Is a Cash-Back Credit Card Right for You?

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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:

  • The annual percentage rate. If there's an introductory rate (some cards offer 0% interest on balance carryovers and/or on new purchases for a certain amount of time), verify how long it lasts and what your rate will be after the special introductory period expires.
  • What kind of signup bonuses a card may offer. Some will give you an additional cash bonus or other type of reward if you charge a certain amount (like $500) within a certain introductory period.
  • How your cash is credited. If you want money back in cash form, don't apply for a card that just applies whatever cash you earned to your card balance.
  • If cash rewards kick in immediately, or if you have to spend a certain amount each month before you get any money back.

(Check out the Federal Reserve website to Learn More About Your Offer for additional tips on how to read a credit card offer.)

Timing can be everything with cash back credit cards

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

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.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.