The Best Cash Back Credit Cards of 2021

What is a Cashback Rewards Credit Card?

Cashback is a perk that many credit card companies bundle on some of their reward credit cards. It works by giving back a percentage of the money the cardholder spent on their credit card.

Some cards will even allow their cardholders to earn more cash back on purchases if they enroll in quarterly promotions or if they shop through their virtual shopping portals. There are three types of common cashback credit cards.

• Flat-rate. The cardholder will receive fixed percentage cashback on their purchases regardless of the amount or spending category.
• Tiered. The amount of cashback that the cardholders receive will vary depending on the spending category and these categories remain constant.
• Rotating categories. This works initially like a flat-rate cashback card but they give bonus cash back on purchases from particular categories that the issuers change every quarter. 

Take note that issuers put a cap or limit to how much cashback a cardholder can earn through promotions or quarterly rewards programs. 

For example, the card may allow you to get 6% cash back on purchases at Amazon but for a maximum aggregate purchase of up to $1,500 only for the quarter. Make sure you fully understand the terms and conditions of the cashback offer so you can maximize its benefits. 

When to Consider a Cashback Rewards Card?

Cashback cards are good for you if your fit a certain cardholder profile. It’s best if you don’t carry a balance, spend at least $1,500 each month, want simplicity, and are not a fan of complex calculations.

As we said, they come in three varieties: flat-rate, tiered, and bonus category. Flat-rate cards will pay the same percentage on every purchase. Bonus category cards give a higher rate in categories that change from time to time and a flat 1% on the rest. Tiered cards give higher percentages on specific types of purchases like gas, groceries, or restaurants but 1% on others. 

If your spending budget is skewed towards certain categories such as gas or groceries, a tiered or bonus category card is most appropriate. If you want to avoid the hassle of keeping track of which of your cards have bonus categories, just go for a flat-rate card.

How to Redeem Cash Back Rewards?

Redemption of cashback is very convenient because you can do it through your online credit card account or by getting in touch with your card issuer.

Card issuers would often set a redemption minimum and $25 seems to be the most common. The method for redemptions vary but they fall more or less into one or more of the following choices:

• Statement credit. This is probably the easiest cashback redemption method. With this, you can get a statement credit that effectively lowers your credit card bill.  To illustrate, let’s say you have built up a $400 in cashback bonus and have a current $1,000 bill on your card, you can redeem the $400 and apply it to your bill. That means you’d only have $600 left on your balance. It’s so simple and the reward value is very straightforward – that’s what makes it a very popular option.
• Paper check or direct deposit. You can log in to your issuer’s website and pick this option to get your cash back rewards in the form of a paper check that the issuer will mail to you. Or, another option is to have them deposit the cash directly to your checking or savings account. 
• Gift cards. There are card companies that will give you additional value for your cashback by giving you gift cards or eCertificates that you can use with popular merchants.
• Charitable donations. Some card issuers will let you use all or some of your cashback as a donation to a charity of your choice.

Which Factors Should You Consider?

1. Rewards & earn rate.

Realistically, how much cash back can you earn? Is the rate uniform across all purchases? Or does your card offer better rates for specific types of purchases? By definition, cashback should provide you with money that will add to your funds but there isn't really a hard and fast way to maximize the points or miles your earn.

What you can do is evaluate your exact earning rates concerning your habitual spending patterns. And make sure you review the extra perks that your card gives out.

Do they charge or waive foreign transaction fees? Do you get added protection for your purchases and travels? Benefits like these make your card even more valuable.

2. Fees. If you can pay off your balance each month, you won't have to worry about interest charges. You can focus on improving your credit in the meantime – and then ask your card company to lower your interest rate later on.

Each card company will have its own set of charges. But there's no need to read all the fine prints from end to end to know all these charges. Most credit cards will list their most common fees in a prominent area in their marketing materials. Some of the fees worth looking into more closely are:

• Annual fee. The annual fee is what you pay for the convenience of being able to use a credit card. Some cashback rewards credit cards do not collect an annual fee.
• Balance transfer fee. You have to pay this fee when you do a balance transfer which is a transaction that lets you transfer your balance from your old card to your new one. The fee is a percentage of the balance that you are transferring and it usually runs from 3% of the transaction amount or $5, whichever is higher. So, the more balance you transfer, the higher the transfer fee you need to pay.
• Cash advance fee. You have to pay this fee when you make a cash advance or an equivalent transaction. Take note that overdraft protection and credit card convenience checks are also part of cash advance transactions.
• Foreign transaction fee. When you make a purchase in foreign currency, you will have to pay this fee. Remember that your issuer can charge you this fee wherever your location is as long as your transaction is in a currency other than U.S. dollars.

Your Credit Limit Matters

The ideal credit limit should provide you with the flexibility you need but it should not be so high that it would plunge you into credit card debt. If you are a college student, set your eyes on a low-limit card because you are just learning to use your card for the first time.

After you graduate, you can ask for a higher limit because your monthly expenses may rise. Having a higher limit would help you build your credit over time because spending a lower percentage of your credit limit every month will do wonders for your score. 

But know your capacity. If you have not been very responsible with credit in the past, don’t go for a high-limit credit card because it may tempt you to take on more debt than you can comfortably handle.