What Should I Know About Cash Back Credit Cards?

Cash back credit cards give back a percentage of total money charged per year. Companies like Discover® popularized this type of credit card, and there are now numerous cards that offer a cash back option. These credit cards often offer cash back in lieu of other bonuses like frequent flier miles or special gifts.

Amount earned on cash back credit cards is highly variable. Some companies have special arrangements with certain vendors and award a higher amount of cash back for using those vendors. Others offer a flat percentage, which may be between 2-5% of total purchases. Restrictions can and usually do apply; for instance, people may not get cash back if they make cash withdrawals from their credit account. It’s always valuable to read the fine print on offers from any cash back credit cards to see if they are worthwhile.

Sometimes cards that offer cash back really don’t represent a savings, especially if interest rate is high. Though credit card holders might get a few dollars a year back in cash, if they maintain a balance on their card, they end up paying more than this in extra interest payments. Alternately, some of these cards have expensive yearly fees that can diminish any savings from cash back offers.

Obviously people who use credit cards frequently get the most cash back on their purchases, and this is partly an ingenuous way for the card company to make more money. When people are encouraged to spend more so that they will ultimately get a cash back amount, they may well overspend what they can pay back in a month. Encouraging greater spending means that the consumer is likely to carry a balance on the card and have to pay interest on it. Interest payments clearly benefit the card company and may mean that the company makes much more than it ever pays back in cash benefits. This is one reason why there are now so many cash back credit cards.

When a person is disciplined and can always pay off the monthly balance, cash back credit cards may be a good deal. Unlike cards that offer more specific rewards, these cards do give people a check, usually at the end of the year, which they can spend on anything they’d like. Some people do prefer not having limits placed on how they use their credit rewards.

Small businesses that use credit cards to transact most of their business might also choose cash back credit cards. There can be some limits on total amount spent that will entitle people to get money back. Again, it’s always important to review all aspects of a card offer and understand any exclusions that might apply.

There can be benefits to cash back offers. Sometimes credit companies will offer extra cash back on purchases during specific months at certain types of vendors, like at gas or grocery stores. Those possessing these cards should keep abreast of any extra savings offers and weigh whether these will generate enough money back to compensate for interest payments.