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A cash-back credit card earns rewards in the form of cash.
- A cash-back credit card is a type of rewards credit card that earns cash back on your spending, based on a percentage or tier.
- Cash-back credit cards like the Chase Freedom and Chase Freedom Unlimited are annual fee-free, while others like the Blue Cash Preferred® Card from American Express and the Capital One® Savor® Rewards Credit Card carry a $95 annual fee.
- When you're considering whether you should get a cash-back credit card, it all comes down to being realistic about whether you'll use the rewards.
- See the best cash-back credit cards of 2019.
Are you looking for a new credit card? There are many credit cards to choose from but one of the options you can consider is a cash-back credit card.
What is a cash-back credit card?
A cash-back credit card is a type of credit card that offers cash back on your purchases. Credit card issuers offer cash back as an incentive for spending, so every time you make a purchase you're also getting some money back. Typically, the cash back is a small percentage of your spending. So it's not a way to get rich quick, but a way to earn some money back when you spend.
The good news is that the money you earn from cash back is earned tax-free. In the eyes of the IRS, cash back is considered a rebate and is not included in your gross income. Using a cash-back credit card can be used as part of your financial strategy to manage spending and earn some extra cash on purchases you'd make anyway, like groceries or Netflix.
But in order to be eligible for a cash-back card, you need good credit. cash-back credit cards are a type of rewards credit card and are often reserved for consumers with good credit.
How does a cash-back credit card work?
There are many credit card issuers that offer cash-back credit cards. Each issuer has their own rewards system.
Some credit card issuers offer cash back as a flat percentage of spending, whereas others might offer cash back with tiered rewards.
The Chase Freedom Unlimited, for instance, offers a flat percentage of 1.5% cash back on all purchases. The Chase Freedom, on the other hand, offers 5% cash back up to $1,500 on purchase categories that rotate quarterly, and 1% everywhere else. One quarter you might earn 5% cash back at gas stations and through PayPal, and another you might earn 5% cash back at grocery stores and department stores. Note that you must activate each quarter, when the bonus categories change.
Note that while the rewards on these Chase cards are marketed as cash back, you're really earning Chase Ultimate Rewards points you can redeem for cash back, or combine with points from another card to buy discounted products or travel.
Your credit card issuer might offer the cash back as a statement credit, check, or as a direct deposit into your bank account. You can use the cash back however you want: to offset your spending by applying it to the balance of your credit card, or for specific goals like paying down debt, saving for a rainy day fund, or funding your next vacation.
Should you get a cash-back credit card?
In order to get approved for a cash-back credit card, you typically need good credit, which is a credit score of about 700 or more, out of 850. But should you get a cash-back credit card? There are a few things to consider:
Is cash back a valuable reward for you?
Any rewards-card expert will tell you that cash back generally isn't the most lucrative rewards system - you generally get more bang for your buck when redeeming miles or points than cash.
However, the most valuable rewards are the ones you'll actually use, making cash-back a good option for people who realistically aren't going to be amassing and redeeming points and miles to travel.
Plus, as Business Insider previously reported, there are advantages to cash-back cards: They generally don't have annual fees and there are no restrictions on how you can redeem that cash. Plus, if you're also using rewards cards that earn miles and points, you can keep earning more miles, points, and status when you book with cash back, since it's treated just like cash out of your pocket.
Is there an annual fee?
Many rewards credit cards have annual fees to offset the rewards, but that's less common among cash-back credit cards. The Chase Freedom and Freedom Unlimited mentioned above, for instance, don't have an annual fee.
Other cash-back credit cards, like the Blue Cash Preferred Card from American Express and the Capital One Savor Cash Rewards Credit Card, each have a $95 annual fee.
If you choose a card with an annual fee, you want to make sure that the cash-back rewards you get would be more than the annual fee.
Is there a sign-up or welcome bonus?
If you decide you do want to add a cash-back card to your wallet, you'll want to look at any sign-up or welcome bonuses currently being offered. Sign-up and welcome bonuses are less common among cash-back cards and card without an annual fee - you'll see them much more often among premium credit cards with high annual fees.
For example, as of publication the Chase Freedom Unlimited card is offering $150 cash back if you spend $500 within the first three months of opening your account. The Capital One Savor Cash Rewards is offering $300 after spending $3,000 in the first three months. The Amex Blue Cash Preferred offers a $250 statement credit after you spend $1,000 in the first three months. These types of offers change regularly, though, so be sure to check before you apply.
Getting a cash-back credit card can be a good idea if you have good credit and want to earn rewards as part of your spending. If you have good credit, you can increase your approval odds and get the best offers.
See the best cash-back credit cards of 2019 »
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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.