Cash Back From Credit Card

How Does A Cash Back Credit Card Work?

Cash back credit cards are simply credit cards with which you earn a little money every time you use them. The current leader in the field is the American Express Platinum Cashback card, which pays 5% during the first three months. Afterward it drops, but overall, it has the most generous program. With American Express, you can choose to have the cash back as a credit on your credit card statement once a year, or to have a check sent to you. One problem with American Express, however, is that fewer merchants take it than MasterCard and Visa.

The "catch" with these cards is that unless you pay off your bill in full each month, interest and fees will quickly dwarf any cash back benefit you gain. So if you carry a balance each month, then searching for a lower interest rate is your best strategy for choosing a card.

Most of these credit cards will offer 1% rebates on purchases made with the card. But some of them have different "tiers" of rebates based on how much you spend. For example one of the American Express cards (Blue Cash) pays 5% rebates, but only after you spend $6500. But if you do a lot of traveling and put that kind of money on your card, then that's quite a generous rebate.

There are cards that pay greater than 1%, but only on certain kinds of purchases, like gas, groceries, restaurants, or drug stores. On these "preferred" categories, you may get cash back of 2 to 5%.

Different card issuers have different ways of letting you redeem the cash rebates. Some put it directly on your statement monthly, while others put it directly on your statement yearly. Still others allow customers to call a toll free phone number to request that a check be sent instead. Most of the time to do this, however, you need to have earned a minimum cash rebate amount, usually $50, or more.

Cash back cards may or may not have limits on how much you can earn. If you spend a lot regularly, then you should look for a cash back card that has no cash back limits. But if you keep your credit card spending well under the amount that would cause you to reach the cap, then you should go with the card that gives you the best rebate percent from the first dollar you put on the card.

By Peter Carville