Updated November 27, 2013

Cash Back Credit Card Secrets

Read more about Cash Back Rewards

How do you pick the best cash back credit cards for your needs? It turns out there is a bit of a trick to doing it. Read on to find out what it is.

So how do you get the very best deals on cash back credit cards anyway? The secret it turns out may very well lie in owning several such cards and keeping track of which one to use where and when. Here’s what you need to know:

5% Cash Back? Sure – With Limits

If you’ve been around the block looking for cash back credit cards a bit, you’ve probably seen the occasional offer for a 5% cash back card. The deal sounds amazing, right? It is. But there is a catch – a pretty big one in fact. That 5% cash back is usually only for select categories.

You see, the bank who issued your credit card needs to make a living as well. They can’t possibly do that by giving you 5% or even 3% cash back on everything you purchase for the simple reason that they don’t make that much on all your purchases (most banks take a 2%-3% transaction fee).

One Dollar Floating Away in Small Pieces
One Dollar Floating Away in Small Pieces © www.planetofsuccess.com

Therefore, they limit the really good cash back deals to a small segment of your purchases, hoping that you’ll use the card for other purchases as well so that they can make up the loss. They may also make arrangements with certain stores to give you a better discount because the store is picking up the extra cost of getting you the discount (it comes out of their advertising budget).

The Secret Way of Getting Around Limitations

There is however a way to maximize the cash back benefits of your credit cards – get more than one. This requires keeping track of which cards offer which rewards so you’ll need to pay attention. It may be a good idea as well to keep a kind of a crib sheet on your cell phone listing which card works best with which store/category.

The way it works is that you maintain 3 or 4 credit cards, all of which offer cash back rewards and you simply use the appropriate card at the appropriate store. This way, you can maximize the amount that you earn back from your purchases. The catch of course (aside from making you keep track of your cards and where you’ll get the most cash back) is that you will likely have to pay an annual fee for each of the cards, which brings us to the second part of our sneaky scheme (it’s really not that sneaky):

Figure Out Where You Do Most of Your Purchasing

Are you mostly a grocery shopper? Then look for a card that has a deal to maximize your cash back from groceries. Fill up a lot of gas? Go for a card with a high reward on gasoline purchases. Of course, if you tend to do lots of shopping at other kinds of stores, you should be sure to take that into consideration as well when picking your cash back credit cards.

Consider Interest Rates as Well

It also goes without saying that before you sign up for any cash back credit card on which you intend to carry a balance (something which many credit professional recommend doing on occasion since it can help your credit score), you need to take the APR into consideration as well. Getting 5% cash back on your purchases but paying 10% more in annual interest rates because two or three of your cash back credit cards have particularly high rates doesn’t make a whole lot of sense after all.

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CreditDonkey is a credit card comparison website. We publish data-driven analysis to help you save money & make savvy financial decisions.

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