Cashback is one of the most popular credit card rewards as it lets you spend money and earn money back at the same time. For example, if your credit card offers 5% cash back on all purchases, a $10 purchase will give you $0.50 back.
Several online stores also offer various cashback promotions. The rewards may be sent to you through check or transfer, or you can apply them to your card balance to use for future purchases.
There are different methods of calculating the amount of cashback you will receive, and the cashback value depends on your card’s cashback categories. This article covers everything you need to know about cashback categories and how to earn cash back by buying strategically.
What Is a Cashback Category?
A cashback category is a type of purchase determined by the credit card company. Some may be specific to the card company, while others are pretty standard across the board.
For example, cashback categories include groceries, gas or fuel, in-store shopping (for store credit cards), dining and food delivery, transportation, airline purchases, and more. These categories could vary in the amount of cashback they provide.
Types of Cashback Credit Cards
There are two different types of cashback card credit cards. Each type has their own method of calculating and paying cashback. Both focus on using cash back categories to determine the value of cash back earned on a purchase.
Flat-Rate Cashback
Flat-rate cashback credit cards give between 1% and 2% cash back on all purchases using the card, depending on the card you signed up for. This type of card is best for people who tend to purchase in many different categories and not just in a few ones.
If you are the kind of consumer whose spending is not limited to any specific category but is distributed across all of them, a flat-rate cashback card may be the right card for you.
Bonus Category Cashback
A bonus category allows you to earn more rewards on specific purchases. This type of cashback credit card offers higher rewards rates or cashback rates for certain purchase categories during certain times.
The bonus category changes at set intervals, such as every quarter or so. To maximize the rewards earned when using a bonus category card, keep track of when the new category change occurs and what those changes will be.
If you are the kind of consumer who spends a lot of money in a few different categories only, such as groceries or gas, then a bonus category card may suit you best.
Advantages and Disadvantages
Flat-rate rewards credit cards often offer a higher rate of rewards for regular spending than cards with bonus categories. However, you will not be able to maximize rewards with bonus category spending.
While the bonus category cards offer a chance to maximize your rewards on specific purchases. You can also pair different cards and earn more rewards in each one’s bonus category.
However, some rewards credit cards with cashback categories set limits on the number of bonus rewards you can earn. This means you can only receive low rates on regular purchases.
Cashback Cards to Consider
Citi Double Cash Card
The Citi Double Cash Card has no annual fee. Moreover, you can redeem your rewards for a check, a statement credit, or a direct deposit to a linked account.
This card offers a flat-rate cashback of 2% for each $1 you spend. This is awarded with 1% at time of purchase and the other 1% after paying it off.
Chase Freedom Flex
The Chase Freedom Flex offers a sign-up bonus of $200 upon spending $500 within three months of opening an account. Additionally, you will receive 5% cash back on bonus category purchases every quarter.
You will get 5% cash back on travel bookings made using Chase Ultimate Rewards. For purchases on dining and drugstore, you will receive 3% cash back, while all other purchases will earn 1% cashback.
Bottom Line
Cashback credit cards offer benefits that are worth signing up for. Using a cashback credit card will allow you to earn major rewards on your spending as long as you do not carry a balance or pay interest on your card.
Make sure to understand and compare the different rewards categories and analyze your spending habits to find the right card for you.
Disclaimer: All credit products carry risk. Be aware of these risks by reading the associated terms and conditions.