How to Choose the Best Cash Back Credit Card

The main consideration, other than the rewards rate itself, is the annual fee. Many people shy away from cards with such fees, but often, the higher rewards rate or one-time bonus more than makes up for the annual fee. This is where you factor in how long you’ll hold the card: if you get a $200 signup bonus for paying a $50 annual fee, all else being equal, it’s worthwhile if you hold the card for less than four years.

Some other factors to consider:

• Redemption restrictions. Is there a limit to how often you can redeem your rewards? Some, like the REI credit card or Costco American Express, pay out only once a year. Others require you to accumulate, say, 10,000 points before redeeming.
• Credit score. If you have bad credit, you may not easily qualify for a rewards card.
• “Up to 1%” offers. These cards often have cliffs: you receive no or partial rewards until you reach a spending threshold, and only then earn the full rate. The Walmart credit card is one example. It advertises a 1% rate but only pays out in full after spending $3k.
• Fringe benefits. A number of high-end credit cards offer additional benefits, like airport lounge access, purchase protection or rental car insurance.

Benefits of cash back credit cards:

• Easy to understand. You don’t have to juggle numbers to find out how much a point is worth (though we’ll gladly do it for you). A dollar is a dollar is a dollar.
• Easy to redeem. Even if you never fly another mile in your life, you can get the value out of your rewards.

Drawbacks of cash back credit cards:

• Low or no signup bonuses. Many airline or hotel credit cards give you spectacular bonus offers when you sign up, like free roundtrip flights or hotel stays.
• Lower rewards rates. Specific rewards mean higher rewards. Some of the best redemption rates are for GM, Subaru and Starwood credit cards.
• High APR. This isn’t unique to cash back cards, but rather applies to all rewards credit cards. If you carry a balance, you should probably stick with a low interest credit card or one from a credit union. Credit unions often give lower APRs but have worse rewards programs.