Cash Back Cards: how they work and what to compare
Cash back cards return a share of eligible spending as a statement credit, deposit, or gift card. The headline rate matters less than how the card earns it, what it excludes, and what it costs you if you carry a balance.
How cash back is earned
Cards generally follow one of three structures: a flat rate on everything, tiered rates on categories such as groceries or gas, or rotating categories that change each quarter and may require activation. Flat-rate cards are simple. Tiered cards can earn more if your spending lines up with the categories, but only up to any stated spending cap.
Terms worth reading
Check the earning caps, the categories that are excluded (for example, some cards do not count certain merchants or payment apps), how and when cash back can be redeemed, and whether rewards can be forfeited. Also review the annual fee, the purchase APR, and the penalty APR.
Rewards versus interest
Rewards rarely outweigh interest charges. If you carry a balance from month to month, the interest you pay can exceed the cash back you earn. Paying the statement balance in full by the due date is what keeps a rewards card inexpensive to use.
Questions to ask before you apply
- What is the earning rate and is there a cap on bonus categories?
- Is there an annual fee, and is it waived in the first year?
- What is the regular APR after any introductory period?
- How and when can I redeem rewards, and do they expire?
- Which purchases do not earn rewards?
Common mistakes
Chasing a high headline rate without checking caps, spending more than planned to earn rewards, and missing a payment, which can trigger a penalty APR and fees.