The Biggest Benefits and Drawbacks of a Cash Back Credit Card

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Cash back credit cards offer simple rewards that card issuers can’t devalue, but you might get more bang for your buck with points and miles.

There are several reasons why you might want to carry a cash back credit card in your wallet. Depending on the card, cash back credit cards have the potential to offer uncomplicated rewards that are easy to understand, earn and redeem. Yet there are also some possible disadvantages to cash back cards, including the fact that other credit cards may offer higher rewards rates. 

Before you apply for any type of credit card, it’s important to evaluate its pros and cons. Below are some of the benefits and drawbacks of cash back credit cards to consider if you’re thinking about opening this type of account. 

Recommended Cash Back Cards

Chase Freedom Unlimited®

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• Our Rating 4.5/5 How our ratings work
• APR19.99% - 28.74% (Variable)
• Annual Fee$0
• Bonus Offer 1.5%Extra Cash Back More Info

  Earn an extra 1.5% on everything you buy (on up to $20,000 spent in the first year) — worth up to $300 cash back. That's 6.5% on travel purchased through Chase Ultimate Rewards®, 4.5% on dining and drugstores, and 3% on all other purchases.

We like that the card offers a high flat rewards rate but also provides accelerated rewards on some common everyday spending categories. You’ll also get access to the Chase Ultimate Rewards Travel portal, which allows you to use your cash-back earnings for travel rewards, gift cards and more. If you make this your primary card for most purchases you can quickly rack up a lot of rewards.

• Overview
• Pros & Cons

Overview

The Chase Freedom Unlimited card is unique for a couple of reasons. First, it comes with purchase protection and extended warranty protection you don’t see with some other cash-back cards. Second, you earn cash back in the form of points (Chase Ultimate Rewards) and when paired with another annual-fee earning Chase product, you can get even more value if you love to travel by transferring to partners.

That’s because while the Freedom cards are marketed as cash-back credit cards, they actually offer points. You can use those points to book travel through Chase at a rate of 1 cent per point. But if you have the Chase Sapphire Preferred® or Chase Sapphire Reserve®, you’ll get 25% and 50% more value on those travel redemptions, respectively. (Plus, the ability to transfer your points, too.)

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Pros

• No category bonuses to remember; earn at least 1.5% back on everything
• No annual fee
• Generous travel and purchase protection benefits

Cons

• Can't transfer Chase points unless paired with another annual-fee Chase product

Wells Fargo Active Cash® Card

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Secure application on issuer’s website

Rates & Fees

• Our Rating 4.0/5 How our ratings work
• APRXX.XX%, XX.XX%, or XX.XX% (Variable)
• Annual Fee$0
• Welcome Bonus $200Cash Bonus More Info

  Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months

If you’re a fan of earning cash rewards for your everyday spending, you need a credit card that rewards you for purchases outside of popular bonus categories like travel, grocery stores and gas stations. With the Wells Fargo Active Cash® Card (Rates and Fees), you earn 2% back for every dollar spent without the fuss of tracking specific bonus categories.

• Overview
• Pros & Cons

Overview

While many rewards credit cards tempt you with bonus rewards for specific purchases, these cards invariably offer a mere 1% rewards rate on the vast majority of charges that don’t qualify for a bonus. And with many of these cards, the amount of purchases that are eligible for your bonus is capped, restricting the overall potential value.

But with the Wells Fargo Active Cash^® Card, you simply receive a high level of cash rewards on purchases. There’s no need to register for anything, and there are no limits on the amount of cash rewards you can earn.

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Pros

• Earn an unlimited 2% cash back on every single purchase
• No annual fee
• Automatic cellphone protection when you pay your monthly bill with the card

Cons

• Points don't transfer to travel partners unlike other card currencies
• No bonus earning categories

Potential Benefits of Cash Back Credit Cards

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Many consumers are attracted to the perks that cash back credit cards have to offer. Here are some of the top reasons a cash back credit card might make sense for you: 

• Cash Rewards: While every credit card is different, cash rewards tend to be easier to understand, earn and redeem compared to other types of credit card rewards like points and miles. You may need to research what points and miles are worth to get the best redemption value. Cash rewards are less complex. 
• No Devaluation: Credit card issuers can change the value of points and miles at their discretion. However, the value of any cash rewards you earn will hold steady over time.
• Typically No (or Low) Annual Fee: Paying an annual fee for a credit card with valuable benefits doesn’t have to be a deal breaker if you’re getting enough value from the account. Yet many cash back credit cards feature low annual fees, and some cards in this category have no annual fee at all. 
• Sign-Up Bonuses: Although every credit card offer is different, it’s common for cash back credit cards to feature cash sign-up bonuses. In general, you’ll need to meet a minimum spending requirement within a few months after opening your new account to qualify for a bonus. So, be sure to read the fine print if you hope to take advantage of this type of opportunity. 
• Introductory APR Offers: Some cash back credit cards may also come with money-saving 0% APR offers for eligible new customers. These special introductory rates could apply to new purchases, balance transfers, or both. Again, it’s important to understand the details of any offer in which you hope to participate. 

Potential Drawbacks of Cash Back Credit Cards

Although a cash back credit card can offer plenty of value, there are a few downsides to think about too: 

• Higher APRs: The average credit card APR on interest-assessing accounts was 22.16% in May 2023, according to the Federal Reserve. But the APRs on rewards credit cards, including cash back cards, could be even higher than average. On a positive note, if you pay off your full statement balance by the due date each month, you can use your credit card’s grace period to avoid paying interest charges.
• Limited Rewards Value: Although cash rewards may be easier to understand than points and miles, they may not be worth as much. Points and miles will often offer you more bang for your buck, especially if you redeem the rewards you earn for travel.  
• Rewards Expiration: Pay close attention to the terms and conditions of your credit card’s rewards program. Some cash back rewards may expire if you fail to use your credit card for a certain amount of time, make a late payment or close the account.
• Caps on Earning: Some cash rewards credit cards allow you to earn unlimited rewards. Other cards may limit the amount of cash rewards you can earn, either overall or in bonus categories. It’s also important to check whether you need to opt-in each month or quarter to earn bonus category rewards at a higher cash back rate. 

How to Choose the Best Cash Back Credit Card

If you’re interested in opening a cash back credit card, it’s wise to begin by reviewing your credit reports and credit scores to see where you stand. A credit card issuer will check your credit from at least one major credit bureau—Equifax, TransUnion or Experian—when you apply for a new account. Knowing the condition of your credit before you fill out a credit card application can help you understand the types of credit cards you might be eligible to open.

After you know where your credit stands, it’s important to shop around and compare different credit card offers. If you have excellent credit, you can pick from the best credit card offers and deals available (cash back cards or otherwise). There are still some credit card options for bad credit. However, your options will be more limited. 

Is a Cash Back Credit Card Right for You?

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When you use a cash back credit card responsibly, it has the potential to benefit you in many ways. A well-managed cash back card could help you build good credit, earn cash rewards, and help you enjoy numerous other attractive bonuses and benefits.  

If you’re interested in earning uncomplicated cash rewards that are easy to understand and redeem, a cash back card might be a good fit for you. It can also be helpful to have a decent, flat-rate cash back credit card to use for purchases that don’t offer spending category bonuses on other rewards accounts. 

Just remember that it’s never a good idea to spend extra money in an effort to chase rewards—cash back, points or miles. If you overspend and wind up revolving an outstanding balance on your credit card account from one month to the next, you could wind up paying expensive interest charges and damaging your credit score with a higher credit utilization rate. No reward is worth that potential cost. 

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Best Cash Back Credit Cards

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