You may have heard advertisements for credit card companies that are promoting their best cash back deals, but you may not know exactly what those deals really mean. Credit cards can have many excellent benefits besides allowing you to borrow money to pay for the things that you want.
As a consumer, you should consider your options carefully when choosing a card. One of the biggest and most common credit card perks is cash back, which can even be found some cards with the lowest interest rates.
What is a cash back credit card?
Simply put, cash back credit cards incentivize owners to use them by returning a small percentage of the cost of certain purchases in the form of cash. This can be a great way for people to save money on the purchases that they make every day, if used correctly.
There are several important features to learn about in regard to cash back credit cards so you can be sure to choose the right card to fit your needs. Cash back credit cards work for a few different reasons:
- They use money that would normally just be going to the card company: If a person pays for a $10 movie ticket with a credit card, a small percentage of that money will go to the credit card company for the ease of accessing the funds electronically. Cash back credit cards give a portion this revenue back to the consumer, incentivizing the buyer to use the card rather than pay cash.
- They can work directly with merchants to create special deals: A cash back credit card company can set up a relationship with a certain sellers and effectively advertise for both companies at once. A credit provider who is working with a grocery store to advertise groceries can benefit if consumers use their credit card at said grocery store, so these card companies often try to work with merchants to offer higher cash back amounts.
- They are tax-free and often provide additional bonuses to consumers: If you use a cash back credit card, the money that you are earning back is not taxed but instead viewed as a rebate from the original price of your purchase. Additionally, card companies incentivize consumers to use cash back cards by providing sign-up bonuses, which can often range from $100 to $200.
To better understand how cash back cards my work for you, it is often best to take a look at what they can offer you that other credit cards cannot.
How much cash back can I get by using one of these credit cards?
Depending on the type of card you are eligible for, you can get a wide range of cash back from many different credit card companies on many different purchases. Usually, this range can be anywhere from 1 to 5 percent of your purchase that is refunded to you. However, different cards have different priorities, while some may be partnered with grocery stores, others may be partnered with pharmacies or gas stations.
A common feature of cash back programs today is that if you use your card on different purchases, you can get different levels of benefits. For example, one card might provide you with 5 percent cash back at the grocery store, 3 percent cash back at the gas station and 1 percent cash back on all other purchases with your credit card. This means that if you are to use your credit card at the gas station to purchase $100 worth of gas, you will receive $5 back on that purchase. However, if you are to then go to the furniture store and buy a $100 chair, that purchase will only provide $1 cash back.
While some cards have flat rates for these different types of purchases, others change the category for their biggest discounts depending on the month. Although these rebates may seem small, they can add up over time.
You should use cash back cards on a variety of different purchases so that you can slowly build up more and more discounts. Plus, paying off the balance on these cards in a timely manner effectively guarantees that you receive everyday discounts on products and services for no additional monthly cost.
How to Access the Cash Back That You Receive
Once you have used your cash back credit card on a purchase, you may want to receive cash back. You can access this money in a few different ways:
- Applying the funds right back into your credit card balance, therefore making your monthly payments lower
- Depositing the funds into a bank account or receiving a check in the mail (as long as you have reached your card’s minimum cash back amount)
- Transferring the funds into a qualifying gift card or online certificate
- Directly donating the funds to the charity of your choice
Your specific card provider will have its own unique rules and regulations in regard to your benefits. For example, some cash back funds can remain in your account indefinitely, while others will expire if they are not redeemed on time. Checking up on your specific card’s rules is recommended.
Other Factors to Consider When Choosing a Cash Back Card
Like other types of credit cards cash back cards have certain types of fees and payments that you must be aware of. While some cards have initial fees that you must pay in order to use their services, those cards generally have low annual percentage rates, or APRs. This means that after your introductory promotional period has ended, you will need to pay a certain amount of interest on the debt balance that is on your card each month.
If cards advertise their lack of entry fees or particularly long “0 percent APR” introductory periods, it is important to keep in mind that they may be hiding large APRs that you may not wish to deal with later.
Choosing the right credit card is often a challenging process. However, if you make sure to look at all of the up-front and long-term benefits and drawbacks of each card, you can make an informed decision.
By Jennifer Symonds –