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How Do Cash Back Credit Cards Work? Plus Our 9 Favorites

7 min read
Susan Shain By Susan Shain Jun 02, 2020 | Updated Sep 14, 2020

Maybe you got an envelope in the mail touting a new “cash back credit card.”

Or maybe your friend is always paying for dinner because she “gets 1.5% cash back.”

We wouldn’t be surprised, as nearly half of Americans hold cash back cards.

But what is a cash back credit card, exactly? And how does cash back work? Here’s everything you need to know.

What Is Cash Back?

Cash back occurs when credit card issuers reimburse you a certain percentage of a purchase — usually between 1% and 5% — when you put it on the card.

Say you spend $1,000 on a card that earns 1% cash back on all purchases. The credit card company will give you 1% ($10) in the form of cash back, often at the end of your billing cycle

Insider tip

Note that most cash back cards earn at least 1% on every purchase — not every transaction. You usually won’t earn cash back on cash advances, balance transfers, and P2P payment services like Venmo.

How Do Cash Back Credit Cards Work?

After the cash back appears in your online credit card account, the best way to redeem it is usually for statement credits. Continuing with the example above, you could apply that $10 cash back to your balance, reducing it to $990.

Although $10 per month may not sound that exciting, it can add up. If you spend $1,000 per month on a credit card that earns 1% cash back, you’ll earn $120 in statement credits over the course of the year — or $600 over five years. (And good news: That $600 typically isn’t taxable!)

If you choose a card with no annual fee, and pay your statement balance in full and on time to avoid interest and late charges, that’s $600 for doing nothing other than putting your everyday purchases on a credit card (learn more about how credit cards can be free to use).

You may also be able to redeem your cash back for a paper check, direct deposit, store gift card, or charitable donation. But, since statement credits reduce the amount you owe — rather than giving you money to spend anew — we’d say they’re the best option for most people.

It’s easy to see why cash back is the most popular type of credit card reward. You don’t need to worry about redeeming points for flights or hotels; you can simply spend like normal and then use the cash back to help reduce your bills.

While some cards do earn “points” instead of “dollars,” they can usually function the same way. The Chase Freedom Unlimited® (Review) has a cash back rate of 1.5 Ultimate Rewards points/dollar, with each point worth 1 cent when redeemed for statement credits.

3 Types of Cash Back Credit Cards

  • Flat rate: These cards offer a flat percentage back on everything, like the Capital One® Quicksilver® Cash Rewards Credit Card (Review), which earns 1.5% cash back on every single purchase. These are best for new or busy cardholders who want to earn rewards without a lot of fuss.
  • Tiered categories: These cards generally offer 1% cash back on all purchases, plus an extra percentage in a handful of additional categories. The Blue Cash Preferred® Card from American Express (Review), for instance, offers 6% at U.S. supermarkets (up to $6,000/year) and select streaming services, and 3% at U.S. gas stations and on transit. Though these cards can be lucrative, you’ll need the time and mental energy to think about which card to use at which store. Note that big box retailers, like Target and Walmart, generally aren’t included in the grocery category.
  • Rotating cash back bonus categories: These cards have bonus categories that switch every quarter. This year, for example, the Chase Freedom Flex℠ (Review) offered 5% cash back at gas stations and on streaming/internet/cable/phone services in Q1, and 5% cash back at grocery stores, gyms, and streaming services in Q2. Though 5% is some serious dough, these cards require dedication, as you’ll need to sign up for the promotions each quarter and keep track of which spending categories are on deck.
Insider tip

Most cards limit how much you can earn in their bonus categories, so make sure to read the fine print. As an example, the aforementioned Chase Freedom Flex only offers 5% cash back on the first $1,500 of combined purchases in the quarterly bonus categories. Once you’ve hit that threshold, you’ll earn 1% on those purchases until the next quarter rolls around.

How to Choose a Cash Back Credit Card

Ready to dive in and pick your perfect card? Take these two steps first.

1. Analyze Your Spending Patterns

Do you spend the most money on gas? Groceries? Clothes? Or are you all over the board?

Take some time to think about your spending habits, as this will help you determine what type of card to get. If you spend a lot on groceries, you should look for a card with higher cash back in that category. Alternatively, if you spend money in a variety of different categories, a flat-rate card might be a better choice.

Note that many experienced cardholders have at least two cash back cards: one with tiered or rotating bonus categories that they attempt to max out each quarter, plus a flat-rate cash back card they use the rest of the time.

If this is your first card, however, it might be wise to start out with just a flat-rate cash back card. Then, once you’re comfortable, you can expand your collection.

2. Do the Math

When selecting which card will prove the most fruitful, don’t guess — break out your phone and actually do the calculations. The results may surprise you.

When I was choosing a business card, for instance, I figured the Ink Business Unlimited℠ Credit Card (Review) would earn more since it offered 1.5% cash back on everything. But when I crunched the numbers, I realized the Ink Business Cash℠ Credit Card (Review) was a better choice because it earned 5% on my phone and internet bills, which are among my biggest expenses.

You should also consider the card’s annual fee. Since most cash back cards don’t charge one, any card that does should prove its mettle.

Lastly, you’ll want to include the card’s intro bonus in your calculations. Many cash back credit cards offer cash bonuses if you spend a certain amount — say, $500 — on the card within the first three months of account opening. Your chosen card should have the best signup bonus that doesn’t require you to spend more money than you normally would.

Insider tip

You will, of course, need to consider your credit scores when choosing a card, too. Luckily, there are cash back cards for every level of creditworthiness — see our picks below. And, if you’re not sure where you stand, here’s how to check your FICO scores for free.

A Sample Head-to-Head Comparison of 2 Cards

As an example of “doing the math,” let’s compare the Capital One® SavorOne® Cash Rewards Credit Card (Review) and the Blue Cash Preferred® Card from American Express (Review).

The SavorOne offers 3% cash back on dining and entertainment, 2% at grocery stores, and 1% on everything else, plus $150 bonus cash after spending $500 in the first three months (at the time of publication). It has no annual fee.

The Blue Cash Preferred offers 6% at U.S. supermarkets (on up to $6,000/year) and select streaming services, 3% at U.S. gas stations and on transit, and 1% on everything else. When this article was published, it had a $250 statement credit for spending $1,000 in the first three months, and an annual fee of $95. (Rates & Fees)

Here are two theoretical users, along with their monthly expenditures.

Categories Jorge’s Monthly Spend Luz’s Monthly Spend
Groceries $500 $200
Gas & Transit $100 $200
Dining $150 $600
Entertainment $200 $400
Streaming Services $100 $25
Everything Else $500 $500

Given their budgets, here’s how much cash back each would earn after one year of card membership:

Jorge

  • Capital One SavorOne: $330 ($27.50/month) + $150 introductory bonus = $480
  • Blue Cash Preferred: $570 ($47.50/month) + $250 statement credit – $95 annual fee = $725

Luz

  • Capital One SavorOne: $495 ($41.25/month) + $150 introductory bonus = $645
  • Blue Cash Preferred: $414 ($34.50/month) + $250 statement credit – $95 annual fee = $569

As you can see, Jorge comes out on top with the Blue Cash Preferred, despite its annual fee, because he spends a lot in the bonus categories (groceries and streaming services). Luz, on the other hand, spends the most on dining and entertainment — and would therefore be better off with the fee-free SavorOne.

The bottom line: Once you’ve narrowed your options to two or three cards, estimate your monthly spend in their respective bonus categories to determine which will have the biggest payoff.

Insider tip

Some people don’t pay their credit card balance in full each month — if you plan to carry a balance on your cash back card, we’ll stop you right there. Earning 1%–2% cash back on your purchases is *not* worth paying 18% in interest. So only pursue a rewards credit card if you plan to pay your statement balance in full each month (unless you have a 0% APR).

9 Best Cash Back Credit Cards

Unlike most travel rewards cards, cash back cards are available to users with all types of credit histories — meaning there’s one for everyone.

Here are some of our favorites.

Simplicity: Citi Double Cash Card

Citi® Double Cash Card - 18 month BT offer

Our rating
Min. credit levelExcellent
Details
Annual Fee$0
Regular APR13.99% – 23.99% (Variable)
Apply Now

securely on the issuer's website

  • Earn 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases.
  • To earn cash back, pay at least the minimum due on time.
  • Balance Transfer Offer: 0% intro APR on Balance Transfers for 18 months. After that, the variable APR will be 13.99% – 23.99%, based on your creditworthiness.
  • Balance Transfers do not earn cash back.
  • If you transfer a balance, interest will be charged on your purchases unless you pay your entire balance (including balance transfers) by the due date each month.
  • There is a balance transfer fee of either $5 or 3% of the amount of each transfer, whichever is greater.
  • The standard variable APR for Citi Flex Plan is 13.99% – 23.99% based on your creditworthiness. Citi Flex Plan offers are made available at Citi’s discretion.

Citi is a Credit Card Insider advertiser.

You’ll get 1% when you make a purchase plus 1% when you pay your bill (as long as you pay at least the minimum due on time) adding up to a flat rate of 2% cash back — the highest around. Trust us: It doesn’t get any easier than this.

High Earning: Discover it® Cash Back

Discover it® Cash Back

Our rating
Min. credit levelGood
Details
Annual Fee$0
Regular APRSee Terms

The information related to Discover it® Cash Back has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

With rotating 5% bonus categories and a cash back match at the end of your first year — essentially doubling what you earned — there’s no doubt you’ll stack some serious rewards with this card. The bonus categories need to be activated before they can be used, and are good for up to $1,500 in spending per quarter.

Gas & Groceries: Blue Cash Preferred® Card from American Express

Blue Cash Preferred® Card from American Express

Our rating
Min. credit levelGood
Details
(Rates & Fees)
Annual Fee$95
Regular APR13.99%-23.99% Variable
Apply Now

securely on the issuer's website

  • Earn a $250 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).
  • 6% Cash Back on select U.S. streaming subscriptions.
  • 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more). 1% Cash Back on other purchases.
  • Low intro APR: 0% for 12 months on purchases from the date of account opening, then a variable rate, currently 13.99% to 23.99%.
  • Plan It® gives the option to select purchases of $100 or more to split up into monthly payments with a fixed fee and no interest.
  • Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
  • $95 Annual Fee
  • Terms Apply.

American Express is a Credit Card Insider advertiser.

It’s hard to beat 6% cash back at U.S. supermarkets and select streaming services, as well as 3% on gas — so, for most people, this card’s earnings will outstrip its $95 annual fee.

Dining & Travel: Wells Fargo Propel American Express® card

Wells Fargo Propel American Express® card

Our rating
Min. credit levelGood
Details
Annual Fee$0
Regular APR13.99%-25.99% Variable
Apply Now

securely on the issuer's website

  • Earn 20,000 bonus points when you spend $1,000 in purchases in the first 3 months – that’s a $200 cash redemption value
  • $0 annual fee and no foreign currency conversion fee
  • Earn 3X points on eating out and ordering in
  • Earn 3X points on travel including flights, hotels, homestays and car rentals
  • Earn 3X points on gas stations, rideshares and transit
  • Earn 3X points on popular streaming services
  • Earn 1X points on other purchases
  • Select “Apply Now” to learn more about the product features, terms and conditions

Call this a dark horse, but it earns 3% on a slew of categories, including dining, travel, gas, and streaming (you’ll technically earn 3X points, but each point is always worth 1 cent — so it’s effectively 3% cash back). For no annual fee, that’s a pretty sweet deal.

Choosing Your Categories: U.S. Bank Cash+™ Visa Signature® Card

U.S. Bank Cash+™ Visa Signature® Card

Our rating
Min. credit levelGood
Details
(Rates & Fees)
Annual Fee$0*
Regular APR13.99% - 23.99%* Variable
Apply Now

securely on the issuer's website

  • Earn up to $550 cash back in the first year.
  • $150 bonus after spending $500 in eligible net purchases within the first 90 days of account opening.
  • 5% cash back on your first $2,000 in combined eligible net purchases ($100 per quarter) on two categories you choose. That adds up to $400 cash back!
  • 2% cash back on your choice of one everyday category, like gas stations or grocery stores.
  • 1% cash back on all other eligible net purchases.
  • No limit on total cash back earned.
  • 0% Intro APR* on balance transfers for 12 billing cycles. After that, a variable APR currently 13.99% – 23.99%
  • No annual fee*
  • Great Offer from U.S. Bank, a 2020 World’s Most Ethical Company® – Ethisphere Institute, February 2020

Choose your own adventure with this card, which lets you select two different 5% cash back categories each quarter (including streaming, department stores, and home utilities), plus 2% in one “everyday category,” such as gas stations, grocery stores, or restaurants.

Bad Credit: Discover it® Secured

Discover it® Secured

Our rating
Min. credit levelBad
Details
Annual Fee$0
Regular APRSee Terms

The information related to Discover it® Secured has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

Making some credit mistakes doesn’t make you ineligible for cash back rewards. This is one of our absolute favorite cards for people with bad credit because it allows you to earn 2% cash back at gas stations and restaurants, up to $1,00 spent per quarter — and because it matches your cash back at the end of the first year.

Fair or Average Credit: Capital One® QuicksilverOne® Cash Rewards Credit Card

Capital One® QuicksilverOne® Cash Rewards Credit Card

Our rating
Min. credit levelFair
Details
Annual Fee$39
Regular APR26.99% (Variable)

The information related to Capital One® QuicksilverOne® Cash Rewards Credit Card has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

If your credit scores are somewhere in the middle, you can opt for this cash rewards credit card, which earns 1.5% on everything with a low $39 annual fee. If you’re traveling abroad, you can also take advantage of the fact it doesn’t charge foreign transaction fees.

Students: Discover it® Student Cash Back

Discover it® Student Cash Back

Our rating
Min. credit levelLimited Credit History
Details
Annual Fee$0
Regular APRSee Terms

The information related to Discover it® Student Cash Back has been collected by Credit Card Insider and has not been reviewed or provided by the issuer or provider of this product.

Not only does this credit card offer 5% cash back on student-related quarterly bonus categories — think: Amazon, restaurants, Uber — but it also offers an end-of-year cash back match and a $20 statement credit for good GPAs! Your 5% reward categories must be activated throughout the year, and are good for up to $1,500 spent per quarter.

See more of our fave student cards here.

Business Owners: Chase Ink Business Cash℠

Ink Business Cash℠ Credit Card

Our rating
Min. credit levelExcellent
Details
Annual Fee$0
Regular APR13.24% - 19.24% Variable

When you earn 5% at office supply stores and on internet, cable, and phone services, it’s a breeze to rack up cash back for your biz. Don’t spend much in those categories? Consider the Ink Business Unlimited℠ Credit Card (Review) and its 1.5% flat rate cash back instead.

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For rates and fees of the Blue Cash Preferred® Card from American Express, please click here.

At a glance

Nearly half of adults have cash back credit cards. And it’s no wonder why: They offer an easy way to earn a small rebate on everything you purchase, with some cards offering as much as 5% back (or more!) in certain categories.

Credit Card Insider receives compensation from advertisers whose products may be mentioned on this page. Advertiser relationships do not affect card evaluations. Advertising partners do not edit or endorse our editorial content. Content is accurate to the best of our knowledge when it's published. Learn more in our Editorial Guidelines.

The information related to Discover it® Cash Back, Discover it® Secured, Capital One® QuicksilverOne® Cash Rewards Credit Card, Discover it® Student Cash Back, Capital One® Quicksilver® Cash Rewards Credit Card, and Capital One® SavorOne® Cash Rewards Credit Card have been collected by Credit Card Insider and have not been reviewed or provided by the issuer or provider of these products.

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