How Much Do Cash-Back Cards Really Save? We Tally It Up

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The credit card industry has gotten exceedingly competitive over the past decade, as each issuer attempts to woo new cardholders with a variety of perks. Cash-back credit cards have been growing in popularity due to their simple rewards structure. Rather than having to figure out how much credit card points or airline miles are worth, with a cash-back card, consumers simply spend money on their cards and get real money back. But, are cash-back cards really the most valuable? And how much can you really earn with a cash-back card? Here’s a quick look at what you can realistically earn using a cash-back credit card.

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Flat Cash-Back Cards

Flat cash-back cards pay you a fixed percentage of cash back on all of your purchases. For example, the offers a flat 2% cash back on all purchases. You can use your cash back either as a credit to your account or redeem your credits for purchases, gift cards or at an ATM. Something important to note with cash-back cards is that they may offer additional benefits on top of the cash back. On top of the 2% cash back, the Wells Fargo Active Cash Card also offers a after $1,000 spent within the first 3 months, a applies and additional benefits, such as cellphone protection. All-in-all, these types of cash-back cards can offer an extensive amount of value, including a $0 annual fee. If you spend $1,000 per month on your 2% cash-back credit card, for example, you’ll earn $240 in cash-back every year.

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Rotating Bonus Category Cards

Some cash-back cards only offer a flat 1% on most purchases but offer bonus categories that pay much more. Typically, these bonus categories rotate every quarter. The Discover It Card, for example, pays 5% cash back on specific spending categories every quarter, and 1% on all other purchases. Sample categories include purchases, groceries, gas stations and restaurants, although the specifics vary by card issuer.

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How Much Cash Back Can You Realistically Expect To Earn?

Most cash-back cards have no limits on the amount you can earn, except in quarterly bonus categories. Thus, the amount of cash you can get back depends on your lifestyle. If you spend $1,000 per month on your 2% cash-back credit card, for example, you’ll earn $240 in cash-back every year. But if you have a healthier income and spend $3,000 per month, your annual earnings will jump to $720.

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Although every household has a different budget, using the average amounts that Americans spend on various expenses, as provided by the U.S. Department of Labor, can be a good starting ground to see how much you can earn with a cash-back card. According to the most recent data from the DOL, the average American household spends $4,643 per year on groceries, or $1,160.75 per quarter. If you use a cash-back card with quarterly 5% grocery bonus, you’ll earn $58.04 in cash back per quarter. A 2% cash-back card with no spending cap would earn you $92.86 per year — or $23.21 per quarter.

Similarly, if you can snag a 5% quarterly bonus on restaurants, you might generate $44.08 in cash back per quarter, as the average American household spends $3,526 per year on dining out, according to the DOL.

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Are There Any Caveats About Using Cash-Back Cards?

One of the main caveats of using a cash-back card is that the amount you can earn is typically limited. This is particularly true for cards with rotating categories. For example, a card might offer 5% cash back on groceries, but only on the first $1,500 spent. If you’re part of the average American family, this means you’ll stop earning bonus cash after about a month of shopping. The other primary thing to watch out for with cash-back cards is that you don’t overspend. If you’re too enticed by your cash-back rewards, you might end up spending more every month than you normally do. If you end up not paying off all of your purchases, the interest you’ll pay will far outweigh the amount of cash back you earn.

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Last updated: Sept. 14, 2021

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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