When choosing a credit card, you’ll read a lot of advice about how to find the cards with the best interest rates and fees. If you maintain a balance on your cards, these will undoubtedly be matters of concern for you. But what if you are the kind of solid citizen who pays their bills in full every month? If you are not carrying a balance on your cards, you may be less concerned with your interest rate or finance charges and more concerned with perks, such as airline miles or rebates at your favorite stores. One type of reward card is the cash back credit card, which pays you back a percentage of your purchases in the form of a cash rebate.
The simplest type of cash back credit card sends you a check at the end of the year, which represents a straight percentage of your cumulative annual charges. Other cards use more complicated formulas, which might include caps and restrictions. It’s a good rule of thumb to surmise that, the higher percentage you see on your cash back award, the more likely it is to have some kind of restriction. For instance, if you have a 5% cash back credit card, your card may only pay you back on the first $1500 worth of purchases, or purchases in certain categories. If your card pays you back 1%, it is more likely to have no restrictions.
While this may sound like a straightforward deal, there is a catch: most of the time, cash back reward cards tend to carry higher annual percentage rates that cards without cash back rewards. If you carry a balance, this will undoubtedly be of concern to you since any interest you pay can quickly cancel out the value of your cash-back rebate. Be sure to check the details of your credit card deal as well as monthly statements, to make sure the deal you signed up for is the deal you are still getting.