Cashback credit cards, as the name implies, give you money in the form of a cash rebate on a percentage of your purchases. For every item you charge to your card, you’ll collect cash rewards.
The typical cashback credit card will provide a cash rebate of around 1%. Some cards, like the Discover More Card, American Express Blue Card, or the Chase Freedom Card offer higher cashback percentages, depending on how you use the cash service site.
Using Cash Back Credit Cards Properly
Cashback credit cards can save you a lot of money if carefully used, but they are best suited to people who do not carry large balances from month to month. Cashback credit cards are not interest-free. Most have a minimum interest rate of 10%, and several have even higher interest rates. If you’re one to leave a balance on your card, then the 1% in cash returns you’ll receive won’t help you much since you’ll be paying much more in interest charges.
If you fall into this category, then a rewards points card like an airlines miles credit card may be the better option. If, on the other hand, you pay off your balance at the end of every month, then a cashback credit card may work wonders for you.
Where Does the Money Come From?
All businesses exist to make a profit. This holds true for companies as well. Credit card companies use promises of cash rebates to attract new customers, but you can be sure they’re not suffering financially by offering this perk. These companies offer perks because there are so many credit cards on the market and competition for customers is fierce. Each company wants to do something to stand out from its competitors, and offering cashback rebates is one way to do this.
These companies are on the right track. According to the JD Power and Associates 2007 Credit Card Satisfaction Study benefits and features are the most important factor customers consider when selecting a credit card. None of the money you receive from your rebates cut into the companies’ profits. The money you get back on your credit card purchases actually comes from the merchants of the stores you shop.
When merchants choose to accept credit card payments, they pay a percentage of the transaction amount to their merchant services provider, also known as an MSP. MSPs can be a bank, Internet. Many companies that issue cards share this commission with you, the cardholder, in the form of money back, reward points, or airline miles.
Highest Return Cash Back Credit Cards
One of the credit cards with the highest cashback rebate program is the Blue Cash from American Express. It was one of the first cashback credit cards to provide a 5% rebate program on all types of everyday purchases.
The Blue Cash American Express started out by offering a cash rebate structure that was divided into return percentages based on the annual amount spent and the type of purchase. Purchases were categorized as every day and others.
People who made annual purchases of up to $2,000 received a 0.25% to 0.5% cashback rebate. Those who made annual purchases between $2,001 and $6,000 received a 0.5% to 1% rebate. Annual purchases from $6,001 to $50,000 offered a 1.5% to 3% rebate with a 2% additional rebate for everyday purchases if the customer carried a balance on the card. In May 2005, the card changed its rebate tiers to the current structure where customers can get an up to 5% rebate if they make $6,500.01 to $50,000 everyday purchases (supermarkets, gas stations, and home improvement stores) a year. American Express cards have ranked highest in customer satisfaction according to the J.D. Power and Associates Credit Satisfaction Study.