Everyone loves to earn cash back on their credit card purchases, and luckily, tons of credit cards offer it. But how do you know you’re getting a good rate?
A 1% cash back offer is the minimum. So ideally, you’ll be ahead of the game if you can qualify for a card that offers more than that. Keep in mind that the most competitive cards might earn up to 6% cash back in certain spending categories, while others earn 2% cash back across all spending. But those cards might not be for everyone.
We’ll give you the scoop on what’s considered a good cash back credit card rate for every type of credit card user, and how to weigh the perks with terms and benefits to find the best card for your needs.
[Read: Best Cash Back Credit Cards.]
How Do Cash Back Cards Work?
A cash back credit card will credit back a percentage of your eligible purchases each billing cycle. For example, on a 2% cash back card, if you spend $200, you’d receive $4 in cash back.
Just about any credit card user can qualify for a cash back card, from people just starting out to experienced consumers with excellent credit. However, credit card issuers offer more attractive rates to people with higher credit scores. “What defines a ‘good’ cash back rate truly depends on your credit profile,” says Josh Katz, certified public accountant and founder of Universal Tax Professionals.
Here’s how cash back rates may vary by the types of credit card users.
[READ: Best Credit Cards for Students]
For Students
Some student credit cards offer cash back, and you might find one with a rate higher than 1%. “If you are a student or just starting to build your credit, aim for a straightforward flat rate with no annual fee,” says Katz. He recommends a card like the Capital One Quicksilver Student Cash Rewards Credit Card because it avoids complex bonus categories, making it easier to earn rewards while establishing a solid credit history.
“Some student cards do offer up to 5% in specific categories like groceries or gas, but that only works if you’re keeping up with the fine print,” says Ashley Akin, certified public accountant, tax consultant and the senior contributor at Gold IRA Companies.
For some cardholders, that may be too much to handle when starting their credit journey. While it’s great to earn cash back on your first credit card, it’s not the top priority. “The goal is to learn how to manage credit without getting hit with extra fees or confusion,” says Akin.
That said, try to find a card with no annual fee. Then, as you learn to manage the credit line responsibly and pay on time — and in full — each month, you may qualify for higher-earning cash back rewards cards.
For Bad or Fair Credit
For someone with poor credit, rewards can be a nice feature — but it’s more about getting back on solid ground. “Most cards in this space either offer no cash back or a basic 1% on purchases. And that’s okay,” says Akin.
However, there are a select few secured credit cards, like the Discover it® Secured Credit Card, that offer higher cash back opportunities. “For this type of cardholder, the real reward is building your credit back up,” says Akin.
Therefore, more important than finding a good cash back rate is getting a card with the lowest possible fees, no surprise charges and a chance to move to an unsecured card down the road, she adds. Then, focus on making payments on time and keeping your utilization (the amount of credit you’re using compared to your credit limit) low at all times.
[Read: Best Rewards Credit Cards.]
For Rewards Connoisseurs
“If you have excellent credit, you should expect at least 2% flat cash back,” says Katz. If you want to be more strategic with your spending, you can also find cards with quarterly rotating bonus categories that reach 5%. Other cash back cards have tiered bonus categories where you might earn up to 4% to 6% back in a top category, 2% to 3% back in others, and 1% back on non-bonus spending.
There are even a couple of cards on the market that let you choose your top category, like the Bank of America® Customized Cash Rewards credit card.
If you have very strong credit and can pay off your balance in full each month, it makes sense to use credit cards that offer the most value. For some, that could mean a premium cash back card that has an annual fee — assuming you spend and earn enough to justify it.
For instance, if you spend a good chunk of money on groceries, you can easily earn enough to cover the $0 intro annual fee for the first year, then $95. annual fee that comes with the Blue Cash Preferred® Card from American Express. You’ll get 6% cash back at U.S. supermarkets on up to $6,000 per year, plus other bonus earnings on streaming subscriptions, gas and transit. See Rates & Fees
[Read: Best Credit Cards.]
Flat Rate vs. Bonus Category Earnings: Which Is Better?
When you’re looking for the best cash back rates, keep in mind that there are three main types of cash back cards:
— Flat-rate. This means that all purchases earn the same percentage of cash back.
— Tiered rewards. Bonus categories (that don’t change) earn a higher percentage, and then there’s a base rate for all other purchases. It might be something like 3% cash back on dining, 2% cash back at supermarkets and 1% on everything else.
— Rotating bonus categories. These cards are more complex because the top bonus categories change each quarter, and you have to remember to activate the offer.
Flat-rate cards are great for anyone who wants to earn rewards without thinking too much, says Akin. “You know what you’re getting every time, no matter where you shop, whereas bonus category cards can give you more cash back, but they need more attention.”
Tiered earnings stay the same, so the key to maximizing that type of cash back card is simply remembering to use it over other payment methods if you’re buying within the bonus categories.
With rotating bonus categories, there’s more fine print. You typically need to activate your bonus ahead of time, and there may be a cap on how much you can earn each quarter. “If your spending naturally matches those bonus areas, and you don’t mind tracking them, it can be worth it,” says Akin.
More advanced credit users can optimize their spending by having more than one cash back card in their arsenal. “My strategy is to pair a solid flat-rate card with a category-specific card if you consistently spend a significant amount, say over $500 per month, in high-bonus categories like groceries or gas,” says Katz. Then, for non-bonus spending, if your flat-rate card earns 2% back, you’ll be certain that you’re never earning less than that.
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What’s a Good Rate on a Cash Back Credit Card? originally appeared on usnews.com
