Guide to Maximizing Cash Back Rewards
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Cash back rewards can be a great way to put some money back in your pocket just for using your credit card. Many credit cards offer points on everyday purchases, such as groceries and gasoline, that can be redeemed in several ways. You could receive a statement credit, a check or gift card or in some cases, even apply the money toward your mortgage.
Many banks set a threshold to redeem cash back — typically at least $25 — that you can redeem each statement period. Rewards and the stipulations vary, like how many points, cash back or miles you’ll earn, so it pays to shop around to find the best rewards card for your spending habits and to maximize cash back rewards.
How Cash Back Rewards Work
When you have cash back rewards on your credit card, you can receive a percentage of the amount you spend back as cash or another reward each statement period. Based on your card, you may receive cash back, reward points or airline miles for every purchase or only in certain categories, such as groceries, gym memberships or at gas stations or department stores. Percentages vary by category and by card, with many cards offering higher percentages for a certain time period as an incentive for new cardholders.
Cards with points or miles work similarly in that you earn a set number of points per purchase — usually one or more points or miles per dollar — that are then redeemed as a reward. Some cards give points when you make a purchase and also when you pay your bill. They may deposit a set number of points in your cash back account when you sign up for the card as an incentive. Cash back isn’t taxable, as it’s defined as a rebate by the IRS.
For example, Suzy spent a total of $598.33 this statement period on her cash back credit card. She earns 5% cash back on grocery purchases and 1% on everything else. Her 1% cashback bonus was $0.49 and her 5% bonus was $27.46. Since the rewards balance exceeds the redemption requirement, Suzy logs into her account and redeems $27.95 for a statement credit.
Benefits and Potential Drawbacks of Cash Back Rewards
The benefit of using a cash back rewards card is that it’s an easy way to put money back in your pocket for making your usual purchases. Many cards offer higher percentages that can easily garner a little extra spending money each month. However, cash back rewards aren’t without their risks and drawbacks. You’ll need to watch out for making unnecessary or impulse buys just for the sake of receiving a cashback bonus.
Cash Back Rewards: Benefits and Potential Drawbacks
- No annual fee (usually): Many cards that offer cash back rewards have no annual fees, making them a free way to build and use credit and earn cash back rewards.
- 0% APR offers: Cards that offer cash back rewards often offer introductory 0% APR deals.
- Easy and convenient: It’s typically a straightforward process to cash in rewards. Redeeming cash back rewards is possible by contacting the bank via mobile app, online banking or by calling a representative.
- Bonus offers: Many card companies offer sign-up bonuses. Some cards will deposit points or miles into rewards accounts or give cash bonuses for signing up.
- APRs can be high: While most cash back reward cards have no annual fees, the ongoing APR can be high. However, there are some cards that offer an introductory 0% APR.
- Minimum redemption requirement: A threshold must be met to redeem cash rewards. If credit card usage is light within a statement period, rewards will not be accrued.
- Rewards can expire: Some card rewards will expire due to closed accounts, missed payments or inactivity.
- Cash back is capped: Some cards limit the amount of cash back earnings. Once the amount is exceeded, the cash back earned drops to a lower percentage.
Learn the 3 Types of Cash Back Cards
Cash back cards have different parameters for offering rewards. Whether a flat-rate, tiered bonus or rotating category, determining how certain cash back credit cards work or which is right for you will depend on your individual spending habits.
1. Flat-Rate Cash Back Credit Card
Flat-rate cash back credit cards offer the same percentage back on purchases regardless of the purchase category. Rather than a tiered or rotating system that provides a higher percentage of cash back in certain purchase categories, cardholders with a flat-rate cash back card receive a flat percentage on all purchases made on the card regardless of type.
Rewards and offers
A flat-rate cash back card offers both flexibility on purchases and ease because you don’t need to track what you’re spending and in what category.
Who is the card best for?
Anyone who uses their card for miscellaneous purchases that don’t fall into a category with higher rewards.
2. Tiered Bonus Cash Back Card
These cards offer greater cash back in specific categories. For example, you might receive 6% on groceries and at gas stations, 3% on dining and at department stores and 1% everywhere else. Often a higher introductory percentage may be offered which then drops after a certain amount of time, usually after the first year.
Rewards and offers
A tiered bonus cash back card provides what’s usually a higher percentage than other cash back cards in certain categories, making it easier to accrue a large rewards bonus.
Who is the card best for?
Anyone who makes specific purchases that fall under the incentivized categories. If you always use your card to buy groceries, a tiered bonus cash back card may be right for you.
3. Rotating Category Cash Back Card
Rotating category cash back cards offer cash back rewards in different categories each quarter or billing cycle. These cards usually offer cash back year-round in other categories and the rotating categories are bonus cash back incentives. Some cards offer predetermined bonus categories while others use the categories where you spent the most.
Rewards and offers
Using a rotating category cash back card can maximize your cash back rewards depending on your purchasing habits. For example, a card may offer a higher cash back amount on gym and fitness club memberships January through March when many people tend to work out.
Who is the card best for?
Anyone with varied credit card use or who is flexible about what they purchase with their card.
Before you sign up for your rewards card, consider your needs and habits. Assess your spending behaviors and compare card offerings to help you find your best option.
- Figure out where you spend the most. It’s important to understand your spending habits so you can find the best card for you. Do you spend a significant amount on groceries each month? A cash back card offering rewards in this category may be your best bet.
- Shop around for introductory offers. Many credit card companies offer introductory deals for new customers. It pays to check out the card holder’s website to see if there are any current promotions you can take advantage of or cards with no annual fee.
- Be sure to read the fine print. Does a low APR seem too good to be true? Reading the fine print gives you the whole picture. Perhaps the introductory APR is low but then rises after the first year or is particularly high on cash advances.
Ways to Redeem Your Cash Back Rewards
There are several different ways to redeem your cash back rewards. Many credit card issuers allow you to redeem for a statement credit, gift card, a check in the mail or flight vouchers. Some even offer hotel vouchers and concert or event tickets. You’ll need to be aware of redemption minimums as well as the type of card you have before choosing a way to redeem.
This is one of the most straightforward ways to redeem cash back. Typically, you’ll redeem by logging into your card’s online account or mobile app and navigating to the rewards section. A statement credit will appear on your balance within a certain amount of days that varies by cardholder.
This method is a great way to save some money on your bill each month. A drawback is that you aren’t receiving any cash in hand; it’s simply reducing your total bill. So if your outstanding balance is $700 and you have $50 in cash back rewards, for example, you could redeem for a statement credit. This would decrease your bill to $650.
Be aware that many card issuers will not release your cash back earnings until several days after your bill first becomes due. So if you already paid your bill for the month and you forget to redeem your cash back, you’ll have to wait until the next billing cycle to benefit from receiving the statement credit.
You should also avoid using your rewards dollars to compensate for interest charges on missed or incomplete payments. It’s always best to pay your bill in full and consider cash back rewards as a bonus.
Cards that accrue miles can be cashed in for airline credits. You can call your card issuer or sign into your online account or through its mobile app. For example, your bill over three months was $20,000. You would accumulate 20,000 miles, or $200 in most cases if the rate was a dollar per mile earned, which could be used to purchase a $200 flight.
Frequent fliers benefit from mileage credit cards. However, if circumstances prevent you from traveling — such as natural disasters or other restrictions — cashing in your rewards in this way could be a waste.
With flight prices fluctuating regularly, it’s important to be sure you’re getting the best value from your miles. With a little research and preparation, you can be sure to get the best flight deal when you cash in your miles. You should also know if your particular card allows you to redeem miles on any airline or only the airline associated with the card.
Similar to cashing in for a statement credit or travel miles, you would typically log into your online account or mobile app to redeem your rewards for gift cards. Many cardholders have apps just for rewards programs where you can browse through the available retailers.
If you’d like to give people cash gifts and don’t need the extra cash to spend in another way, redeeming it for gift cards can be beneficial. However, you should make sure you’re getting a good exchange rate when you go to redeem. Many may not be the best deal when compared to redeeming for a statement credit.
Your card issuer should have a rewards agreement you can review to make sure you meet the terms and conditions. Many have stipulations that rewards can be forfeited if abuse of the rewards program is suspected or you miss a payment.
Check in the mail or direct deposit
You can request a check from many card issuers. Some will directly deposit funds into your account. Typically, you’ll contact your issuer or sign into your online account to have a check sent to your mailing address or funds deposited into your bank account. This method puts cash in your hand, but expect to wait up to 14 days or more for your check to arrive. There is also usually a redemption minimum of around $25 and you should deposit or cash your check promptly to avoid expiration.
Some card issuers prevent joint or authorized users from cashing in rewards. The primary cardholder should be the one to request the check from the bank or card issuer.
How to Make the Most of Your Cash Back Rewards
The best way to use your cash back rewards depends on your spending and overall financial situation. Whether you’re working toward paying off debt, want to invest your money or would like some extra cash to spend, cash back rewards are an easy, tax-free way to pad your pockets. Consider starting a safety net or saving toward a specific goal with the extra cash you earn through cash back rewards.
Grow Safety Fund
Growing your safety fund or nest egg is a smart way to use your rewards. This can help you save money that was acquired tax-free and increase your savings account each month or quarter. Just be careful that you don’t overspend in order to bolster your rewards, having the opposite effect.
Compounding Your Cash Back for Safety Fund
By regularly redeeming your cash back rewards and depositing into an interest-bearing account, you earn compound interest. This can help you in your quest to save for retirement or build up your safety fund. Since cash back rewards do not earn interest when they are in your credit card account, it is wise to cash them out regularly so you can earn interest.
Since the goal is to earn as much interest as possible, shop around for a high-yield savings account that will grant a higher return on your money.
- Open an account. If you don’t own the account already, sign up for it and make any initial deposits as necessary.
- Connect your bank. Connecting your bank to your savings account makes it easy to deposit ongoing earnings from your cash back rewards.
- Set up automatic deposits. If you regularly earn cash back rewards, you can set up automatic deposits to be made each month or other period.
If you’re looking for an easy way to start investing, using your cash back earnings can be a relatively low-risk way to start. Since the money is tax-free and a bonus rebate, it may help those who are hesitant about investing take the plunge. But unless you’re getting large sums or using additional funds to invest, you probably won’t be able to make significant stock purchases at least at first.
Investing small amounts
Say you receive $50 in cash back rewards each month. You could start using an app such as Stash or Acorns where you can make small purchases to build your investing portfolio. This way, it’s a low-commitment way to begin learning about investing and another way to save money. You could even set up recurring investments to make it easier.
There are many apps and platforms that allow for small investments.
- Research the different platforms. There are many apps available that allow you to make small investments. Research each one and the different fees to help you pick the best one for you.
- Set up your account. Sign up for the service and start looking at your stock options. Start considering how much you earn from cash back rewards and how much you’d like to invest.
- Set up recurring investments. If you’d like, you can set up automatic investments depending on your investing goals.
Pay Off Debt
If you have debt, you could put your cash back rewards toward payments. Using the first strategy of depositing rewards into an interest-bearing account can help you maximize the amount that you can put toward repaying debts. But if you’d like to make payments immediately, it can be helpful to use cash back rewards toward this purpose.
Repaying debts with cash back rewards
For example, if you have student loans, you could contribute toward your loans using your cash back funds. While you are not able to pay student loans directly with a credit card, you can request a check or direct deposit so you can apply funds toward this purpose. Unless you are receiving large sums in cash back rewards, you probably won’t be able to make a full payment using rewards alone, but every dollar can help pay down your balance.
Be sure to deposit them into an account where they can be used for loan repayment.
- Make a deposit. However you redeem your cash back rewards, deposit them into an account that you can make payments from.
- Decide how much to contribute. You might want to apply your rewards toward your loan repayment or just a portion.
- Up your payments. If you’ve been making minimum payments, you might decide to increase your contribution with the additional funds.
Learn From Experience: Real-Life Examples of Maximizing Your Cash Back
MoneyGeek spoke with financial professionals to share their expert insight on how to maximize cash back benefits. They shared their personal experiences using cash back rewards.
- How have you benefited from using cash back credit cards?
- What do you look for when selecting a cash back credit card?
Certified Financial Planner and Senior Wealth Manager at LourdMurray
Certified Financial Planner and Financial Advisor at Mainstay Capital
Maximizing Cash Back Rewards From Your Business Purchases
Just like for personal use, using cash back rewards can put money back in your business. Many cash back cards offer perks that businesses can use, such as miles for flights, hotel vouchers or cash back to be used for other business expenses. And purchasing office expenses and supplies with your card can help you earn more rewards in incentivized categories.
Use a Small Business Credit Card
Small business credit cards offer cash back in select categories and other bonus offers. They offer perks for businesses, but watch out for high annual fees. They also require a good to excellent credit score.
Calculate how much you’ll earn
Many cards offer a tiered system of points broken down by category. Some cards also offer additional cash back if you also have a business checking account with the bank. You’ll want to check over your expenses carefully to see where you’re spending the most and how to maximize your earnings.
It can be helpful to categorize your spending by the same categories that your cash back credit card offers rewards.
- Look at your spending. Tally up how much you spend monthly and on what to see where you’re spending and how you can earn points and rewards.
- Calculate how much cash back you’ll earn. If you’re considering a few different cards, review their rewards percentages by category and see how much you’ll earn in cash back.
- Choose the right card for your business. Calculating not only how much you’ll earn but taking into account any annual fees or other stipulations, sign up for the card that allows you the greatest perks and rewards.
Use a Travel Card
Travel credit cards accrue points or miles that can earn you free flights or hotel stays. Some are airline or hotel-specific, while others can be transferred, offering more flexibility. You’ll want to read the fine print to know about any foreign transaction fees and high annual fees. There also can be blackout dates during which you cannot use your rewards, so plan carefully.
Pick a transferable or specific card
Depending on the needs of your business, a transferable card offering more flexibility or an airline-specific card could be right for you. Think about your business’ travel plans: Are you loyal to one airline? Do you always stay at the same hotel chain? Signing up for the provider’s specific cards could be the best option.
If your business requires global travel, a transferable card may be better. You should also look at extra features like airport lounge access and hotel upgrades and other perks.
Consider your business’ needs and what travel cards can offer.
- Review your company’s travel plans. Along with upcoming plans, it can be helpful to review past travel to see where opportunities lie for savings with a travel rewards card.
- Read the fine print. You’ll want to look at not only annual fees but foreign transaction fees if your business involves international travel. Review the APR and if any extra features are offered, such as travel insurance or rental car coverage.
- Look for sign-up bonuses. You could receive a deposit of points into your rewards balance just for signing up for the card.
Many cards offer extra miles or perks when you shop at certain retailers. The United MileagePlus X card, for example, lets you earn bonus miles on e-gift card purchases made through the MileagePlus app. So if you are planning to spend on office supplies or business lunches at select restaurants, for instance, using this card to purchase gift cards through the app can help you earn more miles. It’s helpful to read the fine print to be sure you’re not missing out on any opportunity to earn more miles.
Earning extra miles through MileagePlus
United Chase cardholders earn an extra 25% on miles earned on e-gift certificates. So if you are a cardholder, the way to take advantage of this using business expenses is to purchase gift cards for the items or services you plan to buy. Learn more about its rules and regulations.
Search through the available retailers and cross-check your list of expenses so you can purchase gift cards for retailers you will shop from.
- Get started in the app. Sign into the app for your card issuer. For United Chase, this is the MileagePlus app.
- Search through the retailers. Browse the available retailers and any current offers.
- Make a purchase. Making a purchase while in the app, whether it’s on a gift card, dining at a restaurant or on goods, earns points or miles and lets you take advantage of any current offers.
Learn From Experience: How to Best Use Rewards From Business Purchases
MoneyGeek spoke with financial professionals to provide expert insight on how to best use cash back credit cards for business use. The experts we spoke to have firsthand knowledge and experience with maximizing the benefits of cash back rewards cards.
- How does your business benefit from using cash back credit cards?
- What criteria do you look for when selecting a cash back credit card?
Finance Officer at Critter Depot
Certified Public Accountant and Founder of SuperfastCPA
MoneyGeek spoke with several financial experts for their insight on the benefits and drawbacks of using cash back rewards credit cards. They provided tips on how to pick the best card for your situation and maximize the rewards you receive.
- What are some benefits and drawbacks of cash back rewards consumers may not be aware of?
- What are some tips on picking the right cash back credit cards?
- How can consumers maximize their cash back reward earnings?
Chartered Financial Consultant at The Secret Profits
Certified Financial Planner and Senior Wealth Manager at LourdMurray
Co-Founder & Technical Lead at Fig Loans
Maximizing your cash back credit card rewards is only one part of making smart financial decisions. Learn more about relevant credit card topics, such as
- Best Travel Business Credit Cards: Learn how to maximize your business credit card for travel rewards.
- Cash Back Advice: Find out what MoneyGeek experts have to say about cash back credit cards, how to find the best one for you, steps for applying, and more.
- Credit Scores 101: A good credit score is often a key deciding factor in lending and credit cards.
- Travel Hacking: Learn how to maximize travel rewards and credit cards to cut costs on travel and vacations.
About Cheryl Wagemann
- Consumer Finance. "2021 Consumer Credit Card Market Report." Accessed March 6, 2022.
- Policy & Economic Research Council (PERC). "Credit Card Rewards: Context, History, and Value." Accessed March 6, 2022.
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