are some of the top perks.
- Save money on everyday purchases: You can receive cashback on every purchase, and some cards offer extra cash for certain categories.
- Build your credit: Your creditor reports payment history to the major credit bureaus. If you repay your cashback credit card balance on time each month, your FICO score will improve over time.
- Access more capital: Improving your credit score can lead to a higher credit limit. You will then have more access to capital if you need extra money.
- Track your purchases: You can monitor your purchases at the end of each month and use them to assess if you stayed within your budget.
- Minimize the risk of theft: Credit card purchases are easier to track than cash purchases. Credit card issuers also have better theft protections than cash.
How are cashback rewards earned?
You can earn cashback rewards each time you use your credit card to buy products and services. Cardholders receive a small percentage of each purchase as cashback. Most cards offer 1% cashback on all eligible purchases, but some categories may qualify for additional cashback.
Different types of cashback credit cards
You can choose from many cashback cards, and it is a good idea to shop around. Knowing the four major cashback credit card categories can ensure you are comparing apples to apples instead of comparing apples to oranges. These are the different types of cards.
Flat-rate cashback
Flat-rate cashback programs offer the same rate regardless of what products and services you buy. These cards are the least complicated since the reward is the same. You don’t have to think about using the right card for specific purchases to maximize your earnings. Some cards offer 1.5% cashback on all spending categories.
Elevated rewards on preferred categories
Some cashback cards offer additional rewards like 2% cashback on groceries and gas while offering 1% cashback on everything else. Some people accumulate cashback cards that offer elevated rewards on different categories to maximize their total cashback. However, this route will require more hard credit checks, and keeping track can get complicated.
Rotating categories
Some cards offer an elevated cashback reward for a specified category each quarter. You might get up to 5% cashback for some of these cards in the designated category and receive 1% cashback for all other purchases. Since the special category changes each quarter, you will have to stay on top of the cashback credit card categories to see deadlines and what the next category is.
Bonus cashback for specific merchants or purchases
Some merchants incentivize you to shop with them more often by offering cashback credit cards. You will receive more cashback if you shop at that merchant’s store. Walmart offers a cashback credit card that lets you earn 5% cashback on all Walmart purchases within the first 12 months of opening your card. The card then offers 2% cashback on Walmart purchases after the first year. If you regularly shop at a retailer, you may want to see if that company offers a cashback credit card.
How to redeem cashback rewards
You can designate the bank account where you will receive funds. You can also receive a check in the mail if you prefer. You can even request a gift card or use the cashback rewards to reduce your credit card’s balance.
Tips for maximizing cashback rewards
These are some of the strategies you can use to maximize your cashback rewards.
Choosing the right card based on spending habits
Look for credit cards that offer higher cashback for your most common spending categories. If you do most of your shopping at Walmart locations, a Walmart cashback rewards card can be a great choice. Some cashback cards offer higher rewards for travel which can help people who frequently go on vacations or business trips.
Strategically using bonus categories and rotating categories
You can get approved for multiple cashback cards to get more category coverage. Some people get a retailer card when they shop at their favorite retailer, but it wouldn’t make sense to use that same card to book an airline ticket. You can use a travel cashback credit card instead to get additional cashback for your travel spending.
Some cards offer higher cashback rewards for groceries, gas, electronics, and other categories. Having multiple cards will increase the likelihood of earning more than 1% cashback on every purchase.
Leveraging sign-up bonuses and referral bonuses
Many credit cards use sign-up bonuses to encourage high spending within the first few months. You can receive a few hundred dollars from some issuers if you fulfill the spending requirements. You will receive more cashback with this strategy and can even get additional rewards if you refer new cardholders. Each credit card issuer has different rules on bonuses.
Avoiding common pitfalls that can limit cashback earnings
Limiting yourself to one cashback rewards card is a common mistake that limits how much you can earn. Not using a flat-rate card is another common pitfall, as this card can help with miscellaneous expenses that don’t have the category bump from your other cashback cards. Using your credit card to buy goods and services instead of cash will also increase how much you can earn.
Pay off the balance in full each month
Paying off your balance in full each month will keep you out of debt and help you avoid interest accumulation. This is a good practice, but it also helps with your rewards. Credit card issuers can pause your cashback rewards if you miss payments or have a substantial balance. Credit card issuers explain their process in the terms and conditions.
How to choose the best cashback credit cards
Comparing multiple credit cards can help you receive better terms and higher cashback rewards. Seeing which cards you qualify for can improve your long-term finances, but finding the right card isn’t easy. These top credit and debit card options can put you on a good path and help you find cards based on your needs and preferences.
Get cashback from your credit card
A cashback rewards credit card is a useful resource that lets you save money on every purchase. Opening multiple cards may allow you to make more purchases where the cashback exceeds 1%. It can take time to compare cards, but it can be well worth it if you find the right cards based on your spending. It’s possible to earn more than $1,000 each year just by using cashback credit cards for your regular purchases.
FAQ
What is cash back?
Cashback refers to money you receive for buying a good or service with an eligible credit or debit card.
How does cash back work on credit cards?
You will receive a percentage of cashback from every purchase. You can decide how you receive those funds.
What is a cash back credit card?
A cashback credit card allows you to earn rewards for every purchase. Many cashback credit cards let you earn additional money for specific categories.
