Best credit cards for cash-back rewards
If a stranger came up to you in the street and offered you free money, your first reaction might be to be suspicious. If that stranger then turned out to be a banker, you might instinctively check that your wallet was still in your pocket or handbag, and your watch still on your wrist. It may or may not be unfair, but those in the financial services industry are generally better known for their ability to relieve you of cash, not give it to you. So how do you explain cash-back credit cards?
Well, you'd be right in thinking that neither philanthropy nor altruism play much part in cash back offers. Purveyors of plastic:
- Want you to favor their products over their competitors. Nothing wrong with that.
- Because they take a small cut of the value of every transaction you make (in interchange fees), they want you to use their cards for as many purchases as possible.
- Want to tempt you to overspend on their cards so you roll forward balances. Rewards credit cards tend to charge higher interest rates than non-rewards ones.
And yet, when all's said and done, you do get cash from bankers (at least assuming you don't pay those higher rates) when you use cash-back credit cards. Even leaving aside the novelty value, that's surely got to be a good thing.
Types of cash-back cards
At the risk of stating the obvious, cash-back plastic differs from cards that offer miles and points in that you receive cash rewards, usually in the form of statement credits, instead of travel or merchandise. This line has grown fuzzy in 2014, as American Express has, in a move previously reported on this site, introduced Use Points for Charges on a number of its products. This allows you to use your AmEx Membership Rewards points to pay for (you get a statement credit equal to) virtually any purchase you've recently made on your eligible card.
Most other cash-back products fall into one of two groups. With the first, you get a year-round fixed rate (often 1 percent or so) for every purchase you make, although some cards may offer a higher year-round rate for certain types of purchases. You don't have to do anything -- other than charge purchases on your card -- to earn your rewards.
The second group of cards provides a year-round earning rate (usually 1 percent) on all purchases -- except those that fall into bonus shopping categories that change each quarter. You get 5 percent on those. Chase and Discover impose quarterly or annual caps that mean the most you can earn in their bonus cash back categories is $300 a year, though there's no limit on the lower-rate rewards. You do, however, have to remember to register anew each quarter to be eligible for the current bonus rate. Otherwise, you'll get just the flat 1 percent that quarter.
Best cash-back credit cards
Of course, the best credit cards are always the ones that most suit your personal needs. But here are some that are likely to make your short list:
- Discover it® card with 5-percent cash back in categories that change each quarter on up to $1,500 with free, easy sign-up. This product promises no annual, overlimit or foreign transaction fees. You also get a 12-month introductory period during which a zero-percent APR applies to both purchases and balance transfers (which incur a fee of 3 percent per balance transferred). All that, and access your FICO credit score online and on your monthly statements.
- PenFed Platinum Cash Rewards Visa® Card: This is aimed at those with big gas bills, and comes in two flavors. The better deal (though the other's good), the Plus Card, is reserved for those who have another qualifying PenFed product, and offers year-round, 5-percent cash back on gas purchases at the pump -- and no annual fee. Subject to credit approval you may get a promotional balance transfer rate of 2.99 percent APR for 12-months on balance transfers (though not purchases) made between April 1, 2015 through June 30, 2015, with a 3 percent balance transfer fee applying to each transfer. After June 30, 2015, the APR for the unpaid balance and any new balance transfers will be 9.99% to 17.99% based on your creditworthiness and will vary with the market based on the Prime Rate. This transaction is subject to credit approval. The card's standard APR is exceptionally competitive and is currently 9.99 percent to 17.99 percent when you open your account, based on your creditworthiness. Your APR will vary with the market based on the Prime Rate. If you don't have that second PenFed product, you get a similar deal with the Standard Card, except you receive only 3 percent at the pump, and you have to pay an annual fee of $25, though for your first year the annual fee would be $0 then $25. Fuel purchases for airplanes and boats do not receive cash back rewards for either version of the card. You need to be a member of PenFed Credit Union to be considered for a credit card.
If you think none of these suits you, or if you'd prefer to earn points or miles, be sure to trawl through the IndexCreditCards.com credit card lists. You're almost bound to find the perfect product there.
Published 03/24/14 (Modified 01/28/16)