What Is Cash Back Credit?

Cash back credit cards can save you money.

Cash back credit cards are issued by the 10 largest credit card issuers. Cash back credit cards are the most asked about credit card type, according to bankrate.com. There is no right cash back credit card for everyone. It is a little more complex than finding the card with the lowest rates and fees. Your spending habits and paying habits can directly affect the real benefits of the cash, rebates or other benefits earned by the credit card.

Function

A cash back credit card rewards the consumer by offering cash back incentives or rebates when the card is used for purchases or specific types of purchases. With this type of credit, the consumer can save up to 5% on everyday purchases, travel and other rebates, such as 20% off online purchases. There may be redemption minimums or reward increments on these cards as well. For example, the HSBC American Express card requires the consumer to have 5,000 points to earn $25 and that threshold must be met before the cash back is earned.

Features

Cash back credit cards can pay off nicely if you choose one that fits your spending style. However, each card has its own quirks. Discover Card's Open Road credit card pays 5% cash back for gas and auto maintenance, and its More Card pays 5% in other categories, which change four times a year. If you shop at Wal-Mart, Discover only pays 0.25% cash back. Read the fine print of the agreement before choosing the right card for you.

Rewarding

Cash back and reward cards come in many forms. Some companies use complex formulas to determine what your reward will be at the end of the year. The simplest will use a straight percentage on types of purchases that were made. Others will award points that can be used to purchase gift cards, for air travel or to be traded in for cash back. Curtis Arnold, founder of U.S. Citizens for FAIR Credit Card Terms and cardratings.com, stated, "The right card can pay off handsomely. Using the American Express Blue Cash card, with no limits on the reward amount, our rebate was over $900."

Considerations

Cash back credit cards almost always require a good to excellent credit score and some will carry annual fees ranging from $20 to $35. Be sure to weigh the cash back and rewards benefits if a card charges an annual fee. "An annual fee might make sense to a big spender if the card has tiers offering higher payouts that more than offset the fee, otherwise, avoid annual fees on cash-back cards," stated Greg McBride, senior financial analyst for Bankrate.com.

Warnings

Use caution when choosing which cash back credit cards to use. Depending on individual spending habits, different cards will benefit the consumer differently. Take the American Express Blue Cash Credit Card that offers 5% cash back on all purchases. A closer look will reveal that the 5% cash back is only after $6,500 has been spent each year. Until then, it is 1% cash back. Every credit company's benefit policies are different. Study the literature and read the fine print before committing.

References

• Exclusives: Cash-Back Credit Cards Study; Bankrate.com; Leslie McFadden
• The Best Cash-Back Credit Cards: ConsumerReports.org
• American Express Blue Cash Benefits; AmericanExpress.com