The offer from the credit card company is enticing: "Get cash back on every purchase!" Are cash back credit cards really a good deal?
A cash back credit card is simply one type of rewards credit card. Instead of getting airline miles or points towards purchases at a particular store, you receive a certain percentage of the cost of your purchase back in cash. The rebate is either credited to your balance or sent to you after a certain time period (usually a year). They can be a good option for saving some money--you are actually getting a discount on each purchase--especially if you pay off your credit card in full each month. If you carry a balance, however, watch out; these cards may carry a higher annual percentage rate (APR) than cards without cash rewards.
Choosing a cash back credit card is like choosing any other card. You have to read the agreement carefully so you fully understand the terms of each. Consider:
(Check out the Federal Reserve website to Learn More About Your Offer for additional tips on how to read a credit card offer.)
Sometimes cash back credit cards offer an additional bonus--there are periods when you can earn higher cash back rewards on certain purchases. For example, in the first quarter of the year (January through March) you may get a 3% cash back bonus if you charge your meals at certain restaurants, and in the second quarter, you may get additional rebates if you shop at certain drug stores. In some cases—usually cash back cards associated with certain stores—you may earn a higher reward percentage consistently on all purchases at that store.
There can be significant differences among the cash back credit cards offers. Consider a few of the current cards currently available through CreditCardXPO.com.
As you can see, the terms vary considerably with each card, and you'll need to think about your own purchasing habits when trying to decide which is the best fit for you.
Bottom line on cash back credit cards: If you understand what you're getting, and don't use the cash back bonus as an excuse to overspend, they can be a good deal.