Some things in life sound too good to be true, and getting cash back for purchases may seem like one of those deals. But an increasing number of credit cards, called cashback cards, offer clients money back when they charge what they buy.
Many people are familiar with the concept of credit card rewards, when lenders give clients a little something back—points, airline miles—as an incentive for using their card.
In the case of cashback cards, that reward is, well, cash.
How Does Cash Back Work?
Cashback credit cards reward clients based on their spending, providing a credit that is a small percentage of the total purchase.
If a cashback card provides 1% back, for instance, the cardholder would generally earn 1 cent on every dollar spent, or $1 for every $100 they charge to their card. If, over the course of the year, a person charges $10,000 in purchases to their cashback credit card, they’d earn $100 in cash back for that time period.
best type of credit card will ultimately depend on the individual. Here are some things to consider.
Rate of Cash Back
Not all cashback credit cards offer the same rate of return, so it’s best to comparison-shop. Though differences in percentages may sound negligible, getting 2% instead of 1% means double the cash back—and those small amounts can add up over time.
Some credit cards also provide different rates of cash back depending on the spending category or how much money the cardholder charges in a year. For example, some credit cards may provide a higher percentage on expenditures such as gas, travel, or groceries and a different rate for other types of purchases.
Tiered cashback cards may provide a higher (or even lower) rate when annual purchases exceed various thresholds.
Some credit cards also offer higher introductory cashback rates.
What is a Good APR?
Redemption Terms
A good question to ask a lender before signing up for a cashback credit card is “Where can I get cash back?” The terms of redemption can vary across credit card products.
In some cases, cardholders may see an annual one-time credit for the full amount earned. Other cards allow cardholders to redeem their cash back at any time.
Tips for Getting the Most Out of a Cashback Card
While signing up for—and using—a cashback credit card is the first step to getting money back on everyday purchases, there are some ways to optimize the returns.
Pay Off Your (Whole) Credit Card Bill on Time
With few exceptions, credit card charges are not subject to interest until after the statement payment due date. But after that payment becomes due, extra interest and fees can quickly add up—erasing any cashback benefits.
Optimize Redemptions
When it comes to redeeming cash back, it’s worth seeking the biggest bang for your buck.
If a card offers different rates of cash back depending on how rewards are redeemed, being strategic when cashing out can result in a greater windfall.
Consider Extra Fees
Though a cashback credit card can make it tempting to charge everything you buy, that’s not always the most cost-effective strategy.
Though it’s generally an exception, some merchants impose surcharges for using a credit card or may provide discounts for paying in cash. In such cases, it’s a good idea to crunch the numbers to ensure the extra fees don’t actually cost more than the cashback reward.
The Takeaway
Free money may be hard to come by—but not if you use a cashback credit card. When choosing a card, It’s best to look at the rate of cash back, any annual fee a card may charge, and the APR if you carry a balance.
SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.1
Plus, there is no annual fee*.
Look into the cashback rewards of a SoFi credit card today.
1See Rewards Detailswww.sofi.com/card/rewards
*See Pricing, Terms & Conditions at SoFi.com/card/terms
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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Source: sofi.com