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Whether you’re new to the points and miles hobby or simply prefer money in your wallet to accruing travel rewards, cash-back credit cards can offer a great return on your spending. Read on as TPG Senior Points & Miles Contributor Nick Ewen discusses six of the best options to consider applying for this year.
Earning and redeeming points and miles can be a complex endeavor. Many of my friends and family members want to know how I travel so much, but when I start explaining the various strategies of multiple credit cards, transferable points and online shopping portals, their eyes inevitably start to glaze over. Fortunately, many card issuers provide simpler reward options, so today I want to go over the top cash-back credit cards to consider in 2016.
Before getting to the cards, I want to stress that the list below consists solely of products that are marketed as cash-back credit cards and that offer the best return on unrestricted cash redemptions. Many of the top travel rewards credit cards out there also allow you to earn cash back on your purchases; however, if you decide to redeem Membership Rewards points for statement credits, that doesn’t exactly equate to getting maximum value from your redemption.
Many issuers also market options like the Barclaycard Arrival Plus World Elite MasterCard and Capital One Venture Rewards Credit Card as cash-back cards. However, the most valuable redemption for your miles on both of these is a statement credit that covers a travel expense. Since redeeming miles for straight-up cash back isn’t the best option, I have left these off the list. If you want more information on these two options, be sure to check-out TPG’s comparison from 2014 (keeping in mind that the Arrival Plus has since been devalued).
In addition, it’s also important to stress that not all cash-back cards are created equal when it comes to actually getting the cash in your hands or bank account. Some do post rewards automatically to your statement, while others earn you points that can then be redeemed for cash back or for statement credits to offset specific purchases. If you do apply for one (or more) of these cards, be sure to read the terms and conditions of the reward program carefully so you know how (and when) you’ll actually put your hands on the money.
So, which cash-back cards offer the best bang for your buck in 2016?
This card offers a standard 1% cash back on all purchases, which (obviously) isn’t that exciting. However, this earning rate jumps to 5% cash back on up to $1,500 in combined purchases at merchants in the card’s quarterly bonus categories. The first quarter of 2016 includes gas stations and local commuter transportation, the latter of which includes popular ride-sharing apps like Uber and Lyft. We even saw an expansion of this 5% bonus in the fourth quarter of 2015 when Amazon.com, a perennial fourth-quarter bonus merchant, announced that you could earn an additional 5% back between November 23 and December 31 (since expired).
Needless to say, I made sure to spend $1,500 at Amazon in the month of December!
The Freedom’s rewards actually accrue as points that are worth 1 cent apiece toward cash back; you can choose to deposit the cash into a bank account or apply it as a statement credit starting at 2,000 points ($20). However, this card becomes even more lucrative when it’s paired with a card that accrues Ultimate Rewards points, like the Chase Sapphire Preferred. If you link that card to the same Chase online account as the Chase Freedom, you can actually transfer the cash-back points from the Freedom to convert them into much more valuable (and transferable) Ultimate Rewards points. While the conversion is a manual process, it essentially means that you can earn 5 Ultimate Rewards points per dollar spent at a variety of merchants throughout the year.
Since the bonus categories are capped at $1,500 each quarter, here’s a comparison of how much you can earn if you max out purchases at these merchants each year:
- With an Ultimate Rewards card: $1,500 per quarter x 4 quarters x 5 points per dollar = 30,000 Ultimate Rewards points (worth $630 based on TPG’s most recent valuations)
- Without an Ultimate Rewards card: $1,500 per quarter x 4 quarters x 5% cash-back = $300
As you can see, holding a card that earns Ultimate Rewards points more than doubles your return.
The Chase Freedom card is currently offering a sign-up bonus of $150 cash back after you spend $500 on purchases in your first three months from account opening. You’ll also earn an additional $25 bonus after you add your first authorized user and make a purchase within the same three-month period. The rewards never expire as long as your account is open and active, and the card carries no annual fee.
For more information about the Freedom, check out the following posts:
- Why Chase Freedom Isn’t Just Another Cash Back Card
- Maximizing Ultimate Rewards with Chase Freedom, Sapphire and Ink Plus
- How to Get 1.34 Cents Per Point for Travel with Chase Freedom
If all of that sounds like too much effort, one of the simplest and most rewarding cash-back cards out there is the Citi Double Cash Card. Chances are you’ve seen the TV ads for this card, but it essentially gives you two opportunities to earn cash back: 1% when you buy and then another 1% as you pay. You only need to make the minimum payment each month to earn the second reward, but remember that paying your balance in full is always strongly recommended (and was #1 on my list of 10 commandments for travel rewards credit cards).
That’s it. There are no categories to keep track of and no bonuses to sign up for. You use the card and get 1% when you buy, 1% as you pay, and it also has no annual fee.
To actually get your hands on the cash, you have to wait until your cash rewards balance reaches $25. You then have four options:
- Request a check for at least $25 up to the total cash rewards balance at the time you redeem.
- Redeem for a statement credit to your card account for at least $25 up to the total cash rewards balance at the time you redeem.
- Redeem for a gift card in set denominations from the available inventory.
- Redeem for a credit to your linked Citi savings or checking account or to a checking account from which you have paid a Citi Credit Card bill at least two times.
Unfortunately, one of the biggest drawbacks of the card is a lack of a sign-up bonus, and it also charges a 3% foreign transaction fee. Still, cash back on everyday purchases with no limits can be a pretty solid value proposition (not to mention a very simple way to get started in the points and miles hobby).
3. Discover it
Another great cash-back option is the Discover it card. It (pun intended) doesn’t get a ton of press since it doesn’t have a maximization option like the Freedom, but the card does offer a standard earning rate of 1% cash back on all purchases, and it also has quarterly bonus categories that give cardholders 5% cash back on up to $1,500 in spending each quarter. This quarter’s bonus category covers purchases at gas stations and on ground transportation, and future bonus categories will be announced later this year.
What makes this card especially appealing is the promotion announced last year for new cardholders. During your first year of cardmembership on the Discover it, you’ll enjoy double cash back on all purchases. This bumps the standard earning rate to 2% and the bonus category earning rate to 10%, though they will fall back down to the regular 1% and 5% levels after your first 12 months. This is (essentially) a sign-up bonus, though exactly how rewarding it is depends entirely on how much you spend.
You also have a number of options for putting your hands on the rewards:
- Gift cards or instant eCertificates from our Partners — starting at $20
- Charitable donation to select charities — starting at a penny
- Credit to your Account — starting at a penny
- Electronic deposit into any account you designate — starting at a penny
- Pay with Cashback Bonus at select online retailers — starting at a penny
Like the others on the list, this card carries no annual fee. However, it also imposes no foreign transaction fees on purchases made outside the US, making it a great option if you’re looking to keep earning cash-back when you travel abroad.
Another great option for traveling outside the US is the Capital One Quicksilver Cash Rewards Credit Card, as it too waives foreign transaction fees. You’ll also enjoy unlimited 1.5% cash-back on every purchase, every day. The card is also offering a sign-up bonus of $100 cash back after you spend $500 on purchases within the first three months.
The great thing about this card is the simplicity. You don’t need to worry about bonus categories or spending thresholds. It’s just a 1.5% return on all your spending. You also have the flexibility of getting your cash back as a statement credit or check, and you can do this on demand or on a specific schedule that you dictate.
5. Ink Business Cash Card
If you’re looking for a business card that offers solid value from a cash-back standpoint, the Ink Cash is a terrific option. This card is actually the younger sibling of the Ink Plus Business Card and carries much of the same earning rates. You’ll earn 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on cellular phone, landline, internet and cable TV services each account year. You’ll also earn 2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account year plus 1% cash back everywhere else.
All of this is available without an annual fee, though there is a 3% foreign transaction fee for purchases made abroad. However, this card also works like the Chase Freedom. If you have the Ink Plus or Sapphire Preferred, you can actually convert the cash-back points from the Ink Cash to much more valuable Ultimate Rewards points. This would essentially double the value you’d get from your spending, as TPG pegs these points at 2.1 cents apiece.
The card currently comes with a sign-up bonus of $200 cash-back after you spend $3,000 on purchases in the first three months after account opening.
Another card with some intriguing bonus categories is the Blue Cash Preferred Card from American Express. You’ll get 6% cash back; then 1% on purchases at US supermarkets (on up to $6,000 of spending each reward year) plus 3% cash back at US gas stations, and 1% cash back everywhere else. These earnings accumulate as reward dollars and can be redeemed for statement credits when you have a rewards balance of at least $25.
Unfortunately, the card does carry a $95 annual fee but also includes a sign-up bonus of $150 back after you spend $1,000 in purchases on your new card in your first three months. It also charges a 2.7% foreign transaction fee, so while it’s a great option for use in the US, you’d be better off with some of the other options if you frequently travel outside the country.
My mother-in-law believes that “cash is king” and doesn’t want to waste her time with travel rewards programs. While I do disagree with her immediate dismissal of the points and miles world, there’s no doubting that earning cash back on your credit card can be simpler and easier to quantify. Hopefully this list has given you some food for thought if you’re just getting started in the hobby or plan on adding a cash-back card to your wallet in 2016.
What’s your favorite cash-back credit card?
It's a stellar Cash Back card on its own, but when paired with the Chase Sapphire Reserve or Chase Sapphire Preferred, the Freedom's 5x Category Bonuses let you rack up Chase Ultimate Rewards Points, transferrable to partners or redeemable via the portal.