The pros and cons of cash-back credit cards

Feb 21, 2022

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Award travel strategies are ever-changing, as what worked in 2019 may not necessarily work for you now.

In fact, more people have put their travel credit cards to rest in their sock drawers — or perhaps have canceled them altogether — and are shopping around for a simple cash-back card instead.

Let’s go over the pros and cons of cash-back credit cards and consider the best options available for applicants.

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In This Post

Pros of cash-back cards

First, let’s go through the advantages a cash-back card may have over travel credit cards.

Cash-back card options have improved

Over the years, issuers have upped the ante in this segment by raising the value of cash-back cards. There are more options available to consumers than ever before. Plus, issuers have released increased sign-up bonuses and generous benefits on cash-back cards that may even start to compete with that travel credit card in your wallet.

In September 2020, Chase added new bonus categories to the ever-popular Chase Freedom Unlimited, historically known for earning a solid 1.5% rate on all purchases, no matter the category. Now, the Freedom Unlimited earns 5% back on Lyft purchases (through March) and travel booked through Ultimate Rewards, and 3% back on dining and drugstores — all while continuing that great 1.5% non-bonus category rate.

(Photo by John Gribben for The Points Guy)

Coupled with that announcement, Chase unveiled the Chase Freedom Flex, a cash-back card with rotating quarterly bonus categories. You’ll earn 5% back on the first $1,500 spent each quarter on those purchases (activation required) — and this quarter’s categories are particularly lucrative: grocery stores (excluding Walmart and Target) and eBay purchases.

Not only that, you’ll get 5% back on Lyft purchases (through March) and travel booked through Ultimate Rewards, 3% back on dining and drugstores, and 1% on all other purchases.

Both cards also offer temporary partner benefits, such as three free months of DoorDash DashPass, getting you free delivery on orders over $12 and reduced service fees if you enroll by Dec. 31, 2024.

Another example to look at is the Citi Custom Cash℠ Card. This card, unveiled in 2021, offers bonus categories that adapt to your spending each month. Cardholders will automatically earn 5% back on the first $500 spent on their top eligible spending category from 10 different category options each billing cycle (then 1%), making this a truly customizable card that changes as you spend.

(Photo by John Gribben for The Points Guy)

Business cash-back card options can be just as prolific, too. The U.S. Bank Business Triple Cash Rewards World Elite Mastercard® is an underrated option that was just refreshed last year and serves as a terrific card for small-business owners who want to minimize their costs but maximize their cash-back earnings on business expenses. The card earns 5% cash back on prepaid hotels and car rentals booked directly in the Travel Rewards Center. There’s a 3% rewards rate on eligible purchases at gas stations, EV charging stations, office supply stores, cellphone service providers and restaurants, and 1% on all other eligible purchases. Plus, cardholders receive up to a $100 annual software credit.

The card also offers a solid sign-up bonus of $500 cash back after spending $4,500 in the first 150 days of account opening. For a card with no annual fee, the U.S. Bank Business Triple Cash should be top of mind for new businesses or independent employees just starting.

You want no (or lower) annual fees

(Photo by Isabelle Raphael for The Points Guy)

Typically, annual fees only increase over time. Last year, Amex raised the annual fee of The Platinum Card® from American Express from $550 to $695 (see rates and fees).

If annual fees that cost hundreds of dollars no longer appeal to you, maybe it’s time to trim down those costs altogether.

While there are usually many statement credits and perks to help justify high annual fees, many consumers simply don’t have the time or energy to maximize each benefit.

On the other hand, many cash-back cards do not charge annual fees, and you’d be hard-pressed to find one with an annual fee over $100. That’s significantly more manageable for any budget, and you won’t ever have to worry about whether you’re maximizing the card to justify paying its annual fee.

As long as you pay your bills on time and in full, you’ll likely avoid any sort of fee altogether and be able to focus on earning more cash back for the purchases that matter to you.

(Just remember that many cash-back cards charge foreign transaction fees — so if you plan to use your card outside the U.S., look for one that waives those fees.)

Your spending has changed

(Photo by Maskot/Getty Images)

Travel credit cards tend to offer the highest earning rates on, well, you guessed it — travel.

If your travel budget has decreased significantly and you spend more money closer to home, you should get a card that rewards you accordingly. Perhaps you’ve switched your game plan altogether and have your sights set on other large purchases — such as a massive home improvement project or buying a new car — rather than significant travel.

Here are a few types of cash-back cards to choose from:

  • Flat-rate-earning card: These cards offer the same cash-back rate, no matter the purchase, offering the utmost simplicity. The Citi® Double Cash Card is a great example that offers up to 2% on all eligible purchases — you’ll earn 1% when you buy and 1% when you pay your bill.
  • Tiered-earning card: These cards tend to offer higher earning rates but only for certain bonus categories. The Capital One SavorOne Cash Rewards Credit Card offers 3% on dining, entertainment, popular streaming services and grocery stores (excluding superstores like Walmart and Target), and 1% on all other purchases.
  • Rotating-category card: These cards offer different bonus categories that rotate monthly or quarterly. As mentioned above, the Chase Freedom Flex provides 5% on rotating categories each quarter you activate, on the first $1,500 spent.

As you can see, these earning rates are all catered toward the everyday spender rather than the lavish traveler, so you may find these cards to be more lucrative in the long run.

Read more: Comparing flat-rate with bonus-category cash-back credit cards

You want to refinance your debt

Suppose you’ve been dabbling in credit card debt. In that case, many cash-back cards come with a 0% introductory annual percentage rate financing offer that could potentially help you reallocate your debt and reduce interest fees for the time being — all while earning additional cash-back rewards.

For example, the Chase Freedom Unlimited offers a 0% introductory APR period for the first 15 months from account opening on purchases and balance transfers (then a variable APR of 15.24% – 23.99% applies).

Cons of cash-back cards

All the pros aside, there’s still an opportunity cost associated with cash-back cards. Here are some of the considerations to be mindful of.

Limited cardholder benefits

While many issuers have improved the ancillary benefits on cash-back cards in recent years, they still do not compete with some of the top travel cards on the market today.

In other words, you’ll never be able to get complimentary airport lounge access, companion certificates and free night awards with a cash-back card.

While not having an annual fee (or paying a smaller one) can be a positive to some, it’s a double-edged sword and can easily be a drawback for others. Therefore, it’s definitely worth considering your willingness to activate and maximize those benefits on your travel card.

Redemption options aren’t as comprehensive

With cash-back cards, you’ll only ever get up to 1 cent apiece in value from your rewards, typically for statement credits, direct deposits or a check.

But just because you add a cash-back card to your wallet doesn’t mean that you have to say goodbye to your travel credit cards forever. You can certainly have both and have them play well into your diversification strategy of earning both cash back and points and miles.

For example, take the Chase Sapphire Preferred Card, one of the most popular travel cards out there. Carrying it along with Chase’s no-annual-fee cash-back card options — like the Chase Freedom Unlimited or the Chase Freedom Flex — can fit well into your strategy, since you can transfer those points to the Sapphire Preferred to turn them into fully transferable points.

(Photo by John Gribben for The Points Guy)

Or, you can redeem your points for cash back if you’d wish. And as mentioned earlier, you’ll probably want to keep that travel rewards card for no foreign transaction fees when you do travel internationally.

That’s because the line between cash-back cards and travel credit cards has blurred over the years, as more often than not, you can redeem your points and miles for cash back. Although not the most lucrative option, it’s better than never redeeming your points.

Our top picks for cash-back cards

While you can see our full roundup of best cash-back cards here, we’ll list some of our top picks below (including some that were mentioned above):

Card Annual fee Welcome offer Earning rate
Blue Cash Preferred® Card from American Express $0 introductory annual fee for the first year; then $95 (see rates and fees). Earn a $300 statement credit after you spend $3,000 in purchases on your new card within the first six months of card membership. Earn 6% cash back on purchases at U.S. supermarkets (on up to $6,000 in purchases per calendar year, then 1%) and on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations and on transit, and 1% cash back on other eligible purchases. Cash back is received in the form of Reward Dollars that can be redeemed for statement credits. Terms apply.
Chase Freedom Unlimited $0. Earn an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) – worth up to $300 cash back. Earn 5% cash back on Lyft purchases (through March) and travel purchased through Chase Ultimate Rewards, 3% on dining and drugstores, and 1.5% on all other eligible purchases.
Bank of America® Customized Cash Rewards credit card $0. Earn $200 online cash rewards bonus after making at least $1,000 in purchases in the first 90 days of your account opening. Earn 3% cash back in the category of your choice: gas, online shopping, dining, travel, drugstores or home improvement and furnishings, and 2% cash back at grocery stores and wholesale clubs on the first $2,500 in combined choice category/grocery store/wholesale club purchases each quarter, then earn 1%.
Citi Custom Cash $0. Earn $200 cash back after spending $750 on purchases in the first three months of account opening. Earn 5% cash back on your top eligible spending category on up to $500 spent each billing cycle and 1% unlimited cash back on all other purchases.
Capital One SavorOne Cash Rewards Credit Card $0. Earn a one-time $200 cash bonus once you spend $500 on purchases within the first three months from account opening. Earn unlimited 3% cash back on dining, entertainment, popular streaming services and grocery stores, plus 1% on all other purchases.

Bottom line

While cash is always subject to inflation, points and miles are likewise subject to devaluation. But I’d argue that cash is much more flexible and simpler to conceptualize and keep track of than travel rewards.

Plus, we’ve entered a new era where there are more credit card options than ever, and travel credit cards may not be the best fit for everyone, since the redemption options aren’t always as clear. It may be time to think about downgrading your favorite travel card, adding a cash-back card to your wallet and shifting your strategy.

For rates and fees of the Amex Platinum Card, click here.
For rates and fees of the Amex Blue Cash Preferred, click here.

Featured photo by Maskot/Getty Images.

Chase Sapphire Preferred® Card

WELCOME OFFER: 80,000 Points

TPG'S BONUS VALUATION*: $1,600

CARD HIGHLIGHTS: 3X points on dining and 2x points on travel, points transferrable to over a dozen travel partners

*Bonus value is an estimated value calculated by TPG and not the card issuer. View our latest valuations here.

Apply Now
More Things to Know
  • Earn 80,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $1,000 when you redeem through Chase Ultimate Rewards®.
  • Enjoy benefits such as a $50 annual Ultimate Rewards Hotel Credit, 5x on travel purchased through Chase Ultimate Rewards®, 3x on dining and 2x on all other travel purchases, plus more.
  • Get 25% more value when you redeem for airfare, hotels, car rentals and cruises through Chase Ultimate Rewards®. For example, 80,000 points are worth $1,000 toward travel.
  • With Pay Yourself Back℠, your points are worth 25% more during the current offer when you redeem them for statement credits against existing purchases in select, rotating categories
  • Count on Trip Cancellation/Interruption Insurance, Auto Rental Collision Damage Waiver, Lost Luggage Insurance and more.
Regular APR
16.24% - 23.24% Variable
Annual Fee
$95
Balance Transfer Fee
Either $5 or 5% of the amount of each transfer, whichever is greater.
Recommended Credit
Excellent/Good

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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