Are Cash Back Cards Worth it?

In theory, cash back cards are worth it as long as the rewards you earn are at least equal to the annual fee. Many cash back cards contain an annual fee, which can offset the cash back rewards if you are someone who does not use their credit card much.

Annual Fee Debate

For example, the Mastercard Gold card has a $995 annual fee, and it only offers 2% cash back per dollar spent. Although a series of other amenities are included, it would take $49,750 of purchases to earn enough cash back to offset the annual fee.

Some cash back cards, such as the Citi Double Cash card, the Chase Freedom Unlimited offer cash back without including the annual fee. These cards are normally always worth it, as you are earning cash back, along with other perks, at no annual cost. However, these cards may offer less added benefits and may include other fees, such as foreign transaction fees, which are voided with other cards.

Cautions

If you are someone who is considering getting a cash back credit card, then you should make sure that you will pay your statements completely. Although this goes for all credit cards, with cash back cards, your cash back earnings will be offset by interest payments if you have outstanding debt. Thus, credit card rewards, such as cash back, are only worth it if you will completely pay off your credit card debt, or else you will have to pay high-interest rates on your debt, which will take away from your cash back earnings.

Many cash back cards will only be valuable if you optimize the rewards categories that give higher cash back rewards. For example, the Discover It Cash Back card offers 5% on rotating categories annually and only 1% cash back on all other purchases. If the rotating category is gas and you are someone who does not own a car, then you will not be earning more than the 1% cash back rate. However, if you are someone who drives an hour to work every day, this card can be very beneficial, as you will receive this 5% cash back often and easily.

Cash back cards also come with a lot of complications. For example, many cash back cards have a maximum amount of cash back that you can earn, so you will be capped on your cash back earnings. This makes it more difficult to save your cash back earnings to finance a large purchase.

Lastly, many cash back cards will only allow you to redeem your earnings in certain intervals. For example, the TD Cash card only allows you to redeem your earnings after you have $25 worth of earnings saved up. If you are not purchasing dining or groceries, you will only receive 1% cash back with this card, so it would take you $2,500 in purchases to be able to receive your earnings. Many cards have systems such as this one, so this can be a detriment for people who want flexibility for when they can pull their money out.

Conclusion

In conclusion, cash back cards can be worth it depending on how much you use your credit card, how responsibly you pay your bills, how good the other perks of the credit card are, and how high the fees are. A lot of consideration should go into choosing a cash back card, but if you use it correctly and on the highest-earning categories, you will have the chance to earn generous rewards.