Editorial Policy

Editor’s Pick: 2012 Best Cash-Back Credit Cards

Eva Norlyk Smith Ph.D.

May 2, 2012

Like the idea of getting 2 percent to 6 percent back on grocery and gas purchases? Get a cash-back credit card. While not as sexy as airline rewards cards, cash-back credit cards are the workhorses of rewards credit cards — most offer solid value with little effort.

“Cash-back credit cards are preferable to many other rewards cards, because you always know what you’re getting, and earnings are simple to redeem,” says Mike Sullivan, director of education for Take Charge America. “As long as there’s no additional costs involved in using the card, these cards can offer great value.”

As always, the devil is in the details. Some cash-back credit cards appear attractive — but read the fine print, and the lofty cash-back earnings either are capped or don’t kick in until you’ve spent a certain amount. To help you sift through the choices, here are CreditCardGuide.com’s choices for the best cash-back credit cards for 2012.

Earn up to 6 percent cash back on grocery purchases: Blue Cash Preferred and Blue Cash Everyday from American Express
The prize for the highest cash-back earnings goes to AmEx’s Blue Cash Everyday and Blue Cash Preferred cards. With the Blue Cash Everyday card, cardholders earn 3 percent cash back on supermarket purchases, 2 percent at gas stations and department stores, and 1 percent on everything else. There is no annual fee.

For a $75 annual fee, the Blue Cash Preferred ups cash-back earnings to 6 percent on grocery purchases, 3 percent at gas stations and department stores, and 1 percent on all other purchases.

To calculate which card is the best option for you, take a look at how long it will take you to earn back the $75 annual fee in extra cash-back earnings. Taking the example of supermarket purchases, you will be earning 3 percent more with the Blue Cash Preferred. That nets an additional $30 in cash-back rewards for every $1,000 spent.

So to earn back the $75, it will take $1,250 in supermarket spending. In short, if you spend about $315 a month on groceries, it will take about four months to earn back the annual fee, leaving you eight months to benefit from the extra 3 percent cash-back earnings.

To maximize earnings, add family members to the account at no extra charge. Their purchases will count toward your cash-back earnings as well. Earnings can be redeemed for a statement credit once they exceed $25.

Added perks: Both the Blue Cash Everyday and Blue Cash Preferred are currently offering a 0 percent annual percentage rate (APR) on purchases for 12 months and a sign-up bonus of $100 (Everyday) or $150 (Preferred) for new cardholders who spend $1,000 in the first three months. There is no spending minimum, and you don’t have to enroll in rotating rewards categories.

Earn 5 percent cash back in revolving categories: the Chase Freedom Card and the Citi Dividend Platinum SelectTh_cash-back-cards
Plan purchases ahead and get a full 5 percent cash back in rotating categories such as clothing, travel purchases, grocery and department store purchases. The categories receiving the cash-back rewards are posted on the card issuers’ websites. To qualify for the full 5 percent, you have to enroll in the new category each quarter.

Both cards have no annual fee. They also offer 1 percent cash back on all other purchases, a feature that makes them more attractive options than the Discover More cash-back credit card, which limits cash-back earnings on the first $3,000 in charges to 0.25 percent.

The Citi Dividend Platinum Select card has the added advantage that it includes home improvement stores as one of the revolving rewards categories. So for those planning a home improvement project, it could be the more attractive option.

For the Chase Freedom card, the 5 percent earnings are limited to the first $1,500 spent in each revolving purchase category, effectively limiting the 5 percent cash-back earnings to a maximum of $75 per quarter. The Citi Dividend, meanwhile, limits cash-back earnings to $300 a year, giving a little more flexibility to how you allocate spending.

Added perks: Both the Chase Freedom and the Citi Dividend Platinum Select offer an extra $100 cash back after $500 in purchases within the first three months of account opening. They also currently feature a 0 percent introductory APR on balance transfers and purchases for 15 (Chase) and 12 months (Citi).

Best cash-back card for those with average credit: Capital One Cash Rewards
Most cash-back credit cards require that applicants have excellent credit. If your credit is average, don’t despair. For a $39 annual fee, those with average credit may qualify for the Capital One Cash Rewards card. Cash-back earnings are a standard 1 percent on all purchases, but cardholders also earn a 50 percent bonus on cash-back earnings every year, effectively putting the cash-back rate at 1.5 percent.

How long will it take you to earn back the $39 annual fee? At a 1.5 percent cash-back rate, you earn $15 for every $1,000 spent. So it will take $2,600 in spending to earn back the annual fee. Take that into consideration before applying.

Added perks: The card currently offers a 0 percent intro APR on purchases until February 2013. New cardholders with excellent credit get a $100 bonus after they spend $500 in the first three months, and, if you have excellent credit, the annual fee is waived.