Category: Credit Card Guide

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Surveys consistently show that no credit card reward is more popular than cold, hard cash. Indeed, cash back cards came out well ahead of other types of rewards cards in a recent CreditCards.com survey, which found that close to half of U.S. adults own a cash back credit card.

And for good reason: Instead of having to decipher a complex redemption scheme, you can opt for a simple, straightforward reward and use it in the way that fits you best.

Here we take a look at some of the most common types of cash back redemption, along with some of the restrictions you may encounter when redeeming your rewards.

How cash back cards work

Cash back cards come in a variety of flavors, but they all fundamentally work the same way: As you make purchases with your card, you earn cash rewards at a set rate. There are three major types of cash back cards.

• Flat-rate cash back cards offer the same percentage of cash back for all purchases, usually between 1% and 2%.
• Bonus category cash back cards typically reward some purchases, like groceries or dining, at a higher rate, while rewarding general purchases at 1%.
• Rotating bonus category cash back cards have dynamic bonus categories that automatically change or allow you to select a different bonus category after a certain length of time.

See related: What is cash back?

Ways to redeem cash back

Depending on your card and issuer, you may have a variety of choices in how you redeem your cash back rewards. Some issuers even allow you to set up an automatic redemption, meaning your redemption would automatically initiate after a set number of days or after you earn a certain amount in rewards.

The most common ways to redeem cash back are:

• A statement credit
• A direct deposit to a bank account
• A check
• Gift cards
• Merchandise

Redeeming cash back as a statement credit

One of the most common ways to redeem cash back is as a statement credit. A statement credit is money credited to your account that reduces your card balance. For example, if you were to spend $1,000 with a card that offers 1.5% cash back on every purchase, you’d earn $15 in cash back rewards; and if you were to redeem this cash back as a statement credit, your balance would decrease by $15 to $985.

Blue Cash Preferred® Card from American Express, for example, requires you to have earned $25 in cash back before you can redeem as a statement credit.

The Chase Freedom Unlimited®card lets you redeem rewards as a statement credit in any amount, anytime.

Once you’ve met your card’s redemption requirements, you can simply choose a statement credit as your preferred cash back redemption.

Redeeming cash back as a check or direct deposit

A slightly smaller number of credit card rewards programs let you redeem your rewards for “true” cash back in the form of a check or direct deposit to your bank account. Claiming your cash back in this way gives you a bit more leeway since you can save or spend your rewards however you like instead of having them “locked” into a particular card account.

As with statement credits, the requirements for requesting a check vary from card to card, with some issuers requiring you to have earned a minimum amount of cash back before you can request a check and others imposing relatively few restrictions.

Direct deposits tend to be a bit trickier across the board, especially if you don’t already have a banking relationship with your credit card issuer.

• The Bank of America® Cash Rewards credit card, for example, will only let you redeem cash back as direct deposit if you have a checking or savings account with Bank of America.
• The Citi® Double Cash Card lets you redeem your cash back as a direct deposit only if you have a linked Citi account or a checking account from which you’ve paid a Citi credit card bill at least twice. While the Double Cash card requires you to have earned at least $25 in cash back to redeem as a statement credit, there’s no minimum to redeem as a direct deposit.

Wells Fargo Cash Wise Visa® card lets you claim your cash back via an ATM (in $20 increments only) if you have a Wells Fargo Bank account.

Automatic cash back redemption

Along with manually requesting a statement credit, check or direct deposit, a number of cards allow you to set up automatic cash back redemption. If your card allows automatic redemption, your cash back is generally distributed at set times or after you’ve earned a certain amount.

• The Capital One Quicksilver Cash Rewards Credit Card and, for example, allow you to schedule automatic cash back redemption via statement credit or check at a set time once per year or once you’ve reached a cash back earnings threshold ($25, $50, $100, $200, $500 or $1,500).
• Even some cards designed for credit-builders, like the Credit One Bank American Express® Card, allow automatic redemption as a statement credit, offering those looking to improve their financial habits a “set-it-and-forget-it” cash back savings tool that will periodically knock off a chunk of their credit card balance.

Travel, gift cards and merchandise on an issuer’s online portal

Most credit card issuers also give you the option of redeeming your cash back through a rewards portal for online shopping or as gift cards to select department stores, restaurants, video streaming services and more.

• The Discover it® Cash Backcard, for example, lets you redeem your cash back for gift cards from shopping partners once you’ve earned $5 in cash back (gift cards range from $5 to $200, in increments of $5).
• The Amazon Prime Rewards Visa Signature card*lets you redeem your points for purchases on Amazon.com, as a statement credit or deposit, or for gift cards and travel – all at a rate of 1 cent per point.

Having the option to use your rewards for travel allows you to enjoy the benefits of travel rewards with a cash back card and is especially common among cash back cards that use points or allow you to choose between cash back and points.

• The Chase Freedom Unlimited is a great example. You can earn unlimited cash back at a rate of 5% cash back on every purchase, which translates to 1.5 points per dollar if redeemed for travel in the Chase Ultimate Rewards portal.
• Similarly, the Citi Double Cash Card lets you transfer your cash back to Citi ThankYou Rewards and redeem for travel rewards, as well as gift cards, merchandise and other purchases through the Pay with Points program.

Cash back redemption options on popular rewards cards

As you can see, cash back redemption options vary considerably from issuer to issuer and card to card. Here’s a closer look at how cash back redemption breaks down with some of the most popular cash back credit cards.

Best cash back redemption options

With all those options for redeeming for cash, which one is best?

The key point to consider is whether your rewards lose any value when redeemed in a certain way. You want to make sure you are getting the most value back, so be careful if you redeem for merchandise, which can be worth less than rewards redeemed for straight cash.

That said, unless your issuer offers a bonus for claiming your rewards as a statement credit instead of “true” cash back, you should simply stick to whichever option is most convenient.

One drawback to cash rewards is they often don’t feel like actual rewards because they get swept up into your ongoing finances. If that bothers you, you might consider taking note of how much you are receiving in cash rewards, then rewarding yourself by spending that amount on something you want, so that you feel like you’re getting a reward.

Either way, that’s the best aspect of cash back rewards: It’s your decision.

Choosing the best cash back credit card for you

Your redemption options are just one consideration when choosing a credit card. Consider these factors:

Bonus categories

When shopping around for cash back cards, find the card that will work the hardest for you, not the other way around. In other words, a cash back rate of 5% at restaurants is great, but not if you rarely eat out. Bottom line: Find a credit card that matches the largest portions of your budget.

Also, be honest about how much thought you want to give to your credit card. If you prefer a “set and forget” approach, a flat-rate card is a better choice than a rotating bonus category card.

Annual fees

With so many great no annual fee cards, you might wonder why you would ever get a card with an annual fee. But often, the rewards rates are so much better that it actually makes sense to get the card with the annual fee. For example, comparing the Blue Cash Everyday® Card from American Express and the Blue Cash Preferred® Card from American Express, we found that consumers who spend more than $3,200 annually at U.S. supermarkets ($267 per month) were actually better off with Blue Cash Preferred, which has a $95 annual fee.

From redemption options to bonus categories, each cash back card is designed for a different type of consumer. If you haven’t found your perfect match yet, try our CardMatch™ tool, which can deliver personalized credit card offers in seconds with no impact on your credit score.

All information about the Capital One Savor Cash Rewards Credit Card and the Amazon Prime Rewards Visa Signature Card has been collected independently by CreditCards.com. The issuers did not provide the content, nor are they responsible for its accuracy.

Source: creditcards.com