Are Cash Back Credit Cards Worth It for Everyday Expenses

If you're considering using a cash back credit card for everyday expenses, it's essential to understand the benefits and drawbacks. For example, a cash back credit card can earn you up to 5% cash back on certain purchases, which can add up quickly.

However, some credit cards may come with rotating categories, which means you'll only earn cash back on specific types of purchases during certain months of the year. For instance, a credit card may offer 5% cash back on gas stations in January and February, but not in other months.

Before applying for a cash back credit card, it's crucial to review the terms and conditions, including the rewards structure, interest rates, and fees. As we'll explore further, some credit cards may have higher interest rates or annual fees that can offset the benefits of earning cash back.

Cash back credit cards have their advantages, but also some downsides. The rate at which you earn cash back will vary depending on the cash back card you choose.

One of the main benefits is that cash back credit cards are usually straightforward, making it easy to earn and redeem cash back.

The cash back balance builds up as you spend money using the card, which can be a great way to earn rewards.

Cash rewards programs can be a great way to earn some extra money back on your purchases, but it's essential to understand the fine print. Most cash rewards programs have an annual maximum limit, so a 5% cash back reward may not be as generous as it seems.

Some cash rewards programs only offer cash back for specific categories of purchases, such as at restaurants or gas stations. For example, Discover's cash back card offers 5% cash back on purchases, but only up to $1,500 per quarter, and only in specific categories allotted to different quarters of the year.

The more you spend, the less you'll earn in cash back rewards. With a credit card program that has a $1,500 cash back limit per year at 5%, any spending over $30,000 would not contribute to accumulating any further cash back rewards.

Credit card companies make money by charging merchant fees, high-interest rates, and late fees. The average credit card interest rate is 16.61%, and almost $1.07 trillion in outstanding revolving credit was reported by the Federal Reserve as of Q1 2020.

Here are some key takeaways to consider when evaluating cash rewards programs:

It's essential to read the fine print and understand the terms and conditions of your cash rewards program. Don't assume that cash rewards programs are more generous and universal than they actually are.

Having a points card can be a great idea, especially if you travel frequently. Extra perks like free reward nights, free checked bags, and seat upgrades can make a big difference in your travel experience.

Some points cards offer airport lounge access, which can be a huge time-saver and a great way to relax before your flight. And, some general points cards offer travel credits, which can be used to offset the cost of travel expenses.

Most travel credit cards come with an annual fee, but in exchange, you're more likely to find a card with valuable perks. These perks can include statement credits to cover the cost of TSA PreCheck, airport lounge access, and automatic status with certain hotels and rental car companies.

The Key Cashback Credit Card is a great example of a card with no annual fee. It offers 2% cash back on every purchase, with no caps, limits, or annual fee.

Cash back credit cards have some downsides to consider. Most cash rewards programs have an annual maximum limit, so you may not be able to earn as much cash back as you think.

You'll also need to read the fine print to understand the terms and conditions of your cash back rewards program. Some cards have spending restrictions and caps, limiting the amount you can earn in certain categories.

Using a credit card with NFC technology or from a digital wallet may not count towards the cash back program. And, if you don't travel often, a cash back card may not be the best choice.

Some cash back credit cards charge high-interest rates on balances carried over month-to-month, and issue late fees for payments missed or made after the stated due date. This can add up quickly and negate any benefits you might earn from cash back rewards.

Here are some key things to keep in mind when considering a cash back credit card:

Cash back credit cards can be a great way to earn rewards on your purchases, but how do you actually earn and redeem those rewards? With cash back cards, you can earn extra cash back for purchases made in bonus spending categories, such as 6% cash back on U.S. supermarkets or 3% cash back on gas station and transit purchases.

Some cash back cards offer a flat rate on all purchases made with the card, like the Citi Double Cash Card, which earns up to 2% cash back on all purchases. And, as a bonus, some cards offer sign-up bonuses, although they tend to be modest compared to points-based cards.

You can redeem your cash back rewards in various ways, such as statement credits or checks, but be aware that some cards may require a minimum cash back balance before you can make a redemption. The beauty of cash is that it can be used for anything, giving you flexibility to cover unexpected expenses like car repairs.

Here are some examples of cash back rewards structures:

Earning points can be a great way to rack up rewards, and it's often more lucrative than earning cash back. With points cards, you'll earn miles, points, or whatever rewards terminology the card uses.

Points cards often offer bonus points for certain spending categories, which can add up quickly. For example, some cards offer higher sign-up bonuses than cash back cards, making them a great option for those who want to earn a big upfront reward.

Some points cards offer a flat rate on all purchases made with the card, while others offer a tiered system with different earning rates for different categories. The Capital One Savor Cash Rewards Credit Card, for instance, earns unlimited 3% cash back at grocery stores, on dining, entertainment, and popular streaming services.

Here are some key features to consider when choosing a points card:

Overall, points cards can be a great way to earn rewards, especially if you're willing to put in the effort to maximize your earnings.

You can redeem your cash back as a statement credit or a check, depending on the card. Some cards require a cash back minimum before you're eligible to make a redemption.

Points can be used in a lot of ways, but they generally can't offer the same flexibility as cash.

If you travel a lot, a points card is likely the way to go, as frequent travelers can maximize their redemptions and take full advantage of travel-related perks. This is especially true if you're loyal to one particular hotel or airline, as you can get a lot of value out of a hotel or airline card.

A cash back card, on the other hand, is a good choice if you don't travel often or you just value a simple rewards structure. Some cards offer both cash back and points, making them a great option if you want flexibility.

To choose the best card, consider your spending habits and pick a card with a rewards structure that aligns with them. For example, if you have big grocery bills, a card like the Blue Cash Preferred Card from American Express, which earns 6% cash back on up to $6,000 a year in purchases at U.S. supermarkets, might be a good choice.

Here are some cards that cater to specific spending habits:

Choosing a budget based on spending is a smart move. It helps you maximize your cash-back earnings by aligning your card with your spending habits.

If you have big grocery bills, consider the Blue Cash Preferred Card from American Express. It earns 6% cash back on up to $6,000 a year in purchases at U.S. supermarkets.

For those who enjoy going out, the Capital One Savor Cash Rewards Credit Card is a great option. It earns 3% back on dining and entertainment, in addition to grocery stores.

The Wells Fargo Active Cash Card is perfect for those who want a low-maintenance option. It earns 2% back on every purchase, no matter the category.

Here are some cards to consider based on your spending habits:

If you travel frequently, a points card is likely your best bet. This is because frequent travelers can maximize their redemptions and take advantage of travel-related perks. For example, the Mastercard Gold Card offers a flat-rate redemption value of 2% for cash back or 2% value for airfare redemption with no airline or seat restrictions and no blackout dates.

If you're loyal to one particular hotel or airline, a hotel or airline card might be the way to go. These cards often offer significant rewards and perks for loyal customers. However, if you don't travel often, a cash back card could be a better choice.

Some cash back cards, like the Wells Fargo Active Cash Card, offer a flat rate of 2% back on every purchase, making them a low-maintenance option. Others, like the Blue Cash Preferred Card, offer higher rewards rates in specific categories, such as 6% cash back on U.S. supermarkets.

Ultimately, the best choice between cash back and points depends on your individual spending habits and preferences. Consider your spending patterns and choose a card that aligns with them.

Here's a quick breakdown of some popular cash back and points cards:

Remember, the key is to find a card that offers rewards that align with your spending habits and preferences.