Credit Cards

The Different Types Of Cash Back Credit Cards Explained

Last updated on December 3, 2020 by
types of cash back credit cards explained

If you’re in the market for a new credit card and considering cash back credit cards, it can be confusing to understand the different types offered by credit card providers.

There’s a lot of terminoligy you may not have heard of before. In this article, we’ll look at the different kinds of cash back credit cards you can get.

The 3 different types of cash back credit cards

There are three different types of cash back rewards you can earn from credit cards: Flat rate, tiered, and rotating categories. Let’s dive into each one.

1. Flat rate cash back

What is it? Flat rate cash back gives you a set percentage cash back on ALL purchases made with your card, regardless of what type of purchase it is.

Who it’s for: Flat rate cash back is usually the best all-around choice for people who use their credit cards for a wide range of purchases. If you don’t have a specific category of spending (like gas, groceries, food, etc) where you make the bulk of your purchases, then flat rate is the best option for you.

What’s a good flat rate cash back rate? The average flat rate for most cards is 1% to 1.5%. The best cash back cards offer a flat rate cash back of 2% or more. Of course, the higher the flat rate, the higher the annual fee. Many cash back credit cards also offer welcome bonuses of up to 10% cash back in the first few months after you receive your new card.

2. Tiered cash back

What is it? Tiered cash back cards offer a higher cash back percentage for specific categories of spending. For example, a tiered cash back card might offer 1% flat rate on all purchases, but 2% for grocery store purchases.

Who it’s for: If you have a specific category of spending where you make the bulk of your purchases (like groceries, gas, food) then you’ll want to find a tiered cash back credit card that offers higher rewards for these specific purchases.

What’s a good tiered cash back rate? Some cards like the Blue Cash Preferred® Card from American Express offer 6% back on supermarket purchases and streaming services in the US (up to $6000 in spending). After that, you’ll earn 1% back. That means you can spend $500/month on groceries/streaming and get $360 back. There are many different tiered cash back cards on the market so it’s important to do your research and find the perfect match for your spending habits.

3. Rotating categories cash back

What is it? This category of cash back is somewhat gamified: You receive higher cash back rates on certain categories, and which categories those are will keep changing every few months (usually every 3 to 4 months). For example, for the first 3 months, you might receive higher cash back rates on groceries. Three months later, you’ll receive higher cash back rates on gas and recurring bills.

Who it’s for: Rotating categories cash back cards are not for everyone. In most cases, flat rate and tiered are much better options since you get to control where you earn the most rewards. Rotating category cards are a good match for people who carry multiple credit cards and are meticulous about keeping track of earn rates and earning the most rewards for every purchase. For example, you might want to use a flat rate credit card for grocery purchases at a 2% cash back rate. Then, when your rotating category card offers 5% back for grocery store purchases, you’ll want to switch cards for grocery purchases for the next 3 months until it rotates to the next category.

What’s a good rotating categories cash back rate? Usually, the cash back rate promotion offer for these specific categories is around 5%.

Conclusion: Which type of cash back credit is best for you?

Here’s a quick summary of the different types of cash back credit cards:

Flat rate: Offers a flat, set percentage cash back on ALL purchases made with your card. It doesn’t offer more or less cash back for different types of purchases.

Tiered: Offers higher cash back rates on specific categories. Which categories these are depends on the card, so choose the one that best fits your purchase habits.

Rotating categories: Offers higher cash on specific categories, but these categories are not under your control and will change every 3 or 4 months.

Which one should you get?

If you use your credit card to spend in a wide variety of categories (gas, groceries, bills, travel, etc) then go for a flat rate cash back card.

If you have a specific category of spending where you make the majority of your purchases, then choose a tiered credit card that gives you the most rewards for that specific category.

If you have multiple credit cards and want to get the maximum cash back on every single purchase (and are willing to keep track of all of your card’s earn rates) then go for a rotating category credit card. It will require a little more work and upkeep but you can potentially earn up to 3% to 5% more cash back on certain purchases.