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How to Find the Best Cash Back Credit Cards

 
By Eva Norlyk Smith, Ph.D.
May 13, 2010
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With the credit card industry in flux over the past couple of years, few things are like they used to be. Even cash back credit cards, traditionally the work horse of rewards credit cards, have undergone many changes. And, it’s not just offers for new cash back credit cards that have changed, cardholders with existing cash back credit cards might find that the terms on their cards have changed without their noticing.

If you’re looking to apply for a cash back credit card, or just want to make sure that your existing card offers the best value, here are 6 tips to evaluate cash back card offers to make sure you get the best benefits:

1. Check the real cash back rate. When it comes to evaluating the real cash back earnings on the card, look out for two tiny, but crucial words: “up to.”

For example, Discover’s More card has traditionally been a leader in cash back credit card benefits, offering a lucrative 5 percent cash back in select, rotating purchase areas, which change every three months. In the past, the Discover More card has rewarded cardholders with a 1 percent cash back earnings on all other purchases. Nowadays, however, Discover advertises “up to” 1 percent cash back on all other purchases. Read the fine print, and you will learn that the full 1 percent cash back earnings on other purchases only kicks in when the cardholder has spent over $3,000 annually—excluding 5-percent cash back purchases. Before the $3,000 mark, non-5 percent cash back purchases only receive .25 percent in rewards. Furthermore, purchases at discount stores, warehouse clubs, and their affiliates will continue to always earn cardholders only the .25 percent cash back, even after annual purchases total over $3,000. In other words, don’t expect to get a cash back bargain on your bargains.

For cardholders who won’t rack up $3,000+ in charges within a short while, a better option might be a card like the Chase Freedom cash back credit card, which also offers 5 percent rotating cash back, but gives members a full 1 percent earnings on other purchases from the first dollar in spending.

2. Avoid cards with low ceilings on cash back earnings. A 5 percent cash back bonus sounds like a great deal, however, on some cards those 5 percent cash back earnings are capped at as little as $300, or even lower. That is the equivalent of $6,000 in charges in the rotating 5 percent cash back categories, which could be too low a ceiling for some consumers. If you fall into this category, look for cards that advertise unlimited cash back.

3. Look for hidden clauses. Card issuers won’t flag terms that are disadvantageous to cardholders, so it’s important to do the leg work yourself. Check for terms that might cause you to lose earnings, including earnings expiration dates, inactivity point penalties, and late-payment point wipe-outs. Some card issuers charge a fee to reinstate earnings after a late payment, others will erase cash back earnings for cardholders who pay late two months in a row.

4. Go with cards that make redemption easy. Some cards offer cash redemption in the form of over-the-phone or online reimbursement for purchases made with the card. Other cards, like the Citi Cash Returns, has streamlined the process even more: Citi automatically sends cardholders a check for every $50 earned in cash back.

5. Look beyond cash back credit cards. Rewards credit cards are more versatile than ever, and in many cases, cash back redemptions are not limited to traditional cash back cards. Capital One’s VentureOne rewards card, for example, offers cardholders the ability to redeem earned credit for a cash back statement credit, in addition to the travel-related rewards offered. With one of the best rewards earnings rates around, i.e. 1.25 percent in earnings on every purchase, the VentureOne card is definitely worth a look, even though it’s not a traditional cash back credit card.

6. Other perks don’t hurt. Some cash back cards offer bonus sign-up incentives and other benefits, in addition to cash back earnings. The Discover More card, for example, offers a $50 cash back bonus after the first $599 charged to the card in purchases. Many cards enable you to leverage earnings by redeeming them with the card issuer’s merchant partners at a higher redemption rate.

Ultimately, however, it’s better to look beyond the flashy offers and go with the card that offers the best basic benefits. In addition, the best cash back credit card is the one that is most suited for your personal spending habits and lifestyle, so examine your spending patterns and choose your card accordingly.


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