Friday, March 24, 2023

How To Use Cash Back On Credit Card

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My 2020 Cash Back Total

How to successfully use a cash-back credit card

I made $486.36 in 2020 by using my cash back credit card. Is this a ton of money? No. But is this money that was really, really easy to earn? Yes, yes it is. Using a cash back credit card to buy stuff youre going to buy anyway is one of the easiest, most straightforward ways to leverage your spending.

What is this Im talking about? A cash back credit card returns a specified percentage of your total purchases to you every month. For example, if you use the American Express Cash Magnet® Card, you will get 1.5% of your spending on that card back every month. If you spent $1,000 on that card in the month of March 2021, you would get $15 back because 1.5% of $1,000 = $15.

So this is not your route to fabulous riches raining down on your head, but it is a super simple way to earn money when you buy the stuff of life .

Uh, at any rate, heres the spreadsheet I made of how my cash back earnings broke down over the course of 2020. I used my Fidelity Rewards Visa card, which offers a flat 2% cash back on all purchases:

2020 Month Amount Spent On Card by Frugalwoods Cash back Earned
$24,319.69 $486.36

To be clear, this isnt all of my 2020 spending, its just the spending I did with my cash back credit card. If you want to see all of my expenses in painful, granular detail, check out my Monthly Expense Reports.

Different Types Of Credit Cards To Consider

Cash-back credit cards are good for the majority of consumers, but there are also other types of reward credit cards to consider. Travel rewards credit cards, for example, are great for those who travel often or who want to upgrade their travel experience with perks like airline lounge access or upgrades. Travel credit cards reward cardholders with points or miles, like Chase’s Ultimate Rewards points or American Express’ Membership Rewards points, that can be redeemed for travel purchases.

For those who need to build or rebuild their credit score, secured credit cards and student credit cards are the best options. While many cash-back and travel rewards cards require good to excellent credit, these other types of cards help those with lower scores build your credit over time. Secured credit cards require an up-front deposit in the amount of the credit line, so you’re basically making a loan to the bank in exchange for credit history. Student cards are designed to help young people without a credit history build credit for the first time. Both usually come with a low credit limit and higher likelihood of approval.

Capital One Quicksilverone Cash Rewards Credit Card

Our pick for: Fair/average credit

This card for people with fair or “average” credit pays the same cash-back rate as the regular Quicksilver card, which targets people with excellent credit. The key difference is that this version charges an annual fee while the regular one does not. Read our review.

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How To Use Cash Back Rewards

There are many ways to use cash back rewards once youve accumulated a hearty balance. Some of the most popular ways to redeem your cash back are for statement credits, online shopping and gift cards.

Certain cards also allow you to deposit your cash back directly into a bank account or use it to make a charitable donation. Some cards even offer the option to use your cash back to book travel through the issuers own online portal.

Some credit card issuers also let you connect your cash back rewards to PayPal or, enabling you to use your cash back rewards to cover part or all of your purchase.

Make sure you understand all the ways your credit card allows you to redeem your cash back rewardsthat way, you can put every dollar of cash back to good use.

To Use A Credit Card Effectively You Have To Track Your Spending

How to Use Cash Back Credit Cards (with Pictures)

Oh my goodness, Mrs. Frugalwoods, are you seriously going to tell us AGAIN that we have to track our spending?! Yes, yes I am. I am the mosquito in your ear that cant stop, wont stop reminding you to TRACK YOUR SPENDING.

This seems fine

What you spend forms a crucial basis for how you manage your money. People love to talk about income, which is cool and very important, etc, but it means nothing if you spend it all. If you make $500k per year and spend $500k per year, you have a net worth of $0, whereas if you make $100k a year and save half of it, you have $50k in the bank! Just saying.

Knowing what you spend is important in the context of credit cards because it will help you calibrate which type of card is going to deliver maximum rewards.

As you all know, I use and recommend the FREE expense tracking system from Personal Capital . I like Personal Capital because they dont just do expense tracking, they offer a slew of other insights into your overall financial picture. I wrote this post explaining how in case youd like to learn more.

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Other Uses For Cash Back Credit Cards

A common extra perk of cash back credit cards is a 0% intro APR offer. This can apply to purchases, balance transfers, or both. If a card has an intro offer like this, then you won’t need to pay any interest on that type of transaction until after the intro period ends.

These offers open up new ways to use cash back credit cards, including:

While these intro offers can be useful, make sure you understand the terms and be careful about how you use them. You’ll pay a balance transfer fee with most cards, so consolidating your debt will likely cost you money upfront. Once your intro period ends, you’ll need to pay interest on any remaining balance.

You wouldn’t want to get reckless and spend more just because you have a 0% intro APR. Only use one of these offers if you really need it.

How We Picked The Best Cash

To determine the best cash-back credit cards, we researched 18 popular cards and looked for those that offer the best overall financial value. This means we looked at net overall value for each rewards credit card, rather than prioritizing perks or offers that quickly lose value after the initial sign-up. In the end, the rewards credit card with the largest sign-on offer will not always be deemed the best card.

We prioritized the cash-back credit cards that reward broad spending categories where Americans tend to spend significant amounts of money , instead of narrow categories like streaming services or “home improvement.” Then we compared reward offerings with potential returns based on hypothetical spending budgets. Those hypothetical budgets are based primarily on the Bureau of Labor Statistics’ Consumer Expenditure Survey, with several members of the CNET staff’s subjective input, as well.

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Can You Get Cash Back At Stores With A Credit Card

No, you can’t use your credit card for cash back at stores this is a transaction generally reserved for debit cards and, in fact, is only possible at some stores even then.

In general, you’ll want to use a debit card for cash back, whether via a transaction at an eligible store or through an ATM withdrawal. There is, however, one major credit card issuer that does allow cash back at checkout.

Category Bonus Cash Back Cards

How to Earn Cash Back WITHOUT a Credit Card

Overview: Category bonus cash back cards offer the lure of 5% cash back from revolving spending categories. These categories are typically set by the issuer every quarter and are usually released a few months before the new quarter starts. Five percent back can be a nice haul if youre able to max out the spending categories each quarter, but it takes a bit of work.

First, you have to register for the bonus categories every three months, and spending in the categories is capped at a set amount each quarter . Since any purchase not in the bonus category earns 1%, you may not be getting the average return you think you are.

Pros: These cards allow you to earn cash back at an impressive rate in a variety of different spending categories, which could be ideal for cardholders whose spending varies from month to month. If your spending habits are flexible and youre strategic about when and where you buy, category bonus cards can offer lucrative returns.

Cons: They can be a headache to keep up with, often requiring you to manually enroll in a category each quarter and track your spending to ensure youre maximizing your cash back in a given category. Youre also at the mercy of the issuer when it comes to which categories are eligible for bonus rewards, and categories may not line up with your spending habits or may be tough to maximize.

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For High Earners: Rogers World Elite Mastercard

The Rogers World Elite Mastercard often doesnt get as much love as it deserves. With this card, you earn 1.5% cash back on all your purchases. Best of all, you can redeem that cash back towards most of your purchases made with your card within the last 90 days.

The 3% cash back on purchases made in U.S. currency effectively means you earn 0.5% in cash back on purchases once you factor in the 2.5% foreign exchange fee. In other words, this is a card for online shoppers and U.S. travellers to consider. The one major caveat : You must charge at least $15,000 in purchases on the card every 12 months to keep it, otherwise youll be downgraded to the entry-level Rogers Platinum Card that earns a less impressive 1% cash back on everything.

  • Welcome bonus: $25 in cash back rewards when you make your first card purchase
  • Earn rate: 3% cash back on purchases in U.S. currency 1.5% on all other purchases
  • Income requirement: $80,000 or $150,000
  • Additional benefits: Travel insurance cash back on foreign purchases

What Stores Will Give You Cash Back At The Register With A Debit Card

Many gas stations, pharmacies, grocery stores, discount stores, home improvement, and general merchandise retailers allow you to get cash back at the register with a debit card. This includes: Target, Walmart, Gristedes, Fred Meyer, Publix, The Fresh Market, Whole Foods, CVS, Rite-Aid, Walgreens, 7-Eleven, ExxonMobile, Family Dollar, Dollar General, The Home Depot, and Lowes.

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Capital One Savorone Cash Rewards Credit Card

Our pick for: Bonus rewards high rates on dining, at grocery stores and more

Love the night life but dead-set against paying an annual fee? Consider the Capital One SavorOne Cash Rewards Credit Card. It pays a lower cash-back rate on dining and entertainment than the regular Savor card, but the rewards are nevertheless quite good. The sign-up bonus is smaller than on the annual-fee version, too, but it’s still solid. Read our review.

Is It Better To Get Points Or Cash Back

How to Use Cash Back Credit Cards (with Pictures)

Theres no right answer to whether points or cash-back rewards are better. Instead, it depends on your goals and preferences. If you want to plan a trip using points and miles, you may be better off with a travel rewards card that earns points. But, if youre busy or want a more immediate return on your purchases, a cash-back rewards card may be better.

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How Cash Back Cards Work

So how do all of these cash back cards work? Its simple: Cash back is essentially a rebate of a percentage of the purchases you make on the card. With flat-rate cash back credit cards, every purchase earns the same percentage cash back, while with category bonus cards and tiered bonus cards, different types of spending earn more cash back.

Card issuers can afford to pay cash back because merchants pay an interchange fee on each transaction. When you pay a merchant $100 with a credit card, the merchant only receives about $97, says Daniel Mahoney, a certified financial planner in Atlanta.

For example, a TV that costs $700 would net you $14 with a 2% cash back card. The merchant, meanwhile, paid a transaction fee of around $21 when you paid with your credit card.

Rewards or rebates may also be funded by deals between the credit card issuer and specific merchants, Mahoney adds. An example of this is cash back earned through card-linked offers.

How do card issuers know what types of spending qualifies for which percentage of cash back? Merchant category codes are four-digit numbers denoting a business type, such as a gas station or grocery store. Merchant category codes are used by credit card networks to categorize and track purchases.

Tiered Rewards Cash Back Cards

Overview: Like category bonus cards, tiered rewards cards offer more cash back in select spending categories, but to maximize your earnings you have to think about which card to use with each purchase.

For example, Feldman puts all his business expenses on his tiered rewards American Express SimplyCash Plus business card and his own personal expenses on a Citi® Double Cash Card that delivers a flat 2% .

His Amex business card rewards 5% on office supply stores and wireless telephone service, 3% on gas and 1% on everything else.

At the end of each year, Feldman calculates the rewards delivered on the total amount he spent. He says both of his cards end up delivering the same cash back on average.

The Amex works out to about 2%, maybe slightly under, Feldman says. I just dont spend enough on office supplies to max out that 5% category.

Could I get back another couple dollars at the end of the year by using a credit card targeted to each category of my spending? Feldman asks. Its possible, but Id have to think about which card to use every time I made a purchase and that would make my life crazy.

Top cards: While the best choice for you will depend on how you spend, one of our top picks is the Blue Cash Preferred® Card from American Express, which offers 6% cash back at U.S. supermarkets , 6% back on select U.S. streaming service subscriptions, 3% cash back at U.S. gas stations and on transit and 1% cash back on all other spending.

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Consider Using Multiple Credit Cards

Using too many credit cards at once is generally frowned upon, as this can be a sign of insolvency. However, a strong credit-card strategy can involve pairing cards to maximize benefits. For example, the TD Cash Back Visa Infinite offers 3% back on gas, groceries and recurring bills, but only 1% on everything else, while the Tangerine Money Back Card has no annual fee and offers 2% back in up to three spending categories of your choice. Strategically it would make sense to select drug stores, parking/public transit and restaurants to fill in the gaps on everyday spends without having to pay more for the better earn rate.

How Often Should I Redeem Cash Back

7 Best CANADIAN Cash Back Credit Cards I Use Everyday 2021 | Credit Card Guide Chapter 5

In general, youll want to redeem your cash back once you earn enough cash-back rewards to redeem at the best rate. For example, some cards require you to redeem for at least $25 of cash back to access the most valuable redemption options. However, note any expiration policies to ensure you redeem your cash back before it expires.

Some cardholders, such as my parents, prefer to redeem their cash-back rewards for one large check each year. However, if you redeemed your rewards sooner and deposited these rewards in a bank account, you could earn interest on your rewards.

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For Flat Rate: Simplycash From American Express*

Not to be confused with its big brother the SimplyCash Preferred , the SimplyCash from American Express trades a slightly lower earn rate for no annual fee. The regular earn rate of 1.25% gets you an above-average return on otherwise general purchases like clothes, electronics and online purchasesspends that would likely net you between 0.5% and 1% back with another card. While its true that American Express can be used less widely than Visa or Mastercard, it is accepted at more places than you might think. If youre worried about it, consider carrying a second credit card as a backup.

Scotia Momentum Visa Infinite*

The Scotia Momentum Visa Infinite is a strong cash-back card that offers competitive perks and rewards and comes with an excellent welcome offer. Cardholders can earn an impressive 4% cash back on groceries, recurring bills and subscription servicesa structure that may well suit large families or households. Transportation expensesgas and public transitearn at 2%, and everything else comes in at 1%. Note that there is a $25,000 cap on qualifying spends in each category any purchases exceeding that amount will earn the base 1%. Theres also $1,000 in mobile device insurance and $1,500 per person in trip cancellation protection.

Since this is a Visa Infinite card, there is a minimum annual income of $60,000 or a minimum household income of $100,000 requirement to be approved for the card. The annual feenow $120will be waived for new applicants for the first year.

  • Annual fee: $120
  • Welcome bonus: Earn 10% cash back on all purchases up to $2,000 for the first 3 months. Must apply before November 21, 2021.
  • Earn rate: 4% cash back on groceries, recurring bills and subscription services 2% on public transit and gas and 1% on everything else
  • Income requirement: $60,000 or $100,000
  • Additional benefits: Mobile device insurance travel insurance concierge service Visa Infinite Dining and Wine Country Series

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