Intro to Cashback Credit Cards and Current Great Options
It turns out I’m as in to maximizing cashback as Keri is into collecting miles and points through credit cards, probably more so. Since I regularly assess my cashback credit cards to make sure I’m optimizing my options, I agreed to share my favorites with Heels First readers.
Why Go With a Cashback Credit Card?
If you don’t travel frequently enough to maximize travel point rewards or you think you can eek out a few more bucks by getting cash instead of points, you are in good company. Many consumers actually get better rewards by going for cash rather than gifts or frequent flyer miles. Take for example, the average person who spends $10,000 on their credit card over the course of a year. That average person will get 10,000 miles to use for travel. That might buy you a plane ticket that’s costs $200-300. But if you choose cash and can get 5% back on that $10,000, you will reap $500 and could buy that plane ticket plus additional goodies.
If you choose cashback credit cards, like I do, you want to maximize the cashback you’ll likely get. I am here to tell you how.
An Intro to Cashback Credit Cards
When choosing cashback credit cards it is important to know the basics. Most cashback rewards give out 1% pretty readily. Some give out as much as 5% on specific categories of purchases (in one rare example AmericanExpress gives out 6%, as I will discuss below).
The card companies that offer 5% on specific categories are betting that you choose their card for not just the specific credit card categories, but also for most other transactions so that your purchasing rewards average out to about 1-2% (which makes the credit card hugely profitable for them even if you do not carry a balance). Thus, my goal when using cashback credit cards is to get as close to 5% as I possibly can.
If you are getting 5% cashback for your credit card use, you are getting great value and are within the top 1% of credit card consumers. If you are getting 3%, you are still doing very, very well.
The best way to get the most cashback out of your cashback credit cards, these days, is to have multiple cards. This is primarily because the purchase categories are often specific (say for example 2%, 3%, or even 5% back at restaurants, movie theaters, hardware stores, etc).
Additionally, most credit card companies also have purchase reward caps around $1500-$2000 worth of purchases per quarter (outside of the rewards cap, bonus reward categories typically default back to the 1% standard rate).
Finally, many of the most popular cashback credit cards have revolving categories that change every quarter (which makes things just unpredictable enough to push most people back into that 1-2% average cashback range, even when they feel like they have a 5% cashback card). Personally, I try to avoid the trap of the revolving category cards because they are unreliable tools for maximizing cashback benefits.
To increase your average cashback rate, the first thing you want to do is increase the base rate that you are getting for the basic, default categories of purchases that you spend money on everyday. Because the default rate for non-specific categories is 1%, you want to have a card that will give you better than that.
Great Cashback Credit Card Options
Everyday Transactions
- The Citicard Double Cash card is my choice for everyday transactions that don’t fit a category covered by my other cards. It gives 2% cashback by providing 1% cashback at the time of each purchase and 1% cashback on each payment made on your balance. The card has no maximum rewards limit, so the 2% applies on all purchases/payments. This makes the card a solid default credit card for any transaction that doesn’t fit into one of your other category-specific credit cards.
Other honorable mentions for a base/default credit card go to the:
- Fidelity Investment Rewards card, which offers 2% cashback on all purchases that is automatically transferred to any Fidelity account you choose
- The Capital One Quicksilver card, which offers 1.5% cashback on each purchase. (And 20% off Uber)
Spend for Necessities/Essentials
The second choice you want to make is selecting credit cards that utilize cashback categories that fit well with your everyday necessities. For many people, groceries and gas are huge sources of expenditures. If you are a nerd, like me, books and online purchases can also be big expenditures.
- The Barclaycard Sallie Mae card is second in my wallet. It gives 5% cashback on groceries, gas, and bookstore purchases. A unique aspect of this card is recognizing that merchant purchases categorized as “bookstores†occur more frequently in the online market that you might expect. For example, Amazon purchases made online, no matter what you actually purchase, are considered bookstore purchases and trigger the 5% cashback on the Sallie Mae credit card.Thus, this card is a must-have for any user of Amazon’s wildly popular Prime shipping service because you can get virtually anything you need online shipped to your home. One drawback of the card is that your options for cashback are limited to paying off (Sallie Mae) student loans OR getting a statement credit applied to your credit card account. Obviously, a statement credit is as good as cash, to most, so this is an easy choice. My student loans are not with Sallie Mae (and yours don’t have to be either).
Runners up for this category go to:
- The American Express Blue Preferred. It is the only card I know of that provides 6% cashback at grocery stores and it also offers 3% cashback on gas and select department store purchases. This is a great card for big families that spend a lot on food. However, the card comes with an annual fee of $75.
- A better bet for people who don’t spend as much on food is the American Express Blue Everyday (which I used to carry but is now stored as a backup). The AMEX Everyday does not have an annual fee, but has a lower cashback rate of 3% for grocery store purchases and 2% for gas and department stores.
I should also note that the American Express user interface, online, is the one of the best that I have used.
Other Top Spending Categories
Outside of basic necessities like groceries and gas, you should consider what you spend your discretionary income on. I would venture to guess that most people spend more on restaurants than most other categories. Indeed, when I analyzed my own spending patterns about a year ago, I realized that I spend more on “restaurants†(which purchases most often include conventional restaurants, fast food, and bars) than any other type of purchase by about a 4 to 1 margin. I also like to travel. Thus, the third spot in my wallet is reserved for:
- The Synchrony Financial Sam’s Club card. The Synchrony card offers 3% cashback on dining and travel, and also 5% cashback on gas. The card comes with some disadvantages, including that the cashback can only be redeemed once a year at a Sam’s Club store and you must maintain a Sam’s Club membership. But if you happen to shop at a bulk store like Costco or Sam’s Club, this is not a big deal.In full disclosure, I just started using Sam’s Club card after several years using the US Bank Cash Plus card, but US Bank recently changed its card to exclude “restaurants†from its 5% cash back category option. Thus, the Sam’s Club appears to have the best current cashback offering for restaurants and travel (If US Bank reverts its policy, it may very well find a place in my wallet again, but I am boycotting it for now).
- However, despite my personal disappointment with the US Bank Cash Plus card, it is a solid runner up for the discretionary income category of cashback credit cards because it allows you to choose two 5% cashback categories each quarter. The categories are generally the same each quarter, so you generally don’t have to guess at what the might be available. The card is a reliable cashback card.
Quarterly Bonus Categories
Finally, although I don’t prefer the revolving category credit cards, because they aren’t sufficiently reliable to help me meet my cashback goals, they do have their uses.
- I keep the Chase Freedom as a backup option. Although the categories changes every quarter, they are generally the same or similar year after year. This comes in handy around Christmas when the card typically offers 5% back on shopping such as at department stores, where I typically buy gifts.If I owned a home, I would also use the Freedom card during the quarter offered for home renovation/hardware purchases. For anything else, I find that the card is more a headache than a benefit (though some reviewers enjoy the shopping portal offered through the Chase Freedom website, which can give cashback benefits ranging from 5% to 15% if you “click through†the website before shopping online).
- The Discover IT card offers a similar set of revolving 5% cashback benefits that many reviewers find appealing. I think the card’s best benefit is offering its consumers free access to their FICO score at any time, which is useful for keeping an eye on your credit history and score (Personally, I use the Barclaycard Ring card for free access to my FICO score because it has a fixed 8% interest rate that helps if I get too excited about cash back and end up over-spending on one of my other cards. 🙂
These cash back cards will not be for everyone. They will not help those who carry a balance because they all have sky-high interest rates. Moreover, every user should evaluate their own year-end spending habits to determine which cards will best fit their spending habits. However, for the best-bang-for-your-buy, these are the cards that I carry in my wallet and that I recommend.
Raymond — Thanks for the excellent overview of these cards!
This was a nice read, thank you.
Just wondering, how would your selections change if you were to live/travel abroad (cards with no foreign transaction fees)?
I am about to travel overseas and recently had to consider this before my trip. Just about all capital one cards lack a foreign transaction fee. I am using the Quicksilver card to avoid the transaction fees and to yield 1.5% cash back on all of those purchases.
I use the no annual fee Chase AARP card for all restaurant and gas purchases and get 3% cash back for all such purchases year round.
If you are new to this, I suggest applying over the phone instead of online so you can make sure you confirm that you are getting the card with the best points. I blew it earlier this year and applied for a cash-back card that I assumd was the best with incentive points, etc., but a few weeks later I saw a better card from the same institution. I was miffed! They wouldn’t let me switch.