Among flat-rate cash-back credit cards — ones that give you the same rewards rate regardless of what you buy with them — 1.5% back with no annual fee is the least you should settle for.
Many of the biggest issuers have cards that earn a flat 1.5% back, including American Express, Capital One, U.S. Bank and Wells Fargo.
If you avoid interest charges by paying your bill in full every month, these cards can earn you hundreds of dollars per year in rewards.
How we got to 1.5%
Every big credit card trend starts with one issuer. If the feature is a hit with cardholders, other issuers will introduce it, too.
“Everyone jumps on the bandwagon,” says Tiffani Montez, a senior analyst for the banking consulting firm Aite Group. “But then, as things progress again, everything starts to flatten, and there becomes this new normal for what’s acceptable for cash back. Then [issuers] go look for a new source of differentiation, such as credit monitoring and frictionless rewards redemption.”
“Everyone jumps on the bandwagon ... and there becomes this new normal for what’s acceptable for cash back.”
Tiffani Montez, Senior analyst, Aite Group
The Capital One Quicksilver Cash Rewards Credit Card debuted in 2013, offering 1.5% cash back with no annual fee. Capital One also offers a version of the card for people with fair credit, which has the same rewards rate but an annual fee.
It was an offer that launched a slew of flat-rate cards. During the next three years, other major issuers followed suit, giving us the Citi® Double Cash Card – 18 month BT offer, the Barclaycard CashForward™ World Mastercard®, the Wells Fargo Cash Wise Visa® card and the U.S. Bank Cash 365 American Express. These cards differentiated themselves with their sign-up bonuses, 0% APR periods and redemption options. But except for the Citi® Double Cash Card – 18 month BT offer, which pays a higher rewards rate, they all made the same basic pitch to consumers.
It’s not too different from what happened 30 years ago when cards began to advertise “up to 1% back.”
In 1986, Sears introduced the first Discover card. It paid out rewards of “up to 1% back,” a more generous offer than any other cards had at the time. But the program was complicated. It gave users:
0.25% cash back on the first $1,000 spent.
0.5% cash back on the next $1,000.
0.75% cash back on the next $1,000 after that.
1% on any spending over $3,000.
The card was successful, and other issuers piled on with their own no-fee cash-back cards. They ramped up the rewards rates from “up to 1%” to “up to 2%.” And they added caps that limited how much cardholders could earn.
These cards no longer exist. The 1.5% cards have taken their place — and they’re head and shoulders above what was considered “good” in the ’90s, without the complicated systems of graduated cash-back rates and annual rewards caps.
By coupling 1.5% cards with modern tiered cards — which offer cash-back rates of 3%, 5% or more on certain categories and 1% on everything else — you can boost your combined cash-back rate above 1.5%. But without decades of fierce issuer competition, these cards might not have existed.
“It always takes one person to push it a little bit higher, and eventually, the rest will do the same,” Montez says.
What’s next? Maybe not a 2% standard
Whenever you see multiple credit cards making identical offers — 1.5% cash back and no annual fee, for example — you know something’s about to change. But it’s hard to predict what that something might be.
“Yes, 2% cash back cards exist, but they are uncommon and haven't established a new standard. At least not yet.”
Based on cash-back rates during the past few decades, you might think 2% cash back is the next trend. And we’ve seen cards that offer something similar, including the Citi® Double Cash Card – 18 month BT offer. The Fidelity Rewards Visa Signature also gives you a 2% rewards rate if you deposit your earnings in your Fidelity account — not traditional cash back, but close enough.
One credit union even offers a card that does better than 2%. The Alliant Cashback Visa® Signature Credit Card offers 2.5% cash back on spending up to $10,000 in qualifying purchases per billing cycle, although it charges an annual fee.
Still, these 2% cash back cards are uncommon and haven’t established a new standard. At least not yet.
How to pick a flat-rate cash-back credit card
As long as issuers stick with the 1.5% rewards rate, here’s how you can get the best deal:
Prioritize long-term value. Cards that pay 1.5% are great. But if you can qualify for a more generous card, choose that one.
If it’s a tie, think short-term. If you can’t get a no-fee card that offers more than 1.5%, use the cards’ extra features as a tiebreaker. Plan on revolving a balance for a few months? Find a card with a good 0% APR period. Traveling overseas? Go with one that doesn’t charge foreign transaction fees. Otherwise, pick the card with the largest sign-up bonus. If you pay your balance in full each month, the interest rates won’t make a difference.
Once you get that flat-rate card, use it for all the purchases that don’t fall under your other credit cards’ bonus categories. You won’t have to settle for “1% on everything else” anymore.