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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 a sign-up bonus and no annual fee is the least you should settle for.
Many big issuers have cards that earn at least a flat 1.5% back, including American Express, Capital One, Citi, Bank of America® 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. And they’re extremely low-hassle; you can use the same card for everything.
New normal: 1.5% or 2%?
So, if a flat rate of 1% cash back is uncompetitive nowadays, and 1.5% cash back is the least you should settle for, what’s even better?
Answer: Cards that offer 2% cash back or more.
The problem is, most 2% cards come with some kind of catch. Some don’t usually come with a sign-up bonus, like the well-regarded Citi Double Cash® Card, which offers 1% cash back on all your purchases and an additional 1% when you pay them off. Others require you to take the cash back into a proprietary account. Example: The Fidelity Rewards Visa Signature gives you a 2% rewards rate only if you deposit your earnings into your Fidelity account. Still others make you sign up with a credit union.
Although the Citi Double Cash® Card has not traditionally offered a sign-up bonus, the card currently has this offer in effect: Earn $200 cash back after you spend $1,500 on purchases in the first 6 months of account opening. This bonus offer will be fulfilled as 20,000 ThankYou® Points, which can be redeemed for $200 cash back.
A welcome exception is the Wells Fargo Active Cash® Card, introduced in summer 2021. It earns 2% cash back on every purchase with an annual fee of $0. It even comes with a sign-up bonus.
But that’s not the norm.
Generally, your choices are between a flat-rate 1.5% with a sign-up bonus or a 2% card without one. If the 2% card has a bonus, it will also have some hoops to jump through.
Choosing a flat-rate cash-back credit card
As issuers either stick with the 1.5% rewards rate or experiment with 2% cards, here’s how to get the best deal:
Prioritize the dollars. Do the math on which is better for you, a 2% card or a 1.5% card with a sign-up bonus. Generally, a 2% card wins out over a longer period and benefits high spenders (assuming the 2% cash back is unlimited.) But the 1.5% card with a bonus is better in the short term and better for low spenders.
If it’s a tie, think short-term. If two cards have the same cash-back rewards rate, use extra features as a tiebreaker. Plan on revolving a balance for a few months? Find a card with a good introductory 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’ll never again settle for “1% on everything else.”
History of getting 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-Novarica. “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-Novarica
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, 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, intro APR periods and redemption options.
It’s not too different from what happened 35 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.
The 1.5% cards have taken their place — and they’re head and shoulders above what was considered “good” in the 1990s, 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, a 2% standard?
When you see numerous credit card issuers making identical offers — 1.5% cash back with a sign-up bonus and no annual fee, for example — you know something is about to change. And we’ve seen the start. More issuers are beginning to toy with 2% cash back.
Still, these 2% cash-back cards aren’t ubiquitous and haven’t established a new standard.
At least, not yet.
The information related to Wells Fargo Cash Wise Visa® card has been collected by NerdWallet and has not been reviewed or provided by the issuer or provider of this product or service.