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One of the most popular types of credit cards comes in the form of a ‘cash back’ credit card. Cash back credit cards rebate a percentage of every purchase you make onto your credit card statement. For example, if you have a 1% cash back credit card, every $100 you spend on that particular card will result in $1 being rebated onto your credit card balance at the end of the month. This is seen as a great way to recoup some of your spending. Certain cash back cards work with any purchase that you make, while others work with only certain types of purchases (i.e. gasoline). Some cards even have different cash back percentages depending on the type or purchase you make.

Cash back cards are particularly good for people who are responsible with their credit cards. If you use your card frequently, but pay off your balance in full at the end of the month, a cash back card can be a great way to get some back some of the money you spend. But if you’re someone who carries a large balance at all times, the interest you’re paying on the balance will offset any major benefit you get from a cash back card. This isn’t to say it is completely useless, as you will still be receiving statement credits, but it shouldn’t cloud your judgement when deciding which credit card is best for you. In this article, we will outline what you should look for when deciding on a cash back credit card, as well as some of the advantages and disadvantages of this particular type of card.

What to Look For

When deciding on a cash back credit card there are a few vital things to look at prior to making a decision: cash back percentage, cash back purchase categories, and promotional periods.

  • Cash Back Percentage – This is probably the most important factor of any cashback card. You’ll want to have a look at the percentage of money you will receive in cash back, as well as if there is an upper limit on this percentage. A good cash back percentage is considered to be anything between one and two percent – it probably isn’t worth your time if it’s anything less.
  • Cash Back Purchase Categories – Cash back purchase categories are the types of purchases that you get cash back on. Many popular cards allow cash back on any form of credit card purchase aside from a cash advance. Others may be store credit cards where you only get cash back on purchases within their network. Some cards also have varying rates depending on the purchase category.
  • Promotional Periods – Often lenders will offer promotional periods in which cash back is doubled or boosted to some degree. This is a great way to take extra advantage of your cash back card. But make sure not to apply for just the promotional period, as cancelling a credit card can impact your credit score.

As with any credit card, it is also important to have a look at the interest rates applicable to the specific card. This is especially important if you believe you will be carrying a balance on the card.

Advantages

The main advantages lie in the amount of cash back you can receive. If you’re someone who regularly uses your credit card but pays the balance in full, this is a great way to save some money. In addition, there may be a store specific credit card that gives you cash back on purchases. If you are a regular customer at this store (for example, Amazon has a cash back store card), then you will be able to save considerable money.

Disadvantages

The disadvantages of a cash back card lie in the interest rates. Like any rewards credit card, interest rates are higher to offset the costs of the lender. If you don’t carry a balance this won’t impact you, but if you do it will offset your cash back advantages. Don’t be sucked in by cash back enticements if you know you will likely be paying interest on your card.

Verdict

Cash back cards can be the perfect way to get more value out of your credit card. Make sure to compare the cash back percentage available with the interest rate. Also, use your cash back card as a credit card that you pay off every month, not a card that you carry a balance on.