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Who doesn’t love getting cash back? Cash back credit cards allow you to earn cash back on every day purchases such as groceries, gas, drug store purchases, even money spent dining out at restaurants. All of these every day purchases add up.
By using a cash back rewards card you can save hundreds, even thousands of dollars, a year.
But with all the different varieties of cash back programs out there, you may be wondering which cash-back rewards credit card is right for you.
This Guide is meant to help you solve that problem.
We did the analysis for you by:
Comparing the rewards you can expect to earn from each card based on the typical spending of consumers who spend $1,500/month ($18,000/year), $3,000/month ($36,000/year), and $4,500/month ($54,000/year).
The reason being, Blue Cash Preferred offers exceptional cash back for purchases on groceries, gas, and department stores. Discover it helps you earn cash back on everything else.
Exception to the Rule: What Bigger Spenders Should Do
Like many rules, this one has an exception. Bigger spenders (which we define as consumers spending more than $4,500 per month – or $54,000/year – on their cards, do best with Discover it Miles and second best with Discover it!
Those consumers should consider combining both Discover cards or using It Miles with Blue Cash Preferred. Regardless, there is little difference. Combining the two Discover it cards will yield $3,060 in cash back rewards, which is only marginally more than $3,042 yielded when big spenders combine Blue Cash Preferred and it Miles.
Why Blue Cash Preferred Should Be in Your Wallet
A lot of experts tell you not to take out a card with an annual fee. They say it is too hard to receive benefits that make up for the fee. But this is not the case with Blue Cash Preferred. This card maximizes your rewards where you spend the most money – including:
An astounding 6% cash-back on groceries (on up to $6,000 of spending/year, the 1%)
Unlimited 3% back on gas and at department stores
Unlimited 1% back on everything else
Additionally, if you do not currently have an AmEx, you can qualify for a $150 sign up bonus by spending $1,000 in the first three months.
Why Disover’s it Rewards Card
Right now, Discover is offering a promotion where they will double all the cash back rewards for your first year of card ownership. This amazing offer allows you to really rake in the cash back rewards.
So, while our 2-card strategy works with any 1.5% and 2% cards (and we have other recommendations for those cards below), you will really increase your benefits by using the Discover it card.
The Amazing it Miles Rewards Card
Some people may want a little more flexibility. For them, we recommend switching out the Discover it card for the Discover it Miles card. Discover’s it Miles card is not just a travel rewards card. It (pun intended!) also functions as a cash rewards card by allowing you to convert 1.5% of your spending into cash in your bank account, without any restrictions or fees. In effect, it Miles is a hybrid card: a great travel rewards program combined with a 1.5 percent cash option.
Plus, right now Discover is willing to double your rewards for the first 12 billing cycles. Effectively, you can earn 3% back on your spending!
All these rewards come with a $0 annual fee.
See Just How Rewarding Our Tips Can Be
The table below shows how beneficial this strategy can be – regardless of your spending level. When reviewing the numbers provided, please keep in mind the following:
It presents Two Year reward totals.
It takes into account the Blue Cash Preferred’s $75 annual fee.
We assumed you qualify for the $150 bonus offer because you are not already an American Express cardholder. However, this strategy still holds even if you do not qualify for the AmEx sign up bonus.
Estimated Two Year Rewards Totals
Credit Cards Used
Blue Cash Preferred + Discover it
Blue Cash Preferred + it Miles
Blue Cash Preferred + 2% Card
Blue Cash Preferred + 1.5% Card
Blue Cash Preferred Alone
2% Card Alone
Best Cash Back Credit Cards
For those who want to skip the tables comparing each card based on various annual spending amounts, we present some quick solutions…
Best Card Overall
If you want to get just one card, most people get the most cash-back rewards with the Blue Cash Preferred Card from American Express. This is because you will get the most cash-back where you spend the most money – including 6% back on your first $6,000 at grocery stores, unlimited 3 percent cash back on gas and at department stores, and 1 percent back on everything else.
What is amazing, Blue Cash Preferred wins this spot even after taking into account its $75 annual fee, and even if you do not qualify for the $150 bonus offer because you currently have a different American Express card.
The exception to this rule is for bigger spenders (which means at least $54,000/year in spending) who want only one card. Those consumers win out using Discover it, Discover it Miles, or a straightforward 2% reward cards.
Best Companion Card
The the Discover® it credit card earns this spot because Discover is willing to double your first twelve months of rewards. This allows this fantastic card to pack a ton of rewards benefits. And it does so with no annual fee.
2% Cash Back Rewards Cards
It is not included in the charts below, but 2% cash back programs will not provide a single card winner until annual spending reaches $54,000 (which average out to $4,500 a month), and then only starting in the 37th month (i.e., after more than 3 years). Of course, our recommended 2% cash back cards, Citi Double Cash Card and Fidelity Investment Rewards Visa, do this without using signup bonuses either.
One caution with the Citi Double Cash card – you need to pay your bill in full and on time every month to enjoy the full benefits of this card. Otherwise, interest charges and fees will wipe out the extra 1% of benefits.
Another 1.5% Cash Rewards Credit Card Option
If you are not interested in the Discover it Miles card or one of the recommended 2% cards, our next favorite straight 1.5% cash back rewards program belongs to the new Chase Freedom Unlimited card. It has no annual fee, and allows you to earn an unlimited 1.5% back on all of your spending.
If your spending habits don’t actually match the bonus categories offered by the Blue Cash cards, we recommend you check out the Discover it card. This is because Discover just announced they will double your cash back rewards for the first year.
While our initial analysis showed that most consumers fared better initially with the Chase Freedom rewards card, and the possibility of earning up to $125 in bonus cash when you sign up, Discover its’ new signup offer now blows Chase Freedom’s away.
Top Cash Back Program for Average Credit
If you have average credit, we recommend the Capital One QuickSilverOne card. Yes – it does have a $39 annual fee. But, you will be able to enjoy 1.5% cash-back on all purchases.
You will also be able to participate in the Capital One Credit Steps program – which will offer you an opportunity to increase your credit limit as you show responsible credit card usage.
Also, the Quicksilver One card is also offering a no-transfer fee 0% APR balance transfer offer.
This card also reports to all three major credit bureaus, provides you with a complimentary FICO® credit score, and offers you the opportunity to increase your credit limit with 5 straight payments. So you have the opportunity to improve your credit score and earn solid cash back rewards.
Top Student Rewards Card
The number one student cash rewards card is Discover’s it for Students. It is a rotating rewards card that works just like the regular Discover it card – 5% cash back on rotating categories (capped at $1,500 of spending per quarter), and 1% back on everything else. Plus, Discover will double your cash-back rewards at the end of your first year (for new cardmembers only)!
And you get 0% introductory APR on new purchases for six months.
This means Discover is offering students the same great rewards program that usually require excellent credit!
Cash Back Cards Ranked By Spending Habits
The following tables summarize the estimated cash back rewards you can earn from each of these tops cards over the course of two years based on whether you spend $1,500 per month (or $18,000 per year), $3,000 each month (or $36,000 each year), or $4,500 per month (or $54,000/year). At the end of this article, we also provide you with the selection criteria and monthly spending assumptions we used.
When looking at the following tables, we provide you with the annual rewards you can expect to earn based on what we observed to be typical spending habits. We take into account available bonus dollars, spending caps, and any annual fees.
When looking at estimated annual rewards, you can also see how signup bonus opportunities really help some cards look better over a 1-year or 2-year time horizon than they would over longer periods of time.
The following should be noted:
(1) Signup bonus rewards for American Express Blue Cash cards are contingent upon you not currently having another American Express card.
(2) The Chase Freedom card signup bonus includes the $100 bonus if you spend $500 in the first 3 months and $25 for adding an authorized user in that same 3-month period.
(3) Citi Double Cash annual rewards assume that you pay your bill in full and on time each month.
(4) BankAmericard Cash Rewards signup bonus includes $100 bonus for applying online and 10% bonus for receiving cash back into your Bank of America bank account. Even bigger bonuses are available for those who maintain large balances at Bank of America.
How to Choose a Great Cash Back Credit Card
This section provides some general tips and advice on what to look for in a cash back rewards program.
Find a Card That Compliments Your Daily Spending Habits
The rewards structure for cash back credit cards can vary greatly. Some cards may give you 3% cash back on groceries while others give you 2% cash back at the pump.
After the credit crunch in 2008 many credit card companies began to restructure their card reward programs, making it important to evaluate your current rewards card.
Most cash back credit cards will give you 1% back on all other purchases by default.
The key to finding a great cash back credit card is to choose a card that complements your spending habits. To put it simply – find a card that gives you more cash back for items that you spend the most on each month. For example: If you spend a lot on gas and at grocery stores, the Blue Cash Cards from American Express are great cards because they offer superior benefits – without a miserly quarterly limit like the one imposed by Bank of America.
Blue Cash Everyday® Card offers 3% back on groceries (on up to $6,000 of spending, the 1%), 2% back on gas and at most department stores, and 1% back on everything else. All with no annual fee and a $100 signup bonus offer.*
Blue Cash Preferred® Card offers 6% back on groceries (on your first $6,000, then 1%), 3% back on gas and at most department stores, plus 1% back on everything else. It’s $75 annual fee is partially alleviated by its $150 signup bonus offer.*
For those who do not know there spending habit – or have never kept track of them – we recommend using a straightforward 1.5% or 2% cash-back rewards program. This way you know that you are always maximizing your rewards. And you can use your card statements, or a program like Mint.com, to figure out if you would do better by adding a second card that uses bonus categories.
Understand Rotating Rewards vs. Standard Bonus Rewards
There sometimes seems to be a dizzying array of cards out there using combinations of bonus categories, rotating bonus categories, and signup bonuses to try to win your business.
But when you spend some time comparing cash back cards you will find that there are primarily two different kinds rewards programs. Some cash back cards offer a certain set percentage cash back all year round. Others will offer a lower set percentage with a higher bonus percentage on categories that rotate throughout the year.
We are moving away from recommending cards that use rotating categories for most consumers. The reason is that there always seems to be one or two quarters each year that you are not able to reach the caps and maximize your rewards. Plus, we think it is not that generous to offer 5% cash back on only up to $6,000 of spending each year, and 1% on everything else. And, lastly, even to earn this you must take time out of your schedule to remember to opt-in to the bonus rewards. Overall, these are less consumer friendly.
The numbers back all this up – as the Blue Cash Preferred beats out Chase Freedom in every spending level – even after subtracting out the $75 annual fee.
Signup Bonuses And Their Limitations
The credit card companies are getting smarter by only allowing you to take advantage of their signup bonus offers one time – and if you don’t already have one of their cards.
Our recommendation is to use a cash-back card strategy that will also make sense in Year 3 and beyond. By this, we mean that you will maximize your rewards regardless of fees. Don’t get blinded by the short-term boost of bonus offers and get stuck with a mediocre card.
But don’t pass up on outstanding sign-up offers either. For example, the it Miles card will double your reward points for an entire year – effectively providing a 3 percent cash-back program. That is such a huge benefit, that it carries over to make it Miles competitive with 2% cards for a full 3 years.
Learn When To Sweat The Annual Fee
Many people ask if they should apply for a card that has an annual fee.
Even if you are going to use the card for a majority of your purchases, you still need to make sure that the card pays for itself. This is especially true with so many more great cash back programs available that do not have an annual fee.
Our research shows that the annual fee for cards like the AmEx Blue Cash Preferred card are worth it: the extra rewards pay for the fee. As discussed above, combining Blue Cash Preferred with a 1.5% or 2% rewards program that has no fee will yield better results than using just one card.
But if you are paying a fee on multiple cards, or for a secondary card that you rarely use, it is unlikely that you will earn enough extra in cash-back payments to justify the fee. For this reason, we do recommend that you carry no more than one card with an annual fee. It is just too difficult to earn enough rewards to justify that fee.
We recognize that each situation is different. And we encourage you to make decisions based on your spending and needs. But we also want to make sure you do not blow all your cash back checks on annual fees.
Do Not Forget the Other Perks
Before choosing one card over another because you anticipate a small advantage in cash-back payments, remember that card perks matter.
If you are keen on tracking your FICO® score or an 18-month balance transfer, than Discover it may be a better card for you.
So take a look at our reviews and the card offerings to see if perks like intro APR offers, roadside assistance, price guaranty, extended warranties, and rental car insurance provide benefits that may be worth a small difference in cash.
On this front, however, we do think that most major card issuers like American Express, Discover, CitiBank, Chase, Capital One, and Bank of America try to remain very competitive with each other.
Further Reading on Cash Back Credit Cards
The recommended articles below include a section of tips and facts about credit cards and rewards programs that will help you maximize your credit card benefits.
The cards selected for inclusion in our Guide to the Top Cash Back Rewards Cards not only offer outstanding cash back rewards, they offer other great perks such as warranty extensions, car rental insurance, and other benefits.
We then determine the cash back potential of each card based on your spending either $18,000 or $36,000 per year on the card. (See below for further information on our spending assumptions.)
We look for cards that allow you to earn unlimited cash back.
We hate fine print. The cards we feature have solid rewards programs without a lot of strings attached.
These cards offer great features and benefits, in addition to cash back rewards.
We compare the potential two year cash back potential of each card. Any spending assumptions we make are detailed below.
Details of Our Spending Assumptions
Our analysis includes the following spending assumptions. These assumptions were made using data provided by members of CreditForums. Your actual spending habits may vary from these. However, they should present fairly typical spending patterns for most consumers.
Monthly Spending Assumptions
Groceries – $400
Gas – $200
Dining Out – $300
Department Stores – $100
Remainder – $500
Monthly Spending Assumptions
Groceries – $1,100
Gas – $400
Dining Out – $300
Department Stores – $250
Remainder – $950
Monthly Spending Assumptions
Groceries – $1,200
Gas – $400
Dining Out – $500
Department Stores – $500
Remainder – $1,900
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Credit Shout is a community of personal finance experts dedicated to helping you save money and make smart financial decisions. Learn how to master your credit card rewards, improve your credit score and start eliminating your debt.