Wallet Wings

There are many different options available when deciding how to pay for something. Our daily purchases can be made with debit cards, credit cards, cash, PayPal, Venmo, Apple Pay, etc. For this blog post, I want to focus on how a high quality cash back credit card can be a nice boost to your savings or investing account. With that being said, only look into cash back credit cards if you are a disciplined and financially responsible person. Some people are not wired to use credit cards in a safe and effective manner. If you are in heavy debt or don’t stick to a budget well, a cash back credit card (or any credit card) is probably not for you. Now, this doesn’t mean that you can’t get their one day, but put your financial house in order first!

When it comes to cash back credit cards, not all cards are created equal. Reward rates on these type of credit cards can vary from 1% to 6% of your credit card spend. The cash back rate that you typically receive depends on several factors. These factors include if you have an existing relationship with the card provider, current credit card promotions or offers, and the reward program structure. You will see that many of these credit cards offer a higher cash back rate for certain spend categories such as gas, restaurants, groceries, etc. Some of these credit cards allow you to pick the spend category that you would like to receive the highest cash back reward rate on. For example, if you have a long work commute, you may want to select the gas category as the category that gives you the highest cash back reward. Then you just need to ensure to use this credit card every time that you purchase gas. If you are someone who goes out to eat frequently, selecting the restaurant category would make the most sense. Certain cash back credit cards may just offer a flat cash back reward rate on all purchases, typically in the 1-2% range. These type of cards don’t let you select a specific spend category to receive a higher reward rate on.

Cash back credit cards typically allow you to redeem your cash back rewards in a few different manners. These redemption options include:

• Credit card statement credit
• Physical check
• Store gift cards
• Credit into a bank savings or checking account

Since you are reading this article, I know that you are a financially savvy individual and you will want save these cash back rewards and not spend them, right? Good, we are on the same page! Therefore, a good personal finance move is to save these rewards in your bank account or transfer them into an investment account. These cash back rewards can really add up throughout the year. Think of all the different bills and items that you have to purchase every single month such as gas, food, insurance, cell phone bills, and more. If you funnel all these purchases through your cash back rewards card, the rewards can add up quickly. I normally receive about $500 per year in cash back rewards for all of my spending. I don’t go out of my way to buy anything extra with my cash back credit card, I just purchase what I was going to buy anyways. If I instead made these essential purchases on my debit card, I would have missed out on all of these extra cash back rewards.

Here are a few potential strategies for finding and using a cash back credit card. First, find a cash back credit card that has no annual fee. There are many cards available that do not charge annual fees so be on the lookout for those. Second, be sure to pay off the full amount of your credit card balance every month. If you carry a balance, you will be charged interest (very high interest!) from your credit card provider and it will more than eat into the rewards that you are trying to accumulate. Third, find a card that has a simple and easy to understand cash back rewards program. Some of these credit cards have highly complex programs and terms. Find a reward card program that is easy to understand and maximize your rewards with. Fourth, look for a cash back credit card that offers an introductory cash bonus opportunity for signing up. Many of these cash back credit cards offer a $150-$250 bonus if you spend a certain amount of money on the credit card within the first 60-90 days of activation.

Additionally, some of the more well known companies that offer cash back credit cards include Bank of America, Citi, Capital One, Discover, American Express, and Chase. These companies have different cash back programs and terms so you will want to evaluate them closely.

As you can see, cash back credit cards are a valuable savings tool if you utilize them properly. The key is to be disciplined and strategic with your spending and cash back rewards. Maximizing your cash back rewards on essential purchases can be a nice way to save more money.