Given all the different types of cash back credit cards available today, it can feel like your rewards options are endless: Earn 2% back on all purchases. Earn 5% back on groceries and gas. Spend $500 within three months and earn a $200 welcome bonus.
Cash back credit cards offer some of the best savings on everyday spending, and the best cash back options are only improving when it comes to saving on regular purchases. Many credit card issuers have rolled out new rewards in response to changing consumer habits brought on by the COVID-19 pandemic, and revamped existing offers to retain current cardholders.
Choosing the right cash back card for you comes down to knowing your own spending habits and monthly budget. Finding the right one that aligns with your spending can save you hundreds of dollars per year on average.
“You want to be sure that you’re going to profit from your card long-term and get the kind of rewards that you need to help you save money, not just to get that sign-up bonus,” says Beverly Harzog, a credit card expert and consumer financial analyst for U.S. News and World Report.
If you’re in the market for a new cash back credit card, here are some tips to help you choose the right one.
How Do Cash Back Credit Cards Work?
A cash back credit card allows you to earn a percentage of cash back for every eligible purchase you make with the card, which you can usually redeem for statement credits or cash.
But not every cash back credit card works the same. Different cash back cards have different rewards structures, which may or may not complement your spending.
To choose the right cash back card for you, it’s important to not only find one with rewards where you spend most, but also with a rewards structure you can maximize. Some are straightforward, with one cash back rate on every purchase, while others require more strategy, with tiered or rotating categories.
Flat rate cash back credit cards are the simplest way to maximize every purchase. Typically, these cards earn an unlimited 1.5% to 2% cash return, and you won’t find many options above that in this category. A flat rate card is “perfect” for people who don’t want to think too much about which credit card to use, says Harzog.
Your rewards rate increases with rotating bonus category cash back cards, which usually earn 5% cash back in rotating quarterly categories. But this cash back type often requires the most strategizing, since your rewards categories change every quarter.
Depending on how much you spend, you may also earn less, because there’s usually a cap on how much you can earn in each quarterly category. But specific issuer-chosen categories can be just about anything, and may even include categories often excluded from other cash back cards, from gas to groceries to specific retailers like Walgreens or Target.
Tiered bonus category cash back credit cards have a somewhat blended approach when it comes to rewards. These cards offer fixed cash back rates (usually 2% to 5%) in specific categories that don’t change. They can be most valuable if the majority of your spending is focused in a few specific categories.
For example, you might earn 3% cash back on groceries and at restaurants and 2% at gas stations, but only 1% cash back on everything else. Tiered bonus and rotating bonus category cards make more sense for someone who doesn’t mind making a budget ahead of time and strategizing where and when to spend.
How to Choose a Cash Back Credit Card
Here are the steps you can take to choose a cash back credit card is right for you:
1. Check Your Credit Score
Your credit score can help you understand your chances of qualifying for a credit card before you actually apply (and undergo a hard credit check). Check it before you even start your search so you know which cards to consider. You can usually do this through your credit card issuer or bank.
While there are cards on the market for just about every credit score, you’ll have the best chances of qualifying for the best cash back cards with a solid good-to-excellent credit score (680 or higher).
Once you’re approved, using a credit card for everyday expenses that you can pay off in full by the time your statement balance is due is a great way to build credit and maintain a good score.
“I am always conscious of my credit score,” says A’shira Nelson, CPA, a personal finance expert, and founder of Savvy Girl Money. “I spend on my credit cards monthly, but I make sure to pay the balance off every month, too.”
2. Evaluate Your Spending Habits
Knowing your regular spending patterns and how much effort you’re willing to put into your card strategy will help you determine which cash back credit card you should get.
Look through your past credit card or bank statements and at your monthly budget to figure out your biggest spending categories. Then, think about whether you want straightforward cash rewards of a flat cash back card that earns on every purchase, or you’d rather maximize your spending (and potentially earn more over time) with a card that has bonus categories you can track.
3. Do Some Research
In addition to your own spending habits, take time to understand each card’s rewards structure — and pay attention to the fine print of any card agreements you consider. There may be plenty of lucrative welcome bonuses, intro offers, or waived fees to entice you to apply, but always look for spending thresholds those offers may require or fees you’ll incur later on.
Pick out a few cash back credit cards that stand out to you and start comparing to narrow down your selections. Reading credit card reviews can help, too. If you don’t know where to start, take a look at NextAdvisor’s top picks for cash back credit cards.
If you’re not a big spender, watch out for credit cards with welcome bonuses that require you to spend a lot in a short period before you can earn them. Check for redemption options, expiration dates on rewards, and any extra card perks — it may make a difference if you’re torn between two cash back credit cards.
“Be sure you do some comparisons,” says Harzog. “You have to strategize and do sort of a cost-benefit analysis.
A high-interest credit card debt balance can outpace even the highest rewards value. To maximize your savings with a cash back credit card, spend within your budget and only charge what you can afford to pay off every month.
4. Adjust When Needed
You don’t need to stick with the same cash back card or card strategy forever. As your spending patterns change and evolve, it might make sense to change the cards in your wallet, too.
If you’re not getting any value from a specific card you already own, look into other cards with the same issuer and consider asking for a product change to a card that better suits your needs, especially if you’re paying an expensive annual fee. If you’re not paying an annual fee, or the card in your wallet is still bringing some value to your purchases, you may want to consider opening an additional card with complementary rewards — and pairing your cash back savings.
However, avoid canceling your credit cards when possible. Closing a credit card can lower the average age of accounts on your credit report and negatively affect your credit score. If you’re paying an annual fee, though, it’s likely still worth the temporary credit hit to eliminate the fee. Otherwise, put any unused cards away in a drawer and only pull them out once every few months to buy a coffee or a snack to avoid any hits to your credit score.
Cash back credit cards are a strategic way to maximize savings on the regular items already in your monthly budget, but only if you pay off your balance on time and in full every month.
To determine which cash back card is best for you, start by taking a pulse of your spending and your credit score. Then consider how much effort you’re willing to put into your card strategy, annual fees, interest rates, redemption options, and extra benefits.
“It’s so important to analyze your spending patterns and pick the right card for you,” says Harzog. “That’s how you profit from your credit card.”
*All information about the Citi® Double Cash Card, Discover it® Cash Back and Capital One SavorOne Cash Rewards Credit Card, has been collected independently by NextAdvisor and has not been reviewed by the issuer.