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Credit cards are known for their many advantages when it comes to shopping at affiliated online and offline merchants.
Cash back cards can be a very useful tool to save you a few dollars, especially during the gift-giving season. If you ever wondered how they work, here are the details.
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What is a cash back credit card?
A cash back credit card is one that gives you a discount every time you make a purchase. That rebate can be anywhere from 1% to 5%, depending on the plastic you have or want to get.
For example, if you have a 1.5% rebate, you get $1.5 USD back for every $100 you spend at a physical or online merchant.
The most common ones are those that have a fixed percentage and their operation is not complicated for anyone to understand.
However, there are other varieties that offer greater rewards, but whose dynamics need to be explained in more detail. First, let's review how cash back credit cards work.
How do these cards work?
The main reason you can get these rebates with a cash back plastic is due to the agreement established between the bank and the businesses. That is, merchants must pay an interchange fee every time someone uses a credit card.
On the other hand, these rewards or rebates may also be determined by agreements between specific merchants and the card issuer.
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While, with a fixed rate, the cash back percentage does not change, with category bonus or tiered bonus plastics the amount of savings can increase according to the products you buy.
Also, cardholders with this benefit can redeem the rewards as balance credit, cash on account, cash for purchases or donations.
That's why it's always important to review the terms and conditions of each credit card to understand the rules regarding cash back and the options available for redemption.
Types of cash back cards
There are 3 types of cash back credit cards, which can be summarized as follows:
With a more complex operation, these cards offer you up to 5% discount on specific product categories. The trick is to register for the items with bonus every 3 months and in that period spend the maximum limit established.
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You can also make purchases in other categories, but you will only get the usual 1%.
Reward per level
Similar to the previous ones, these cards give you a bonus depending on the level of the card. The difference is in the credit card you choose to get the reward.
Examples of very exclusive cards would be the Amex business card, which gives you 5% off office supplies and 3% off gas. The Blue Cash Preferred, which gives you 6% at US Supermarkets and 3% on gas. And the Uber Visa, which gives you 4% at bars/restaurants, 3% on hotels and tickets, and 2% on online purchases.
Regular credit card
As we have already mentioned, these cards give you a fixed rate every time you make a purchase. There are those that can give you a little more than 2.5%, but they are scarce and you will probably have to be part of a loyalty program to get an additional bonus.
Key aspects of cash back credit cards
When you're comparing these banking products, you should take note of the following:
- APR. The average annual percentage rate for cash back credit cards is calculated the same as for other similar plastics. Although offering you a lower introductory rate, these instruments are the most expensive, with rates ranging from 15% to 25%.
- Welcome bonus: The sign-up bonus is common for these products, but read the fine print carefully. These cards are designed for certain consumers, so you should choose the one that best fits your profile and offers the highest rate of return.
- Fees and charges. Part of the savings you will achieve depends on the cost of the annuity, which is usually $50-$100. Since the cards with the highest fees offer the best rewards, you should calculate whether your expenses can compensate them. Also, if you accumulate late fees, you will lose money.
- Accumulating points. Each bank has different policies regarding rewards. You need to understand what the point limits are (monthly, annual, etc.), cash back at specific merchants, and the types of "rewards," which may or may not be in the form of gift cards or other convenient methods.
Cash back credit cards can offer significant savings if you know how to take advantage of the benefits they offer. Since you will have to spend and pay off the balance in full, managing your personal finances will be crucial.
You can rely on Busconomico's comparator/search engine for advice on finding the most attractive credit card.
Español: Tarjetas de crédito con cash back en todas tus compras