18 Best Cash Back Credit Cards of December 2024

Every time you use a cash-back credit card, the card issuer "pays you back" a certain percentage of the purchase amount. For example, if your card earns 2% cash back on all purchases, and you buy something for $80, then you would earn $1.60 in cash back. Or say your card earns 5% at the gas station; in that case, a $42 fill-up would earn $2.10.

With most cash-back cards, you can see your accumulated earnings on your monthly statement or through your online account portal, and you can decide when and how to redeem your cash back. Some cards automatically apply your cash back to your account as a credit.

"Cash back" doesn't mean the card issuer sends you an envelope full of dollar bills. But the rewards do ultimately leave you with more cash in your pocket. The simplest way to redeem cash back is to take it as a credit that reduces your account balance: Redeem $50 worth of cash back, and a $325 balance becomes $275. Many cards also allow you to redeem cash back as a direct deposit into a bank account, and some will even mail you a paper check if you request it.

Every card issuer has its own rules for how you can redeem cash back. Some have a minimum redemption requirement — you might not be able to cash in your rewards until you have accumulated at least $20 or $25. Others let you redeem any amount at any time.

There are two basic kinds of cash-back credit cards:

• Flat-rate cards pay the same cash-back rate no matter what you buy. Flat-rate cards typically pay 1.5% to 2% on everything.

• Bonus category cards pay higher rates (as much as 5% or 6%) at specific types of merchants, such as grocery stores or restaurants, and a lower rate (usually 1%) everywhere else.

Bonus categories themselves come in different flavors. On a lot of cards, the bonus categories never change. For example, you might always earn 3% at restaurants or 5% at gas stations. Some cards have rotating categories that change every three months, and you need to "activate" the categories online to qualify for the higher rate. And some cards have customizable bonus categories — you can choose which purchases earn higher rewards, or the card automatically adjusts to give you higher rewards in the category where you spend the most money.

It's common (though by no means universal) for bonus category cards to cap the amount of spending that qualifies for their highest rates; once you hit the cap, any spending in those categories reverts to the card's lower "everywhere else" rate. In general, cash back cards don't limit the total amount of cash back you can earn, although there are some exceptions.

Everyone's spending patterns are different, so the card that earns you the most cash back depends on your individual situation. If you spend far more money eating out than at home, for example, a card that pays 3% at restaurants would likely be a better fit than one that pays 6% at supermarkets.

Legally speaking, credit card rewards are treated as discounts on purchases rather than as income. That means you don't owe any taxes on your cash back.

Cash back rewards typically do not expire as long as your account remains open and active. (Exceptions may apply, so check your card agreement.) Some cards may automatically apply your cash back as a credit against purchases on your next statement; others let you save it up and use it when you want.

From a purely financial standpoint, the best way to use cash back is to redeem it as soon as it is received. Cash back doesn't earn interest, so inflation erodes its value as it sits unredeemed. If you want to put the money into savings, redeem it as a direct deposit into a bank account rather than let it build up. If that's not an option, redeem for statement credit and then put an equal amount into savings.

That said, it's not a catastrophic error to let your rewards balance build toward a goal — a big purchase, a trip, whatever. Just have a goal in mind, and don't let it sit for years on end.

Credit card issuers give you cash back because doing so encourages you to use their cards. Credit card issuers make money from three main sources:

• Fees paid by cardholders, including annual fees, late fees, balance transfer fees and so on.

• Interest.

• Transaction fees paid by merchants who accept credit cards, often referred to as "interchange."

Most cash back cards don't charge annual fees. So in most cases, the only way the card issuer is going to make money off a cash back card is if the cardholder uses the card — and uses it enough that the fees and interest collected by the issuer outweigh the rewards it pays out. Cardholders can make the math work in their favor by paying their bill in full and on time each month. When you do that, you don't incur interest on purchases and you never pay late fees.