More than 2.5 trillion of dollars in transactions are made on credit cards each year. The Financial Industry Regulatory Authority (FINRA) conducted a study on Americans that revealed that, “just over two-fifths of respondents (41%) report spending less than their income, 36% spend about equal to their income, and 19% spend more than their income.” With 41% spending equal or more than they earn, it only makes sense to earn some of that income back through that spending. Cash back credit cards can make that spending into income returning to the cardholder’s pocket.
What are Cash Back Credit Cards?
Cash back credit cards allows cardholders to earn a percentage of their spending as pure income. When a credit card transaction occurs, the merchant pays a percentage of that purchase back to the back. Merchants usually pay around 2% unless the card itself has a high merchant fee such as American Express, which has a merchant fee ranging between 3-5%. Cash back occurs when a bank offers some of that merchant fee back to the cardholder. So in the case that the cardholder spends $100’s, and their cash back card gives them 1.5% per purchase, they would get back $1.50 in cash back.
Over time, that cash back accumulates. A 1.5% return is a good amount to look for when looking for cash back credit cards. It is not to high and it is not too low. It is a median percentage that cardholders should be looking for. This is a very important to take into consideration because there are cards that offer more than 2% cash back. As tempting as they are, they should be looked at with a skeptical eye due to the fact that a lot more merchants may reject cash back with a card over 2% cash back versus a 1.5% card.
Cash back isn’t for everyone though. Getting money back from daily purchases is great, but if the cardholder is someone who has problems paying off their credit cards on time, cash back may not be in their best interest. Cash back credit cards also tend to have higher interests rates, which can offset the cash back rewards that the cardholder is getting . Along with higher interest rates, cash back credit cards require a good credit score upon being approved for one. The ones who truly benefit from cash back credit cards are people who have good credit, are frequent users of their credit card, and pay their credit card statement every month benefit the most from cash back credit cards.
What’s the Best Cash Back Credit Card?
Forbes rated Citi® Double Cash Card as the number one cash back credit card. The Citi Double Cash credit card pays 1% for every purchase along with an additional 1%, which ultimately gives cardholders 2% in cash back. Another benefit that the Citi Double Cash credit card has over its competition is its lengthy 0% APR offer on both balance transfers and purchases with no annual fees.
In the end it comes down to knowing where to get the most benefit for your cash back credit card. These places depend on where the cardholder shops as some places have higher cash back rates than others. Cash back credit cards still remain one of the most popular credit card reward options available. Who doesn’t want to make money from their spending?