Cash Back Credit Cards

Cash back credit cards are becoming increasingly popular. This is not surprising considering they allow you toe an money back for every dollar you spend on your card.

How Cash Back Credit Cards Work

These types of cards work by giving you a certain percentage of the amount you spend on your card each month back to you as cash back.

For most cards, you cash back will add up each month and once a year you will be credited with the cash back reward. This may either be credited to your account, or you may receive a check in the mail.

Cash back rates will vary by card. It is quite common to find that a card will have a variable cash back rate with the rate increasing as you spend more on your card throughout the year. For example, you may earn 0.25% on the first $1000 you spend on the card in a year, 0.5% on the next $2000, and a full 1% on anything over $3000 you spend on the card throughout the qualifying year.

Generally speaking, cash back will only be earned on any standard purchases that you make, If you use the card to take cash from an ATM, for example, this usually won't qualify for cash back. The same is usually true for any balances you transfer to the card.

Is a Cash Back Card Right for Me?

Earning cash back for everything you spend on your credit card will seem like a great feature for most people. However, don't forget to weigh up the costs and benefits for your particular situation before applying for a card.

Cards which offer cash back and other rewards programs may have a higher interest rate than other cards. If you tend to pay your statement balance in full each month, then this may not be a big concern for you. However, if you tend to carry a balance, it could end up costing you more in interest payments than you gain in cash back.

The same can be true for annual fees. If you are paying an annual fee for the privilege of earning cash back they may, in effect, cancel each other out. Obviously, the most you use your card each month, the more cash back you will be earning to make the card more worthwhile.

If you do plan to use the card to a larger extent, you may want to check if there is a limit on the amount of cash back you can earn in each given year. If there is, you may effectively reach a point where you are no longer earning any cash back on the purchases you make.