Credit Karma Guide to Cash Back Credit Cards
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This offer is no longer available on our site: Chase Freedom®
If you want to start earning cash back on the purchases you make every day, Credit Karma can help. Earning cash back with credit cards can be as simple or complex as you'd like. In general, more complexity gives you the opportunity to earn more cash back.
A cash back credit card is simply a credit card that gives you the opportunity to earn cash rewards based on your spending. Cash back rewards are usually paid out by a check, direct deposit or statement credit.
In its simplest form, a cash back credit card can offer you a flat percentage of your purchases in cash back rewards.
That said, the issuers of cash back credit cards have gotten very creative with their offerings. Some cash back credit cards offer bonus cash back in particular categories year-round, while others offer bonus cash back in categories that change each calendar quarter.
With all the different options out there, it’s easy to see how you could get overwhelmed when trying to find the right cash back card for yourself. Thankfully, we can help you figure out the best card for your wallet.
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Are cash back credit cards worth it?
Cash back credit cards are generally some of the simplest rewards credit cards available. In most cases, it only takes two steps to earn and redeem your cash back:
- Make purchases on your credit card. You’ll be rewarded with cash back based on the terms of your rewards program.
- Redeem your rewards. Once you accumulate enough rewards, you can typically redeem them for cash back in the form of a check, statement credit or gift card.
To many people, this simplicity is what makes cash back credit cards more appealing than other types of rewards credit cards.
But simplicity isn’t the only thing these cards have going for them. Many cash back credit cards offer hefty amounts of cash back, making them highly competitive as far as rewards cards go. We’ll dive into a few of those cards a bit later in this guide.
Of course, many folks still opt to navigate the murkier waters of travel rewards cards, which may offer more value with their points- and miles-based rewards programs. But if you’re fine with earning a decent amount of rewards rather than the absolute optimal amount of rewards, you may be happy to leave the headaches of other rewards credit card programs behind and stick with the relative simplicity of cash back rewards cards.
Don't travel cards offer more value?
Perhaps. But travel rewards credit card programs can be much more complicated than cash back credit card programs.
For instance, many travel rewards cards earn points that may have no set value. You'll need to research how to redeem your points for the best possible value while finding availability for your chosen reward type, such as hotel stays or airline tickets.
Different travel rewards cards may also have different redemption options, which sometimes include transferring points, as well as converting them to miles, to yet another rewards program, such as an airline's loyalty program.
While having more options usually presents the opportunity to get more value per point or mile, those options come at the cost of more time spent researching and planning to get the best deal.
If you like to maximize your rewards to get the absolute best possible deal, the challenges with many travel rewards programs may be worth the additional hassle for you.
For many people, however, the hassle involved with many travel rewards credit card programs simply isn't worth the headache.
Optimizing your cash back earnings
How much can you actually earn with cash back rewards credit cards? The answer depends on how much time you’re willing to spend optimizing your cash back earnings.
To fully optimize, you’ll likely need multiple cards to earn the most possible cash back. For instance, here is a two-card combination that earns you higher rewards on everyday spending and standard rewards on all other purchases.
- 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1% cash back)
- 6% cash back on select U.S. streaming subscriptions
- 3% cash back on transit, including taxis/rideshares, parking, tolls, trains, buses and more
- 3% cash back at U.S. gas stations
- 1% cash back on other eligible purchases
- 1% cash back on all eligible purchases and an additional 1% as you pay off those purchases on your credit cards; in other words, you’ll get cash back twice — when you spend money and when you pay off your balances
If having two cash back credit cards in your wallet sounds a bit intense, don’t sweat it. You can usually get by with just one cash back card if your goal is simply to earn a solid amount of cash back for purchases you’d make anyway.
What are the major types of cash back credit cards?
There are three major types of cash back credit cards: flat rate, bonus category and rotating bonus category. Let's take a quick look at how they differ.
- Flat-rate cash back credit cards are easy to understand. For every dollar in purchases you make, you'll earn a flat percentage of that dollar as cash back rewards.
- Bonus category cash back credit cards are the next step up in complexity. You'll usually earn a flat rate on all purchases, but you'll earn bonus cash back on purchases in set categories.
- Rotating bonus category cash back credit cards require more effort to optimize. These credit cards usually offer a flat rate on all purchases, but then offer bonus cash back in categories that change quarterly.
Heads up: Some rotating category cards require you to activate your bonus category cash back each quarter to earn the bonus cash back.
If you do go with multiple cash back cards, there are some basic guidelines you should follow.
Whenever you’re out shopping, use the card that offers the highest cash back rate for each purchase. Juggling multiple cards can take some getting used to, but it may become second nature once you get the hang of it.
Holly Johnson, credit card expert at Club Thrifty and Credit Karma contributor, suggests you should also “make sure you’re using your card for all purchases that can be made with credit.”
That means always using your card to pay for everyday purchases like groceries and gas. You may also want to explore some less conventional ways you can use credit. For instance, some landlords may accept credit cards for rent payments. Just make sure yours doesn’t charge a fee for doing so, as any fees can eat into (or totally negate) the cash back you earn.
Want cash back rewards?Compare Cash Back Cards Now
Potential pitfalls of cash back credit cards
Cash back credit cards aren’t all sunshine and roses. If you’re not careful, you can get yourself into a sticky financial situation. Here are some pitfalls you should try to avoid when using a cash back card.
Carrying a balance and paying interest
Carrying a balance can be one of the quickest ways you can get yourself into financial hot water. If you don’t pay your balance off in full each month before your grace period ends, you’ll end up incurring interest charges on your purchases.
This can be especially painful with cash back cards, which generally come with higher APRs than the national average to make up for the additional benefits. Leaving a balance on your card even for a short time can quickly wipe out the cash back you’ve earned over many months.
Allowing fees to eat away at your earnings
“It’s also important to compare the rewards you’re earning against the annual fees,” says Alex Cohen, CEO of Birch Finance.
Annual fees and other fees, such as late fees and return payment fees, can quickly eat away any bonus rewards you earn on a premium cash back credit card. Run the numbers to see if the cash back you’d earn from your projected spending beats what you could earn with a no-annual-fee card.
Forgetting to activate rotating category bonus cash back
While not nearly as bad as paying interest and fees, you can lose out on a decent amount of cash back on rotating category cards if you forget to activate the bonus categories.
Chase Freedom® requires you to activate your rotating cash back categories once per quarter. You can generally activate a couple of weeks before the quarter starts. You may have up until a couple of weeks before the quarter ends to activate and still earn rewards for category purchases from that entire quarter.
One of the easiest ways to remember to activate your quarterly bonus categories is to set a reminder on the calendar or app of your choice. When you activate your bonus categories one quarter, go ahead and set another reminder for the next quarter.
If you forget, you won’t get the bonus cash back percentage on any spending in that quarter’s categories.
Other pitfalls to watch out for
Other common cash back credit card pitfalls are often found in the fine print.
For instance, some cash back programs require you to reach a minimum amount of cash back before you can redeem your rewards. The Citi® Double Cash Card won’t let you redeem your cash back until your cash rewards balance totals $25 or more.
Other programs may have caps on the amount of cash back you can earn in total or in a bonus category.
“If your card has a cap, you’ll want to monitor how much you’re spending and make sure you don’t overspend on the category bonus,” Cohen says.
Spending that exceeds the cap typically only earns a shrug-worthy 1% cash back.
Make sure you read through all terms and conditions and any other documents that govern how your cash back rewards program works to make sure you’re aware of any potential issues.
The best cash back credit cards
When it comes to cash back credit cards, what’s “best” for you may depend on your spending habits. With that in mind, here are our favorite cash back credit cards in each of the major subcategories.
Best flat-rate cash back card: Citi® Double Cash Card
While some other popular cash back cards offer 1.5% cash back, Citi® Double Cash Card offers even more. With this card, you’ll earn 2% cash back (1% cash back on all purchases and 1% cash back every time you pay off those purchases).
One drawback is that it charges 3% for foreign transactions, so you may want to use another cash back card when traveling overseas or making purchases in foreign currencies.
Best bonus category cash back card: Blue Cash Preferred® Card from American Express
The Blue Cash Preferred® Card from American Express offers cash back at a monster rate of 6% on U.S. supermarket purchases. This rate applies on up to $6,000 in purchases per year, and then it reverts to 1%.
The card also offers 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations and transit (including taxis/rideshares, parking, tolls, trains, buses and more), as well as 1% cash back on all other purchases. All cash back is earned in the form of Reward Dollars, which can then be redeemed after the minimum 25 Reward Dollars have been reached.
Just be aware that this card has a $95 annual fee, which eats away part of your cash back. You also won’t earn bonus rewards at superstores or warehouse clubs, so if you do most of your grocery shopping or gas purchasing at Costco or Sam’s Club, you’ll only earn 1% back.
Best rotating category cash back card: Discover it® Cash Back
From a purely cash back perspective, the Discover it® Cash Back is the best rotating category cash back credit card. It offers 5% cash back on up to $1,500 in total purchases per quarter in rotating categories when you activate (1% after the cap) and 1% on all other purchases. Additionally, Discover will automatically match the cash back you earn after your first 12 consecutive billing periods.
Chase Freedom® is another potential winner in this category. We put it head-to-head with Discover it® Cash Back and found some surprising results.
How to pick the best cash back credit card for you
To pick the best cash back credit card for you, you need to know how much money you spend in each major rewards category. Common bonus spending categories include groceries, gas, department stores, travel and dining.
Once you know your top spending categories and how much you spend in each, project how much cash back you can earn with each card you're considering. Make sure to consider different bonus category credit cards as well as flat-rate credit cards to see which card will earn you the most rewards.
Finally, don't forget to subtract any fees or other charges that may reduce your cash back earnings. Annual fees are the most common, but if you know you'll use the card for a balance transfer or foreign transaction, don't forget to subtract those fees from your earnings to find what's truly the best cash back card for you.
Not-so-great cash back credit cards
Not all cash back credit cards were created with the goal of providing great value to consumers. Here’s an example of a card that misses the mark.
BuyPower Card from Capital One®
While the BuyPower Card from Capital One® offers 5% cash back earnings on the first $5,000 in purchases each year (and 2% cash back on all other purchases for the rest of the year), this card’s generous rewards come with limited redemption options.
Cash back earnings can only be redeemed against the purchase or lease of a new GM vehicle. If you’re planning to buy a new GM vehicle, you may find this card useful, but if you prefer used or non-GM vehicles, this card’s rewards would be essentially useless to you.
Want cash back rewards?Compare Cash Back Cards Now
Earning cash back can be as easy or as complicated as you want.
Whether you prefer flat-rate, bonus category or rotating bonus category cards, you’ll want to check out our list of cash back credit cards. If you’ve decided you want to maximize your rewards value even more, check out these travel rewards credit cards.
Below, we've included some more reading in case you're interested in diving deeper.
Battle of the 1.5 percent cash back cards: Chase Freedom Unlimited® vs. Capital One® Quicksilver® Cash Rewards
In a head-to-head comparison, the Chase Freedom Unlimited® emerges a clear winner of the 1.5% cash back rewards cards. Learn why our editors prefer this card over the Capital One® Quicksilver® Cash Rewards Credit Card.
Barclaycard Arrival Plus® World Elite Mastercard® vs. Citi® Double Cash Card: Double the miles, or double the cash?
It's a close call, but the winner of Barclaycard Arrival Plus® World Elite MasterCard® vs. the Citi® Double Cash Card goes to the card with the better long-term value. That's the cash back powerhouse from Citi.
Three cash back cards, and only one can be crowned the winner. If you're willing to put in a little extra work, Discover it® beats two strong entries from Chase.