Credit Cards

6 helpful tips for using cash-back credit cards

Knowing the benefits of your cash-back credit cards can help you capture the most value.

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The biggest reward of cash-back credit cards is that you get money for using a credit card as you already would. Cash-back cards are a good idea if:

  • You want to start earning rewards with a simple, easy credit card.
  • You want to earn cash back for spending you would do anyway.
  • You can maximize your rewards by targeting spending in specific areas.

Not all credit cards are right for everyone. As you look into cash-back credit cards, make sure you understand how they function and if they're the right choice for you.

1. Look for a card with no annual fee

Most cash-back cards don't charge annual fees for use. As introductory cash-back cards go, a card with no annual fee is a great way to learn how they work and take advantage of benefits without having to pay. If you're new to credit cards or at least cash-back cards, this is a big benefit. You'll be able to manage your credit and earn some money while you're at it.

If you have a cash-back credit card that charges an annual fee, weigh the cost with your rewards. If you pay more in annual fees than you earn in cash-back rewards, a cash-back card with an annual fee might not be worth it. But if you earn more with your card that has an annual fee versus one that doesn't, you may want to keep it in rotation.

2. 'Cash back' is different based on the card you use

What we call cash back can come in many different forms, including:

  • Actual cash back. This is a deposit straight into your bank account consisting of the cash you earned from using your credit card.
  • Statement credit. You'll save a little money off what you owe on your credit card. It's not a direct cash deposit, but it reduces how much you owe on your bill. 
  • Gift cards. Redeem your cash-back earnings for gift cards to various restaurants and retailers, sometimes for a discount off what you would pay for the gift cards elsewhere.
  • Travel points. Certain credit cards will allow you to transfer your cash back to travel points to redeem on flights and hotels.

Before you sign up for a cash-back credit card, make sure the redemption options are in line with your needs. If you want actual cash rather than a statement credit, review the details to see if the card you're looking at offers this benefit.

3. You still pay interest

Many credit cards have introductory bonuses and interest-free promotions that might eliminate interest for a certain period of time, but that doesn't mean it's forever.

As with any credit card, you should use a cash-back card responsibly. Avoid spending more than you can afford and pay off your balance in full every month. If you don't pay off your balance every month, you could get hit with hefty interest charges. At that point, your interest charges might outweigh your cash-back rewards.

4. Cash-back cap

While many cards don't limit how much you can earn in cash-back rewards, some do. For high spenders, this might not be ideal. If you have an earnings cap, that means you can't maximize the rewards you could earn. 

The Blue Cash Everyday® Card from American Express lets you earn 3% cash back at U.S. supermarkets, but limits that to up to $6,000 a year in purchases. If you spend more than that, you'll still earn some cash back, but it's 1% instead of 3%. Cash back is received in the form of Reward Dollars that can be redeemed for statement credits. Terms apply.

5. Travel rewards are separate

Some credit cards, like the Chase Freedom Unlimited®, offer travel redemption on cash-back rewards. But not all cards offer this perk. For those who stay close to home, this isn't a bad thing since you aren't using travel rewards often, if at all. But if you're a frequent traveler, you may want to look at travel-specific credit cards that offer rewards around what works best for your lifestyle.

6. Other shopping perks exist

The vast majority of credit cards offer larger cash-back rewards through a variety of different shopping ventures, including:

  • Restaurants
  • Grocery stores
  • Gas
  • Wholesale clubs
  • Online streaming services
  • Amazon

Within specific categories, you might have a card that offers bonus rewards that rotate each quarter. For example, you might earn 5% cash back at restaurants this quarter, rather than your standard 2% or 3%. And remember, each time you swipe, you're likely to earn at least 1% on everything else.

Also keep in mind that there are hidden credit card perks you could take advantage of, depending on the card you choose. You could expect enhanced cash back -- even up to 8% -- on certain purchases you make with specific cards.

Read more: Best tax software

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