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Different Types of Cash Back Credit Cards

What Is a Cash Back Credit Card?

A cash back credit card allows you to earn a percentage of your card spending back and redeem your rewards for checks, bank deposits or statement credits. You could get money back on every purchase you make with a cash back card. Say your card earns 1% cash back on all purchases. That percentage might not seem like much, but it can add up: Spend $1,000, and you get $10 back just for using the card.

Different Types of Cash Back Credit Cards

You can choose from three types of cash back credit cards: flat rate, tiered cash back and rotating category cards. Here's what you need to know about the different kinds of cash back cards:

Flat-rate cash back cards. A flat-rate card pays the same amount of cash back on every purchase. Your options for redeeming cash back rewards with flat-rate cards are statement credits, checks or bank deposits. Some cash back cards provide other ways to redeem rewards, such as travel bookings, gift cards or shopping deals.

Flat-rate cards to choose from include:

  • Citi Double Cash® Card, which earns 1% when you make a purchase and 1% when you pay it off and offers a 0% intro annual percentage rate on balance transfers for 18 months. After that, the APR will be 19.24% to 29.24% (variable), based on your creditworthiness.
  • Capital One Quicksilver Cash Rewards Credit Card, which pairs a flat cash back rate of 1.5% with a long 0% intro APR on purchases and balance transfers for 15 months; 19.99% to 29.99% (variable) APR after that; balance transfer fee applies.

Tiered cash back cards. These cash back credit cards offer different cash back rates for different types of purchases. Most cards let you earn 1% to 6% back on eligible purchases. But read the fine print because card categories may have dollar limits and other restrictions.

Tiered cash back cards to choose from include:

  • Chase Freedom Unlimited®, which earns 5% cash back on travel purchases through Chase, 3% back at restaurants and drugstores, and 1.5% back on all other purchases.

·        Blue Cash Everyday® Card from American Express, which offers 3% cash back on up to $6,000 in annual spending at U.S. supermarkets, then 1%; and 3% back at U.S. gas stations, on up to $6,000 per year, then 1%.

Rotating category cards. Several cash back credit cards have 5% bonus categories that rotate quarterly. Common categories include groceries, gas stations, home improvement stores, and even Amazon and Uber purchases.

Some caveats: You have to activate the bonus categories online every quarter or you won't earn the bonus rewards. Also, you will need to track your spending because the 5% bonus categories have dollar limits.

Rotating category cards to choose from include:

  • Discover it® Cash Back, which features 5% cash back on everyday purchases at different places each quarter such as grocery stores, restaurants and gas stations, up to the quarterly maximum when you activate.
  • Bank of America® Customized Cash Rewards credit card, which allows you to pick a 3% cash back category monthly, plus earn 2% back on up to $2,500 in quarterly purchases at grocery stores and wholesale clubs. Other purchases receive 1% cash back, and you can boost your earnings by enrolling in Bank of America's Preferred Rewards program.

You might feel overwhelmed as you try to pick the right cash back credit card. Follow these steps to make comparing cash back cards easier:

1. Calculate your earning potential. You can earn rewards at different rates depending on what type of cash back card you use, where you make purchases and whether a category bonus applies. Analyze your spending, and then look for a credit card that earns bonus rewards in the categories where you spend the most.

  • Flat-rate cards: Generally, the rate is 1% to 2% for all purchases, although you may find a card promotion for a higher rate. A flat-rate card can be valuable if your spending is evenly spread across multiple categories or if you don't want to track which credit card will earn the most for your purchases.
  • Tiered cash back cards: These credit cards offer different cash back rates on certain categories. Common bonus categories include travel, dining, gas, and grocery and department stores.
  • Rotating bonus category cards: Most have a base 1% cash back rate, along with bonus categories that change quarterly. The rotating categories typically offer 5% cash back, one of the highest cash back rates you'll get on a credit card. But the categories almost always have limits on how much you can earn each quarter.

2. Factor in sign-up bonuses. A cash back card with a large sign-up bonus can certainly help boost your earnings, but you'll need to know the spending requirement to receive it. If you can't get the bonus without spending more than you normally would, then the card probably isn't a good match for your wallet.

3. Subtract annual fees. Some cash back credit cards charge an annual fee, so consider whether the card rewards and benefits will more than offset the cost . If they don't, you likely will be better off with a no-fee card.

4. Understand cardholder benefits. Many credit card issuers and card networks offer benefits beyond a rewards program. Benefits could include free credit score access, extended warranty coverage, concierge service, travel accident insurance, purchase protection and price protection.

Chase Sapphire Preferred® Card users, for example, can get trip cancellation and interruption insurance, extended warranty protection, and auto rental collision damage waiver coverage, among other benefits.

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