Credit Card Learning Center

Cash Back credit cards

Cash back credit cards share the rewards that credit card issuers reap from merchants who accept the cards. Businesses pay for the privilege of being paid via plastic. If they did not accept this form of payment, their business would decline sharply. For this reason, they are prepared to pay card companies a percentage of sales made on the cards. And some cards are willing to share this income with you.

The first cash back program was launched in about 1990 and is particularly appealing to those who pay off their credit card balance each month. People love to save money.

Benefits changed for some
In the early days, these programs typically carried a flat rebate percentage rate, often 1% of purchases. This was usually paid by check at the end of the year, or through credit on the monthly statement. However, some banks found 1% across the board a little too rich for their blood. Enter the tiered earnings system, in which rebates were reduced to a fraction of 1% below a certain high threshold, and 1% over the threshold – which can be in the order of $2,500 a month.

There are still some juicy rewards, however, that do not rely on spending limits. Citibank offers several cards that pay a flat 5% on all grocery, gasoline and drug store purchases, plus 1% on all other purchases. Chase offers a card with similar rewards, but adds 5% cash back for home improvement store purchases. The Discover Platinum Gas Card offers an enormous 10% rebate on gas purchases and 2% on all other purchases.

There are no annual fees for any of these cards, which had an APR of from 8.99% (Discover) to 13.74% (Chase) in May 2005. All have zero APR on balance transfers, and all, as might be expected, require excellent to good credit ratings.

Claims forgotten by many
Another change compared to earlier days is that cardholders in most cases need to request their rebate check once the amount has reached a certain preordained level. Make sure you check your statement or call the card issuer to discover your balance. The companies count on a certain number of cardholders not claiming their rewards. This is called "breakage" in the industry.

Not all cash back cards are created equal, and it is necessary to do your homework to select the one that's right for you. The flat rebate cards are easy to compare, but not so the tiered cards. Not only do you need to look at the percentages paid at various levels, but you also need to consider the break points – the value of spending that raises the cash back to the next level.

How are you paid? Also important to consider is the method by which you are paid. The easiest method for the banks is to deduct your reward from your outstanding balance, but that might not seem nearly as satisfying to you. Some companies mail a check at the end of the year, or once the reward reaches a certain dollar level. However, if you are required to claim the money, there is a possibility you will forget it. If the money comes at the end of the year, it can help pay for those heavy holiday expenses, or to pay a little extra on your mortgage. If you count it merely as extra pocket money, it will disappear as if a puff of smoke. Other possibilities are to put the money into an education savings plan, an investment account, or a vacation fund. Get some lasting benefit from it.

Lowest Fixed APR Rate: 5.50%

Lowest Variable ARR Rate: 8.49%

Total Credit Cards in Database: 102