5 Best Cash Back Credit Cards
Updated May 2013
Many people prefer cash back rewards to other credit card perks such as frequent flyer miles. Cash has the advantage of being readily liquefiable and universally accepted. Unlike points and miles, cash back rewards earn interest when unused and is not subject to the constantly changing terms and conditions of corporate loyalty programs.
Furthermore, cash back rewards are considered to be a discount on a purchase, not income that needs to be declared for tax purposes.
My family is a perfect example of how you can use credit cards to receive cash back. Using our cards for day to day purchases, we may spend as much as $2,500 with them each month. When we are not looking for travel rewards, we use a card that returns 2% on all purchases in order to earn an additional $50 a month in cash back. That equals a return of $600 each year that we can add to our discretionary spending or apply to our savings.
Just one word of caution -- cash back credit cards should only be used by people who have always paid their credit card balances in full and on time. To do otherwise virtually ensures that you will owe more in interest and penalties than you will ever receive as cash back.
Once you have decided to earn credit card rewards in the form of cash back, you should definitely consider one of these top five cash back rewards cards.
The Current Top Five Credit Cards Featuring Cash Back Rewards
In my research, these are the best cash-back cards currently available.
US Bank Cash+ Signature
This new US Bank card is turning a lot of heads. It allows you to earn 5% cash back on any two categories of your choosing including department stores, restaurants, home improvement, airlines, and bill payment. You can also choose an additional category to receive 2% cash back from including gas stations, grocery stores, and drug stores. All other purchases earn 1% cash back. But then you also receive an additional $25 cash back when you redeem $100 in cash back. Therefore, the return on the 1% purchase is equal to 1.25%, the 2% categories are worth 2.5%, and the 5% categories are worth 6.25%. There is no annual fee for this card.
Fidelity Investments Rewards American Express
Outside of a promotional offer, the highest cash back rate available on all purchases is 2%. Fidelity Investments’ Fidelity Rewards American Express Card offers unlimited cash back at that rate with no annual fee. Your card must be connected to one of their cash management or brokerage accounts, but there is no other catch. You can also use this card as a savings instrument by directing the funds to a Fidelity IRA. Finally, they even offer a version that funds a 529 college savings account.
Capital One® SparkSM Cash for Business
Like the Fidelity card, Capital One also offers a 2% cash back rate, but in a Visa that is more widely accepted than Fidelity’s American Express. This is a business card, which is a great product for people who do some work on the side and want to separate out their expenses. Nevertheless, anyone can apply for this card as a sole proprietor and use it just like other credit cards. There is a $59 annual fee, but it is waived the first year. Another nice benefit is that cardholders will not be charged any foreign transaction fees, which normally run 3% on most other cards.
Blue Cash Preferred® Card from American Express
This card offers an outstanding 6% cash back on all purchases from US stand-alone grocery stores. It did not take many credit card holders long to figure out that they could better reap this benefit by purchasing other merchants’ gift cards at the supermarket, this card still returns 3% on purchases from US stand-alone gasoline stations and select major department stores, as well as a decent 1% on all other transactions. There is a $75 annual fee for this card, which is what users will earn when they charge just $1,250 at their grocery store.
Here are the updated offer details:
- Earn 150 Reward Dollars after you make $1,000 in purchases in the first three months of Cardmembership.
- Earn Cash Back: 6% US supermarkets up to $6,000 per year in purchases, 3% US gas stations & select US dept stores, 1% other purchases. Terms and limitations apply.
- Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit.
- Simple and Straightforward: With the Blue Cash Preferred Card, you can start earning cash back. No rotating reward categories. No enrollment required.
- Terms and Restrictions Apply.
Chase Freedom® Visa
The Chase Freedom card is an underdog that makes the list due to its generous sign up bonus of $100 in cash when you spend $500 in the first three months after opening an account. Think of it as a 20% cash back rate of return! Card holders are also eligible to receive 5% cash back on their first $1,500 of spending on different categories of merchants that change every quarter. All other purchases return a standard 1% cash back. This can really add up when the card is used often for small purchases.
With its significant cash sign-up bonus, but less-competitive standard rate, this card is best to maximize rewards for those who only charge a few hundred dollars a month to their cards, or customers who will only use it for purchases in the bonus categories that return 5%. There is no annual fee for this card.
Within the credit card industry, the term “deadbeat” is used as slang to describe customers who always pay their balances in full and on time. These customers don’t provide the banks with any profits from interest payments or late fees, but they are still valued customers due to the merchant fees their spending generates and their impeccable payment history. If you are a proud member of this group, and you have no interest in travel rewards, you should be using one of these cards that offer the maximum cash back for your spending.