By Matt
With the abundance of credit cards available, and the endless variety of rewards programs associated with them, it makes sense to do some comparison shopping before deciding on your next credit card. In the last decade, cashback credit cards have become a popular alternative to the standard flight reward programs offered by credit card issuers.
What is a cashback credit card?
Cashback credit cards use a formula — usually a percentage of the amount of money you spend with the card — to calculate a cash reward payable to the cardholder. Typically, one percent of the value of all purchases will be redeemed to the consumer. In reality the formula usually isn’t really that simple. Many cards offer a premium; say five percent, on purchases at certain types of stores, like supermarkets or drug stores. With some credit cards you must shop at specific brand stores in order to be eligible for the cash incentive.
Click here to compare cashback credit cards
What’s the catch?
Good question. The answer: there really is no catch. As long as you pay your statement balance in full each month you will benefit by receiving cash back on the purchases you make with your card. But that doesn’t mean there aren’t restrictions and other provisions make reading the fine print worth the time.
Caps and accumulation thresholds
Some cashback cards cap the amount of cash rewards that can be accumulated in a year. If your card has a $400 cap, you will not accumulate any more rewards once you have reached the limit. Many cards also have a minimum accumulation threshold before the reward can be redeemed. For example, you might have to accumulate at least $100 in rewards before you can cash in. Finally, some cards have a graduated reward formula, where the cardholder might earn 0.25 percent on the first $1,000 spent, 0.50 percent on the next $1,000 and only reaching one percent cash back on money spent in excess of $2,000.
Three incentives that make cashback cards stand out
- Sign up bonuses – Does the card offer a sign up bonus? If not you might want to keep looking. In order to get their card in your wallet, many credit card providers are offering bonuses. Anywhere from a $25 gift card to $150 cash is currently being offered.
- 0% APR – If you’re carrying a balance on your current credit card you’d probably like to have the interest rate lowered. Look for a credit card that lets you transfer your balance and cuts the rate on the transferred portion. Additionally, some cards offer 0% interest on purchases for the first 6 or 12 months.
- No Annual Fees – Annual fees. Some cards charge them, some cards don’t. You probably want to be in the latter group.
If you’re willing do to some comparison shopping, you will be able to find the credit card that suits your personal and financial situation. Remember to look closely and ask questions to ensure that you understand all the terms and conditions.
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