A cash back credit card lets you earn a small percentage of your card transactions. Cash back cards allow you to earn rewards on every purchase you make, such as checks, bank deposits, and statement credits. Let’s say you earn 1% cash back on every purchase you make with your card. Spend $1,000, and you’ll receive $10 back simply for using the card. It might seem like a small percentage, but it can add up.
How does a cash back credit card work?
You receive a percentage back on eligible purchases when you use cash back credit cards. You may receive the money in the form of a check, a bank deposit, or a credit on your statement.
Flat cash-back rates apply to some cards, meaning that you earn back the same percentage every time you make a purchase. You can earn approximately 2 percent cash back at restaurants and gas stations on up to $1000 in combined purchases each quarter with the Discover it Secured Credit Card.
Is cash back from a credit card taxable?
The rewards you receive from credit cards, including cash back, are rarely taxable. The IRS does not consider credit card rewards taxable income if you spent your own money to earn them.
What are the various types of cash back credit cards?
There are three different types of cash back credit cards: flat rate cards, tiered cash back cards, and rotating category cards. This article takes a deep dive in different types of cash back cards.
Flat-rate cash back cards
The amount of cash back on a flat-rate card is the same regardless of how much you spend. With flat-rate cards, you can redeem cash back rewards through statement credits, checks, or bank deposits. In addition, travel bookings, gift cards, shopping deals, and other redemption options are available on some cash back cards.
Tiered cash-back cards
Different types of purchases earn different cash back rates with these cash back credit cards. The majority of cards offer 1% to 6% back on eligible purchases.
In most cases, you will receive a reward of 1% to 6% back on eligible purchases. However, you should read the fine print because some card categories have dollar and other limitations.
Rotating category cards
A number of cash back credit cards offer 5% bonus categories that rotate every quarter. Grocery stores, gas stations, home improvement stores, and even Amazon and Uber are common categories.
Some stipulations
Bonus rewards cannot be earned unless your bonus categories are activated online each quarter. The 5% bonus categories have dollar limits, so you will need to keep track of your spending.
How to compare cash back credit cards
You can compare credit cards to narrow down the best cash back options for you. Before you choose a company, you should list the benefits you’re looking for, as well as any deal breakers, like annual fees. Create a list of cards that offer those benefits so you can compare them side by side.
Making the most of your card
You need to educate yourself on the different credit card benefits and fees in order to get the best out of your cash back card. You should review the annual fee, foreign transaction fee, and APR before making a decision. In addition, you should consider redemption options and cash back rates.
It’s time to start optimizing your credit card terms once you’re familiar with them. Make sure you set up an autopay to ensure payments are made on time and think about how you want to redeem cash back. You can redeem rewards quickly and easily if there is an automatic redemption option. Finally, make sure you know when to use each of your credit cards if you have more than one.
