Types and Benefits of Cash back Credit Cards
A credit card is a convenient financial tool that provides multiple benefits to its users, including cash back rewards. With the help of a cash back credit card, the user can earn high amounts of rewards, which can also help offset the bill. While some cards offer a minimum of 1% cash back on purchases, some provide 5% and above on select categories. Hence, knowing the benefits of such credit cards can be of great value.
Rewards to expect
A cash back credit card can benefit users in varied forms. It offers the user to get back a certain percentage of the amount paid in terms of goods and services rendered. However, the percentage received on the total amount spent can be redeemed in terms of cash or gift cards.
Cash back
A specific portion of the amount spent on a product or service gets redeemed straight into the user’s bank account. This percentage of the amount may vary depending on the category of the purchase. Most cash back credit cards offer a flat rate ranging between 1% to 1.5 % on the total net purchases. Some credit institutions also offer double cash back, where a cash back is available on the first purchase, and a subsequent percentage is available after making card payments on time.
Statement credit
Another way a company issues cash back or rewards is through a statement credit. Under this type of credit card cash back reward, the money is not transferred to the individual’s bank account. Instead, the money is deducted from the bill amount they currently owe the credit card provider.
Gift vouchers/cards
Gift vouchers or cards can be bought from stores, brand websites, and restaurants. However, with a credit card, the user can get it at a subsidized rate and sometimes even free on their purchases. This helps save cash on the bills generated while shopping or dining. Various credit card companies prefer providing their users with gift cards as a benefit of using their cash back rewards cards.
Travel benefits
Another feasible option that proves beneficial for frequent travelers is having their reward points converted into miles. Many financial institutions allow their users to take advantage of their accumulated points by letting them convert them into travel points. The user can redeem the travel points on the next trip.
It is advisable to carefully read the terms and conditions of the potential credit cards being considered. If the benefits offered are not in line with the requirements or preferences of the user, it is better to find another option. Choosing the right card can help users redeem the rewards according to their needs.
Find the right card
Not all credit cards are the same. The two most common categories of rewards credit cards are cash back and travel rewards; however, some cards might be a combination of the two.
By choosing cash back credit card, users can easily keep track of the benefits earned. Additionally, unlike travel benefits cards, the benefits are not dependent on current travel rates, and the kind of loyalty program users are a part of. With cash back cards, users can choose to redeem their benefits via bank transfer or a statement credit.
Flat-rate cash back
These credit cards offer customers cash back at a fixed percentage ranging from 1.5% or 2% for all eligible purchases. Users signing up for this card will earn cash back on the net amount spent, irrespective of the purchase. Generally, people prefer this card since the amount is guaranteed on every purchase. However, it is vital to check for hidden costs like annual or other fees that can lower the amount of overall savings or rewards.
Flat-rate cards are easy to track, compare, and manage. These are especially beneficial for those who do not want to sign up for loyalty programs. Most importantly, users are always aware of the amount they will earn through cash back or rewards.
Bonus category cash back
These types of cash back credit cards offer customers bonus cash back in specific categories, including grocery stores, gas stations, travel, and entertainment. Some cards might even offer a different percentage of cash back across categories. For instance, some cards offer 2% cash back on gas and 3% on grocery purchases. On the other hand, some bonus category cards offer an earning limit for each quarter. If the user reaches this limit, their benefit rates are cut down till the end of that quarter. Also, this type of cash back is limited to a certain amount spent each year.
Rotating category cash back
A rotating category credit card allows users to earn a high percentage of cash back, generally 5% or more. The credit card company regularly rotates the categories that earn high rewards. This type of cash back credit card gives the cardholder the opportunity to earn high amounts of cash back on different kinds of purchases made and rendered. The primary appeal of these cards is the high rate of cash back offered on bonus category purchases. Unfortunately, the bonus rewards earnings are limited to maintain the rewards cap.
It is important to note that with the cap on quarterly cash back rewards, the earnings with this card might be significantly less compared to a flat rate card.
Cardholders can choose to redeem the benefits on their cards through bank transfers, statement credits, or gift vouchers. Other redeeming options include making online purchases with the help of points, gaining entry into the company’s reward program, and more. In addition, some cash back rewards credit cards require users to have a minimum amount available in the form of points or rewards to redeem them.
