Cash back credit cards explained
The initial credit cards were simple, standard ones with no fancy advantages or programs attached to them. With the credit card use increasing and attractiveness getting higher among users, card companies have come up with several offers and loyalty programs with the intend of offering gains to both the consumer and the bank.
Credit cards with incentive programs allow cards holders to earn rewards for the purchases they make utilizing the company’s credit card. For each transaction made or a dollar spent, the cardholder gains some points and the points, thus collected, can be redeemed by the consumer.
Most companies present good cash rewards as they value a consumer’s fidelity and frequent paying ability. A requirement for many of these incentives is for the customer to have a good credit rating. Even the customer feels he is receiving something in return and likes this, making him a more reliable client.
Using cash back credit cards, cardholders can gain cash rewards for the purchases they make. Generally, on many cards, users can earn 1 % of the total purchased amount. Some card companies provide even higher percentage but just for the first few months. Often, the incentive begins at 1% and climbs up to 5 % only if you have made purchases of five to ten thousand dollars. There are some cards which give greater cash rebates only at particular business stores or for select purchases. Few companies offer 5% cash back on the select purchases with no annual fee, on the card, levied.
Generally cash back credit cards are always better than gas rebate or frequent flyer points as the card owner can use the money at his/her convenience. However, one should not be carried away by these returns and should read the offer carefully as these cash back credit cards are expensive to the companies so they normally have a yearly fee.
Suppose, a company is presenting you a great rebate but charging you a high Annual Percentage Rate (APR), then it’s not such a good deal as it can cancel out the benefits it presents. This is precisely why, while choosing a cash back credit card, the card owner must think over some points which are exclusive to every program. The percentage cash back he would be receiving must be clear.
The card owner should know the maximum authorized limit of the points earned and lastly, time/period extent within which these points have to be redeemed before they expire. A lot of cards have difficult redemption rules like points can be redeemable only in some days which a card owner may not know of and he may miss out on the gain. The card owner should always read the fine print carefully to avail the full benefits.
Cash Back Credit cards are most useful when making huge purchases as the cash back rate is high. These cards are good for those people who use their credit card widely for making purchases and most significantly, for cardholders who are regular with their monthly payments and in no way miss them. These cash back credit cards can earn decent sum of money for cardholders over a period of time if utilized the correct way.
How to Get Cash Back on a Credit Card
- Find out the specifics of your credit card. Some companies offer credit only on purchases during the first 6 months of use, while others are permanent. Also, the percentages may vary according to the type of purchase. For example, you might get 5 percent at certain places, such as gas stations and supermarkets, but less on purchases at other stores.
- Get a list of preapproved shopping places if your credit card company offers one. To get cash back on your credit card, you may need to shop at prescribed places and follow certain rules. Most credit cards offer cash back only for a limited number of retailers, and many have rules as to how much you can get back in a single month. For example, you may get 3 percent back on all purchases up to a specific dollar amount, but only 1 percent–or nothing–after that.
- Compare different levels of cash back offered by banks, companies and institutions.
- Read the fine print. Not only do some cash-back credit cards have limits on how much you can get back, those limits may also be tied to how much money you spend. This means you may get 1 percent back only for purchases up to a certain point, but get 2 percent once you have spent over a certain threshold amount for the month.
- Ask for a reward check at the end of the month or when you have accumulated enough money. Many credit cards do not automatically award the cash back to your account but instead accumulate it in a different account. Once you are ready to get this back, you must ask for a check or for the money to be credited to your account.
- Keep in mind that cash-back credit cards often have a high interest rate. Unless you pay your balance in full every month or keep it to a minimum, the rewards may not be worth the extra expense.
- Few credit cards offer cash back for online purchases. Check in advance with your company to see which retailers are authorized.
- Use your credit card as often as possible, no matter how small the amount. Even cents will add up and earn you rewards if you accumulate them consistently.
6 Best Cash Back Reward Credit Cards
Chase Freedom Visa
This card, issued by JP Morgan Chase, is considered by some to be the best of the cash-back cards. It offers a 5 percent cash back quarterly rotating discount on gas, groceries, department stores, travel, home improvement, restaurants, movies and more. When you use it to shop online, you get a whopping 10 percent back.
Blue Cash Everyday
This American Express card offers 3 percent cash back on purchases in supermarkets, 2 percent on gas and department store purchases and 1 percent on all other purchases. The best thing about it is there are no rotating categories and no minimum spending limit. And it offers a 0-percent annual percentage rate for a year. Its signing bonus isn’t as good as the Freedom Visa, but it’s not bad: You receive $100 cash back if you spend $1,000 within the first three months.
Discover offers several good cash-back cards. Like the Freedom Visa Card, the traditional Discover Card gives customers 5 percent cash back on quarterly rotating categories, such as gas, department stores, travel, home improvement, restaurants, etc. And you get an unlimited 1-percent cash back on all other purchases after your total annual purchases exceed $3,000. Purchases that are part of your first $3,000 earn a 0.25 percent rebate. The Discover Card offers a 0-percent APR for purchases and balance transfers for 15 months – a nice perk. An added bonus: You can double the value of your rebates by redeeming them for gift cards at more than 100 partners.
Citi Dividend Platinum Select
This card gives you 5-percent cash back on quarterly rotating categories, such as gas, groceries, department stores and travel, and 1-percent cash back on all other purchases. It also offers 5-percent cash back when you shop with Citi’s partner merchants.
Discover More Card
This card offers a 5-percent cash-back bonus in rotating categories, such as gas, restaurants, department stores and more. For groceries, you get 1-percent cash back. It offers 0-percent APR on purchases for six months, but one of the best things about this card is it offers a 0-percent APR on balance transfers for 18 months. You also get 24/7 access to U.S.-based customer service as well as email fraud alerts.
PenFed Visa Platinum
This card stands out for offering 5-percent cash back on gas year round, a great benefit for those who drive a lot. This card also offers no annual fee. Unlike the other cards mentioned here, this card isn’t free, but it’s not expensive either. You can get one by paying $20 to join the National Military Family Association or join the Voices for America’s Troops group for a $15 one-time fee or donate (money or blood) to the American Red Cross. If you are a federal employee, a member of the U.S. military or a Red Cross employee, it’s free.
Disadvantages of a Cash Back Credit Card
- If you do not pay the balanced amount, it will be added to the next monthly bill statement and will ultimately increase the amount you need to pay to the cash back Credit Card Company. It consists of the original balance, the previous month’s balance and the new purchases that you make. In short, pay the minimum balance on time.
- When there are repayments, the rate of interest that you need to pay to the credit company increases. The balance has to be paid in full to avoid these issues.
- Companies require a minimum payment every month. When the usage of cash back credit card is regular, it is not possible to clear the outstanding balance, as it keeps increasing.
- Next, missing payments also do not benefit cash back card holders. For example, it affects your credit card ratings as well. They get a negative rating, which may stop some of the benefits that come with these cash back credit cards.
- You may have multiple cards. More cards mean more credit to spend, but it does not mean that you had increased your income. There is a huge danger, when multiple cash back cards are stolen. The thief might change the pin codes for all the cards and he/she may make the codes the same for all.