Nowadays, many credit card companies offer cash back on certain types of credit cards. However, you may not know how these cards work and what a cash back deal means.
Many credit card companies offer a variety of benefits to entice you to sign up for a new card. Thus, it is important to consider all the options available before you select one. If you are considering the cash back option, be sure to look at several different credit card companies in order to find the lowest rates and most valuable offers.
An Explanation of Cash Back Credit Cards
Cash back credit cards are designed to incentivize you to keep spending money on the card. When you charge a certain amount of money to the credit card, you will receive a certain percentage of that cost back in cash, which gets returned to your credit card account. If you frequently purchase the same items, you may be able to save a significant amount of money. It is important for you to understand the features of this card so that you know whether it is the right card for you. This knowledge will also prevent you from using the card improperly. Below are a few important features of the cash back credit card:
- You will be able to spend less on certain, frequently-purchased items. If you often purchase drinks and food from chain restaurants or coffee shops, these stores may have deals set up with your credit card company. In effect, both companies may receive more business, and you will receive a small amount of cash back on each purchase you make at that restaurant chain or store. These small returns may add up to big savings.
- You may save on transaction fees. Normally, a small percentage of the money charged to your credit card goes toward the cost of an electronic transaction. Some cash back credit cards, however, will return some of this money back to you. This may incentivize you to pay with a card instead of cash.
- The money you earn back is often tax-free. Oftentimes, the money you earn from a cash-back credit card purchase is not taxable. This is because it is considered rebate from the original price of any item you buy.
A credit card company may also offer you a sign-up bonus between $100 and $200 to entice you into the program. Be sure to take all of these factors into consideration when you select a cash back credit card.
How to Make Your Cash Back Credit Card Worth It
The amount of cash back you receive for a purchase will depend on your credit card company’s deals with other companies. Some companies who participate in the program may decide to offer a bigger deal, while others will not. Generally, you may receive between 1 and 5 percent cash back on qualifying purchases. Keep in mind that some purchases you make with a cash back credit card will not qualify for any return percentage.
The amount that you receive in cash back will depend on how much you purchase at a certain store and how frequently you visit that store. Some cash back cards, for instance, feature 5 percent cash back on grocery store purchases or 3 percent cash back at gas stations. You may also be able to find a card that offers 1 percent cash back on all other purchases. While this is a low percentage, most credit card providers offer no cash back on purchases made at independent stores.
Additionally, some credit card providers keep their discount percentages consistent for certain purchases. Others frequently alter the percentages depending on the time of year. Some companies also require you to activate offers in your account. For instance, you may receive an offer for a certain gas station. If you activate that offer, you will have a higher cash back rate on gas purchased at that station for the remainder of the month.
Depending on the provider, it may be wise to make a variety of different purchases on your cash back card, instead of using the card only for specific items. This may qualify you for better discounts in the future. It is also important to make your credit card payments on time. Doing so will ensure that you receive discounts frequently and do not get charged a monthly credit card fee. If you frequently miss payment deadlines, you may lose certain cash back offers or be charged for missing payments.
Making Use of Your Cash Back
You may be wondering how to access your cash back after you make qualifying purchases on your credit card. Your cash back funds may be available to you if you:
- Deposit this money into your main bank account. You may elect to receive a check in the mail instead, though you must first reach a certain cash back amount to do so.
- Transfer the funds into a gift card or online certificate, as long as your credit card company allows this option.
- Apply these funds directly to your credit card balance. This will lower the total amount that you owe.
You may also choose to donate these funds to a charity. Be sure to contact your credit card company to see whether this option is available. Otherwise, you may transfer the funds to your main bank account and then donate to the charity of your choice. Note that every credit card company will have its own rules on benefits and cash back regulations. Some companies, for example, allow you to keep your cash back funds in your account indefinitely. Other companies require you to redeem these funds before a certain amount of time passes. Otherwise, they will expire, and you will not be able to access them.
Other Important Cash Back Credit Card Info
As with other credit cards, you are required to pay certain fees in order to keep using the service. This may include fees at the beginning of your contract and an annual percentage rate (APR). In effect, you may have to pay a certain amount in interest each month, which gets added to your total credit card balance. Keep in mind that some cards advertising zero entry fees may have higher APRs in the long run. By examining the pros and cons of different cash back credit cards, you will be able to make a well-informed decision.