Millions of Americans use credit cards on a regular basis – so why not earn cash back on every purchase you make? If you’re not a frequent traveler and aren’t interested in accumulating miles, a cash back rewards card is a good choice. Reward rates generally vary from 1% to 6% cash back. As you might expect, the cash back credit cards with the highest rewards usually require an excellent credit score. However, there are different cards available for almost every type of credit history. It’s all about finding the right card for you. Here’s what you need to know about cash back reward cards.
Earning cash back with a credit card is fairly simple. You will earn cash back at a certain rate on purchases you make and when you reach a specific amount (generally $10 to $50) you have the option to redeem your rewards. Some credit cards let you select a statement credit, a check, or a direct deposit into an eligible checking or savings account. Others let you redeem for gift cards to popular retailers for all types of merchandise.
Here are the three basic categories of cash back rewards credit cards:
1) Fixed Rate
This is the easiest cash back rewards card to use because you earn the same rewards rate (generally between 1% and 2%) on every purchase you make. You don’t have to do any special planning since all your purchases earn the same cash back. The fixed rate rewards credit card usually has no limits on how much you can earn. However, if a large portion of your monthly budget goes to a specific category (such as groceries) you may be missing out by not using a card that delivers higher rewards on grocery purchases.
2) Rotating Category
A card that offers rotating categories is a good option if you like earning higher rewards on different types of purchases. The rotating category cash back card usually lets you earn 5% on certain categories or at specific retailers per quarter but also comes with a spending cap (frequently $1,500). The categories and stores normally change every three months. The key to maximizing these rewards is to make sure the rotating categories line up with your spending habits. Generally all other purchases on this type card earn 1% cash back.
3) Fixed Category
Fixed category cards are a combination of both the fixed rate and rotating category rewards cards. You earn a higher percentage of cash back in certain categories (gas, groceries, etc.) but these categories don’t change. These cards also usually have quarterly spending limits. A typical card might offer 3% back on gas, 2% back on groceries, and 1% back on everything else. A fixed category card is a good choice if you routinely spend significant amounts in the categories offered.