A cash rewards credit card enables you to earn cash on your spending according to a specified tier or percentage. The most attractive of these cards have no annual fee, while others may charge a yearly fee of $95 after the first year. The companies that offer cash rewards or cashback credit cards provide these cards as an incentive for higher rates of spending by their account holders.
Although the amount of cash that you receive back as a cardholder is only a small percentage of the amount spent, the offer of receiving any amount back when you spend money is attractive.
One definite benefit of having a cash rewards card is that the cash that you earn back is tax-free. This is because this cash earned back is regarded as a rebate, which excludes it from your gross yearly income.
In addition, earning some extra cash each time you buy groceries, household or personal necessities, or you indulge in a little leisure-time “fun shopping” is suitable for your budget. However, the majority of credit card companies that offer cash rewards credit do require a good credit rating for applicant approval.
How Cash Rewards Credit Cards Work
Today, many credit card companies offer cash rewards cards, and every card-issuing company has a specific rewards plan. Some card companies offer these rewards as a flat percentage of each account holder’s spending. Other card issuers provide cashback with tiered rewards levels.
Today, some of the most popular cash rewards cards offer cardholders a flat percentage equaling 1.5 percent cash back on eligible purchases, such as travel-related spending or grocery and convenience items. Other cards in popular use offer five percent cash rewards up to $1,500 on designated purchase types that may rotate on a quarterly schedule. In addition, these cards typically offer one percent cash back on other purchases.
If you own one of these cards, you are required to activate every quarter at the time that the bonus categories are rotated. Some card issuer plans let you accrue rewards points that you can either redeem as cash or add to points from another card from the same issuer to spend for travel purchases or discounted items.
Your credit card company may offer cash rewards in the form of a statement credit, a check, or a direct deposit to your bank account. This enables you to decide whether to apply your cashback to the balance due on your card, pay other debts, add to your savings, or make new purchases.
Is a Cash Rewards Card a Good Choice for You?
If you have a credit score of 700 or above, you are a good candidate for approval for a cash rewards credit card. However, most credit experts will advise you that cash rewards cards do not offer the most advantageous rewards plan. In general, you can get better financial returns from programs that allow you to redeem points for travel or credit on other purchases.
Yet cashback rewards cards are a good choice for light to moderate spenders who are not likely to accrue large amounts of points for travel or big spending. In addition, you will pay no annual fee for most of these cards, and you can redeem cash for many different purposes.
Even if you are usually a light spender, if your cash rewards credit card enables you to accrue miles and points, you have multiple benefits. You continue earning some points and miles for future travel when you book airline flights and hotel accommodations with your cash rewards card, even if you are not a frequent flyer.
Are There Some Cash Rewards Credit Cards with Annual Fees?
As discussed, every credit card issuer offers specific plans and benefits. However, although different types of credit cards that offer a rewards system do charge annual fees to offset the rewards issued, the most attractive cash rewards cards have no annual fee. Therefore, if you plan to apply for a card that has an annual fee, just ensure that the cash rewards that you can gain equal more than the annual fee.
Does the Cash Rewards Card You Choose Offer a Signup or Welcome Bonus?
Take time to determine whether any cash rewards credit card that you want to apply for offers a signup or welcome bonus. Although this type of benefit is more commonly offered with premium credit cards that have high annual fees, some cash rewards cards offer them as well. For example, some card issuers may offer a bonus of $200 after you spend $500 on purchases during your initial three months of card usage.
Other cash rewards credit card issuers may offer $300 after you spend $3,000 during your initial three months as a cardholder. Still, other card companies may offer a statement credit of $300 after you spend $3,000 on purchases during your first six months of card usage. Your card company may change these benefits periodically, so you may want to inquire about this benefit plan before applying.