If you’re looking for a new credit card, it can be tough to decide on one with all the options on the market. The first decision you’ll need to make is whether you go with a cashback card or a travel rewards card.
Cashback cards are as simple as it gets – you earn a certain cashback rate on your spending. This may be 1 or 2 percent, although some cards offer much higher rates, up to 5 percent, for purchases made in certain spending categories. The card issuer either applies your cashback to your bill every month automatically, or you can request it.
With travel rewards cards, you earn points on your spending, with the number of points depending on the card you have and sometimes the spending category. You can redeem those points for travel purchases, such as airline fares and hotel stays.
You’d think that if you’re a frequent traveler, a travel rewards card is the superior option. It turns out that isn’t always the case.
Cashback Tends to Save You More Money
NerdWallet surveyed over 2,000 adults and researched the value of rewards with 21 travel reward and cashback credit cards. One surprising finding was that on average, if you travel domestically, you still need to spend at least $8,600 per year to earn more using a travel card than a cashback card.
Keep in mind that travel cards usually have high signup bonus offers to entice people to apply, but also tend to have higher annual fees and APRs than cashback cards. This means that the longer you have a travel card, the more you need to spend using it to justify its value over a cashback card.
One option which allows you to maximize your rewards is to get a travel card for that initial signup bonus, and then downgrade it to a cashback card without an annual fee after a year or two. This allows you to get the best of both worlds
Advantages to Travel Cards
It’s not a clean sweep for cashback cards, though, as some consumers will benefit more from a travel card. If you travel internationally at least once every year, you should go with a travel card. You’ll earn more rewards on your travel spending, and since international trips tend to cost more, it’s worth it to have a travel card to boost your rewards.
Travel cards also typically offer no foreign transaction fees, whereas most cashback cards will charge you a 3-percent foreign transaction fee every time you use them internationally. Having a travel card will save you money on fees and be much more convenient than needing to stop at an ATM to get cash. By not carrying around as much cash, you also reduce how much you lose should anyone steal your wallet.
There are other perks that can make travel cards worth your while. With an airline credit card, you’ll get one or two free checked bags, which can save you money on every leg of your trips. Some travel cards include airport lounge access, which improves your travel experience.
Millennials Don’t Get Many Rewards
Even though Millennials travel as much or more than anyone, they spend less money when they do so and put less of their spending on credit cards. One-third of Millennials don’t even have any credit cards, and of those that do, there are twice as many with cashback cards than with travel cards. Considering their lower travel spending, a cashback card is the right choice for the typical Millennial.
Remember that which credit card is right for you will depend on your needs and your typical spending habits. While cashback cards are better for the majority of consumers, your needs may be different. If you travel often and can make good use of travel card perks, you should choose a travel card that can improve your experience. Just make sure you evaluate the value you’re getting from your credit card regularly to ensure that it’s worth any fees you’re paying. If it’s not, you should downgrade to a cashback card to save money while still getting a return on your spending.
Competition amongst credit card issuers has always been a good thing for consumers, and it has led to a bump in the standard cashback amount. For decades, 1 percent has been the normal cashback rate. Many of the largest card issuers now offer cards with cashback of 1.5 percent and no annual fee. Some sweeten the pot even further. Citi has a cashback rate of 1 percent on spending plus 1 percent on every dollar paid on your bill, while Capitol One offers unlimited 2-percent cashback on its Spark Business card.
If you pay off your balance in full every month to ensure that you don’t get any interest charges, you can earn an excellent return by putting all your spending on a cashback card. So, why has the standard cashback amount gone up to 1.5 percent? For the answer, you need to start at the beginning.
The Days of 1-Percent Cashback
There’s a simple pattern when it comes to credit card rewards. One card issuer offers a reward that’s beyond what any of the competition is offering. If that offer becomes popular among consumers, all the other card issuers follow suit to avoid getting left behind. At that point, the offer goes from a nice bonus to a standard feature, and card issuers need to find a new way to separate their cards from the rest.
It wasn’t always normal to get 1-percent cashback with a credit card. Back in 1986, the first Sears Discover card came out and offered up to 1-percent cashback, a previously unheard of amount. And that wasn’t even a flat rate of 1 percent. On your first $1,000 in spending, you earned 0.25-percent cashback, then 0.5 percent on your next $1,000 and 0.75 percent on spending between $2,000 and $3,000. Anything over $3,000 in annual spending earned 1-percent cashback.
As card issuers launched their own cashback cards, they offered new reward options. Some cards had up to 2 percent in cashback, and card issuers started putting limits on the amount of cashback that cardholders could earn each year.
The Current Cashback Card Marketplace
In 2013, Capital One launched its Quicksilver Cash Rewards card with 1.5-percent cashback and a $59 annual fee that it waived for the first year. Just like back in the 80s, most card issuers moved to match that deal, offering their own cards with 1.5-percent cashback.
All these cards are offering similar deals, although each card issuer puts its own spin on things to entice applicants. Signup bonuses are common, and some also offer introductory periods with a 0-percent annual percentage rate (APR).
Some cards offer a standard rate of 1 percent, but higher rates of 2, 3 or even 5 percent for purchases made in certain spending categories. For example, a card could earn you 3-percent cashback on any travel purchases. These higher rates typically have an annual cap, and if you reach that amount, your reward rate goes down to 1 percent for additional spending.
The Future of Cashback Cards
Of course, the big question is what’s next on the horizon for cashback cards? We’re likely a long way from 2 percent becoming the standard cashback amount. Card issuers still need to offer reward rates that they can afford, and anything over 1.5 percent is pushing it. Instead, card issuers will find other ways to make their products more attractive to consumers.
Choosing a Card
If you’re in the market for a new cashback credit card, the best thing to do is shop around and see which cards best fit your spending habits. Look for a card that earns a higher cashback percentage in your preferred spending categories, and see what kind of signup bonuses are available. Remember that you can also sign up for multiple credit cards over the year to maximize your signup bonuses and rewards.
When you have multiple cards, you can use some to earn higher cashback in specific spending categories, and then earn your flat 1.5 percent on other purchases. Check other card perks, as well, so you can choose cards that best fit your lifestyle and current needs. That could be a card without foreign transaction fees if you’re a frequent traveler, or a card with a 0-percent introductory APR if you need to finance a large purchase.
There are a lot of cyber scams out there. That is why many people are skeptical about websites that offer free things. If you get an email that promises to give you free things, then you may be tempted to delete it. However, there are some legitimate websites that really do offer cash.
You Will get Rewarded for Shopping
Cashback websites allow you to make money and spend money simultaneously. These websites will return to you a portion of the money that you have spent. Karen Lentz has been using Ebates, which is a cashback website, ever since 2006. Karen describes herself as a hunter, and she loves looking for deals online. She often receives up to $40 every quarter for her purchases.
Mikki Clagett, who lives in Florida, also uses cashback sites. She often receives $100 in quarterly payouts.
How the Process Works
Shopathome, Ebates. and Frugal.com are some of the legitimate cashback sites. Using these websites is straightforward. You will need to sign up for a free membership and then use the website as your shopping portal. You will then be able to do your online shopping as usual.
Your transactions will be verified and approved. The cashback that you get is contingent upon the amount of money that you spend.
For example, you use a site that offers a 7 percent cash back at Macy’s. If you click on the offer, then it will take you to the Macy’s website to make the purchase. If you make a purchase for $300, then you will be able to get $21 back.
Karen has stated that it takes time to make money with the cashback sites. You have to be consistent. Cash-back websites develop relationships with stores. These websites get paid when customers are referred.
Things to Consider Before Signing Up
You should verify that any website you use is legitimate. Make sure that you check with the Better Business Bureau. Do not sign up for a website that charges you a membership fee. Every website has its own conditions and payout periods. You may need to accumulate a certain amount of money before you get paid.
Payouts can form in the form of a check, PayPal or gift card. You do not want to make purchases just to get a cashback. There are some great deals, but you have to be a disciplined shopper.
One of the biggest reasons why cash back credit cards are so attractive to consumers is that they pay you money for spending money. However, what many people don’t know is that there are a few different types of cash back cards. Generally, there are three kinds of cash back credit cards. These include flat rate cash back cards, tiered cash back cards and bonus category cards.
Of course, the most flexible type of reward you can get on any credit card is cash. According to a survey conducted by the American Bankers Association in 2015, this is precisely the reason why 51 percent of consumers opt for a cash back card over those that give airline miles or rewards points. After all, if you have a credit card with which you can earn airline miles or bonus points, those things can expire if you don’t redeem them by a certain point. On the other hand, when you get a cash back reward, you know you will actually get it. Redemption with a cash back card is also extremely easy. You can either accept it as a credit on your statement, deposit the cash directly into your bank account or have it sent to you through a check.
If you are curious about the various types of cash back cards and want to determine which one is most appropriate for you, learn all about them below.
Flat Rate Cash Back Cards
A flat rate cash back credit card provides you with the same reward on every purchase you make. There are also no limits to the amount of rewards you can earn. For instance, with the Citi Double Cash Card – 18 month BT offer, you can earn one percent cash back on every dollar spent and one percent cash back for each dollar you pay back. There are other cards that have similar deals but with 1.5 percent cash back. Although these numbers may not seem like a lot, after some time, they definitely add up, especially if you use the card to make everyday purchases and pay your bill in full every month.
The flat rate cash back credit cards are best for consumers who prefer simplicity and value over all else. A tiered cash back or bonus category card can also be used concurrently with this type of card if you are able to put a little more work toward your usage.
In general, there are certain features to consider when you sign up for a flat rate cash back card. These include no annual fee, a bonus of at least $100 simply for signing up and cash back rates of 1.5 percent or higher.
Tiered Cash Back Cards
A tiered cash back credit card offers higher rates for spending in certain categories, such as gas or groceries. There are also lower rates, traditionally one percent, for all other purchases. Sometimes, the higher rates will only apply when you spend up to a certain amount of money. In general, spending is quite concentrated within the higher earning categories, which means you have to be a frequent buyer of those particular items. If you are, then this type of credit card can certainly benefit you because you can get more cash back than with a flat rate card. However, you can also earn more cash back if you pair a tiered cash back card with a flat rate one.
For example, if you have two cards; a flat rate one that offers two percent cash back on all purchases and a tiered cash back card that gives you three percent back on all purchases up to $6,000 per year at supermarkets, two percent at gas stations and department stores and then one percent on all other purchases, the flat rate card is the better one to use once you hit your annual cap on the three percent option.
Specific features to keep an eye out for with this type of card include: signup bonus of at least $100, categories that match your spending, rates of at least three percent or more if there’s an annual fee and no annual fee or higher rewards that make up for a fee.
Bonus Category Cards
These cards give higher cash back rates on certain categories that change every three months and include a flat rate on all other spending. High rate spending is usually capped and you must activate those categories each time. Bonus category cards are only worth having if you know you’ll max out the bonus categories each quarter, but they’re better when paired with the other two types of cash back cards.
Features to consider include: no annual fee, a signup bonus of at least $100 and bonus categories that match your spending.
Overall, your best bet is to mix and match these cards to get the most out of your spending. You can also explore your options to determine which single card is best for you based on your regular spending.