Pros and Cons of Cash-Back Credit Cards (2024)

FAQs

What are the disadvantages of cash back credit cards? ›

Certain cash-back credit cards may have limits on the total amount of cashback you can earn, either per month or per year. Additionally, some cards may restrict higher cash back percentages to specific spending categories while offering lower rates for other purchases.

If you travel often, you're likely to get more value out of a rewards card that offers points instead of cash back. But if traveling isn't your thing, or you value simplicity and low annual fees, a cash back credit card may be a better choice for you.

It's important to consider some of the drawbacks to cash-back cards, as well, like the cap on how much you can earn or even limited redemption options. Also, if you're looking for travel rewards like airline miles and hotel points, these rewards can be worth much more than cash when redeemed strategically.

Credit card cash back rewards are bonuses provided to credit card customers when they use their cards to make purchases. Cash back rewards can take the form of dollars or points — with points typically redeemable on an online marketplace operated by the card issuer. Cash back rewards operate on a percentage basis.

There are a few drawbacks to a cash-back rewards card, including a higher-than-usual APR, having to wait to access your cash-back funds, and a cap on how much you can earn each year. Also, when it comes to travel rewards such as airline miles, sometimes the miles are worth more than the cash.

Types of Credit Card Rewards That Are Not Taxable

Credit card rewards you earn by making purchases with the card aren't considered income and are not taxable. This includes rewards miles, points and cash back.

If the bonus categories are in line with your spending, it can be smart to take advantage of a 5% cash-back card. The bonus rewards you earn during those periods could outweigh what you'd get using a flat-rate card that only earns 1% to 2% cash-back year-round.

The best way to put this into practice is to redeem your cash back every month as a statement credit towards your credit card bill. Or, if your credit card has a minimum redemption amount, redeem every time you reach that minimum.

Every time you use a cash-back credit card to make a qualifying purchase in store or online, it earns a percentage of the amount paid. That means if you spend $500 on a card that earns 1.5% cash back, you'll earn $7.50 back in rewards.

A more common flat-rate amount is 1.5 percent on your purchases, which is what the Capital One Quicksilver Cash Rewards Credit Card offers, for example. Earn a flat 1.5 percent cash back rate on all purchases, which works out to $15 in cash back for every $1,000 spent.

How many credit cards should I have? ›

If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix. Lenders and creditors like to see a wide variety of credit types on your credit report.

Three percent cash back is another way of saying that you will earn $3 in rewards for every $100 spent.

Key Takeaways

Closing a charge card won't affect your credit history (history is a factor in your overall credit score). Closing a credit card could hurt your credit score by increasing your credit utilization if you don't pay off all your balances.

Many people prefer cash back cards because they're easy to understand; you earn a fixed amount for every purchase you make. Depending on the card you have, you might also earn additional cash back with select merchant categories, like groceries, gas, and pharmacies.

A good credit card APR is a rate that's at or below the national average, which currently sits above 20 percent. While there are credit cards with APRs below 10 percent, they are most often found at credit unions or small local banks.

Generally, the drawbacks of cash advances outweigh the benefits. These transactions are very costly, so considering them usually only makes sense if you've exhausted all other options.

Travel rewards will return the greatest monetary value, often at the expense of an annual fee and higher interest rates. While cash-back cards are typically less expensive with little to no learning curve.

Cashback does seem to be a safe and legitimate site, but you should use it with caution. If you're not comfortable giving away personal data to the site, or to its third-party brands, you should steer clear.