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Cash back is a desirable and flexible type of credit card reward. Instead of earning points or miles, you get a percentage of what you spend back in cash. The amount of cash back you earn may vary depending on the card you use, its cash-back rate and the types of purchases you make with it.
Our pick for flat-rate cash back with a high ongoing rewards rate
Our pick for a no-fee bonus category card with a low introductory APR on purchases
Our pick for bonus categories tailored to your spending
Our pick for bonus rewards on groceries, transit, gas and recurring bills
Our pick for bonus rewards on groceries, restaurants, entertainment and public transportation
Our pick for flat-rate cash back and premium perks
Our pick for bonus rewards on groceries, gas, transportation, dining and recurring payments
Our pick for bonus rewards on gas, groceries, pharmacy purchases and utility bill payments
Our pick for bonus rewards on groceries, recurring bills, gas and daily transit
Our pick for bonus rewards on groceries, gas and recurring bill payments
NerdWallet Canada selects the best cash-back credit cards based on overall consumer value as well as their suitability for specific kinds of consumers. Factors in our evaluation include each card’s cash-back earning rates, rewards structure (such as flat-rate or bonus categories), annual fee, redemption options, promotional APR period for purchases, bonus offers for new cardholders, and noteworthy features such as insurance, loyalty bonuses or the ability to choose one’s own rewards categories.
The concept of cash back is simple, but navigating the ins and outs of Canada’s best cash-back credit cards — and choosing the right one for you — requires a bit more knowledge. There are different earn rates, payout dates and benefits to consider.
All cash-back credit cards work similarly, but even minor differences are worth noting as they can affect your earn rate.
Every merchant is assigned a category by the credit card processing network. These categories are essential since many cash-back credit cards offer bonus cash back on purchases in select categories. Therefore, knowing the different cash-back categories will allow you to maximize your earnings.
Some of the most popular merchant categories, and what they typically include, are as follows:
The key thing to understand is that each credit card defines its categories differently. For example, some cards may group gas and transportation. Some cards lump groceries and restaurants into a “food and drink” category.
To further complicate things, some merchants don’t fall into the categories you would think they would. For example, Costco is not considered a grocery store. As far as the credit card processors are concerned, Costco is a wholesale store.
Credit card providers do not typically reveal all of the stores associated with a merchant category publicly. Still, you should be able to contact your credit card provider’s customer service to ask about a specific store. Overall, it’s pretty easy to figure out what category your purchases will fall under, but you may need to do a little bit of trial and error.
Bonus categories are pretty straightforward. When making purchases in specific merchant categories, you’ll earn cash back at an increased rate. For example, let’s say your credit card gives you 4% cash back on gas. If the card has a flat rate of 1%, this means you’ll earn cash back on gas with a bonus rate of 3%, making it so all your gas purchases would give you 4% cash back. Since many gas stations sell other things such as snacks, and gift cards, you’d also earn 4% cash back on any of those items.
Generally speaking, Canada’s best cash-back credit cards offer multiple bonus categories, which can be pretty lucrative if you get a cash-back card that lines up with your spending patterns. For example, if you spend a lot on groceries, getting a cash-back credit card with an increased earn rate on groceries can significantly benefit you.
You’ll still earn the base earn rate when you make purchases that don’t fall under a bonus category or after you have reached the bonus category cash-back limit.
The base earn rate is different for each cash-back credit card, but it typically ranges between 0.5% – 2%.
Every credit card provider has different rules when it comes to redeeming your cash back. Some allow monthly redemption, while others pay out annually. Other providers allow redemption only after you’ve hit a certain threshold.
The following are the payout requirements for the major cash-back credit card providers:
With dozens of cash-back credit cards available, comparing them all can be time-consuming. That said, there are a few things you should look at when considering any cash-back card.
Decide if you want to pay an annual fee or not. In most cases, paying a yearly fee means you’ll earn more cash back and get better benefits. On the other hand, no-fee cash-back cards may have a lower earn rate, but if you don’t charge much to your card, you could come out ahead compared to a card with a fee.
It’s always worth checking to see if any cash-back credit cards offer a sign-up bonus for new applicants. The welcome bonus usually comes in the form of a higher cash-back rate for a set period. For example, you might get 10% cash back on all purchases up to $3,000 in spending. If the earn rates are similar with two cards, but one has an excellent welcome bonus, then you might as well take advantage of the promotion.
The increased earn rate on bonus categories is arguably the most critical factor when comparing cash-back cards. Ideally, you want to choose a card that gives you increased cash back on the categories where you do the most spending. The amount you spend on those categories every year could potentially earn you more than any welcome bonus offered. Although the bonus categories are fixed, there are cash-back credit cards that allow you to pick your bonus categories.
Many cash-back credit cards come with additional benefits that may appeal to you.
Some perks to look out for include
Some of these benefits are worth more than the annual fee charged by the card, which can help with your decision-making.
Some cash-back credit cards have specific eligibility requirements to be approved.
In most cases, a good credit score is required.
If you do not have a good credit score, consider a suitable alternative, such as a credit card designed for bad or no credit, a prepaid card, or a secured credit card.
In addition, if you want a higher-tier cash-back credit card, you’ll need a higher income. For example, World Elite cards require a personal income of $80,000 or a household income of $150,000.
If you don’t meet the income requirement, look for a lower-tier card with fewer benefits and a lower earn rate.
» MORE: How to check your credit score
There are plenty of tricks to help you get the most out of your cash-back credit cards. The more tips you adopt, the more cash back you’ll earn. That said, it’s best to only follow the advice that you’re comfortable with.
Since many of the best cash-back credit cards in Canada have a generous welcome bonus, it’s often worth your trouble to apply for a new card before you make a major purchase.
For example, let’s say you need to renew your home and auto insurance, which will cost you about $2,000. You could apply for a cash-back credit card that offers you 10% cash back as the welcome bonus. Then, when you charge your insurance to your card, you’d get $200 back.
Keep in mind that many cash-back credit cards have a limit on their sign up offer. If you have a substantial purchase, you could apply for more than one card and split up your purchase to maximize your cash back. However, if you need to pay an annual fee for the new card, it may negate a fair amount of cash back you’re earning, so pay attention to the details.
Welcome offers are constantly changing, so watch for any current promotions. Getting 10% cash back for a set period is generous, but if the card is also waiving the annual fee for the first year, then they’re practically paying you to sign up. When you get close to 12 months of card membership, you might cancel the card before your annual fee posts. You could then apply for a new cash-back credit card with a good sign up bonus.
Many people focus on a single cash-back credit card, but there’s nothing wrong with having multiple credit cards. In fact, having more than one card is the easiest way to maximize your cash back. Start off with a primary card that gives you an increased earn rate where you do most of your spending. You could then complement that card with a no-fee card that gives you bonus categories where your primary card doesn’t. Whenever you shop, just use the credit card that gives you the most cash back.
» MORE: How to stack credit card rewards
Groceries and gas are two of the most popular merchant categories where you’ll earn additional cash back. Here’s the thing: both grocery stores and gas stations sell gift cards that can be used at many retailers. That essentially allows you to earn extra cash back.
For example, let’s say your credit card gives you 5% cash back at grocery stores. You could purchase gift cards at a grocery store for restaurants, Amazon, streaming services, drug stores and gas. That would guarantee you 5% cash back. When you need to make purchases at those merchants, use the gift cards you already purchased.
Most credit cards allow you to add supplementary users. The advantage here is that all authorized cardholders also earn cash back on their purchases, including any bonus. Best of all, the cash back gets combined into a single pool, so you’ll be racking up that cash back in no time.
Various online sites allow you to earn additional cash back whenever you shop online. First, you need to create an account. After that, you would just select the partner retailers through their online portal. When you do your shopping, eligible purchases will earn you cash back. If you pay with your cash-back credit card, you’d be earning cash back twice. That’s right, you can double dip without much work.
Although cash-back cards are easy to understand, they shouldn’t be the default card you apply for. Depending on your situation, you may want to consider one of the following types of credit cards instead.
Every person’s personal circumstances can change at any time, so you should choose a credit card that best suits your current needs. For example, if your goal is to take a glamorous trip or honeymoon in the future, it’s probably worth switching to a travel rewards card now so you can rack up those points.
Alternatively, if you find yourself in a tough financial situation, dropping your cash-back card for a low-interest or prepaid credit card can help until you get your finances sorted out. There’s nothing wrong with switching credit cards. There’s a credit card designed for every situation, so it often makes sense to consider other options.
Most cash-back credit cards have limits on the cash back you can earn. That said, it usually only applies to the increased rate of bonus categories. For example, some cash-back credit cards cap your bonus category earn rate at $25,000 of spending per category. Once you reach the spending cap, you will earn the base rate.
Look at the terms and conditions of your card to find out the rates and limits. Most cash-back credit cards set the limit per category, but they may also lump some categories together. Additionally, the limit would factor in any purchases made by supplementary users on the account.
Some cards give you unlimited cash back, even on bonus categories. That means you would get the full earn rate, regardless of how many purchases you put on your card. Shopping around and reviewing the terms and conditions of cards you’re interested in, will help you pick the right card.
Yes. The first fee to look out for is the annual fee. Cash-back credit cards with an annual fee typically have a higher earn rate and come with more benefits. That said, many low and no-fee credit cards offer decent cash back.
The other fee to pay attention to is the interest rate. Generally speaking, credit cards charge an average interest rate of 19.99% – 21.99%. If you’re always paying your bills in full and on time, then this interest rate won’t matter. However, if you typically carry a balance, you’d be paying more interest than what you’d earn in cash back.
Cash-back credit cards are worth it if you’ll earn more cash back than the annual fee you’re paying. If your cash-back credit card has no annual fee, then you’re always going to come out ahead.
It’s also worth noting that it doesn’t hurt to shop around. You can apply for a cash-back credit card from any financial institution, not just the one you have accounts with. Cash-back credit cards can also go through benefit changes, so it’s worth seeing what other cards are offering, even if you’re happy with your current card.
There are two situations where a cash-back card isn’t worth it. The obvious case is when the cash back you earn is less than what you’re paying in annual fees. That said, you could easily switch to a no-fee card to avoid that issue.
The other time when a cash-back card might not be worth it is if you can get a better return with a rewards credit card instead. For example, let’s say you got a travel rewards credit card and did the same spending. Would the points you earn be worth more than the cash back? If so, it makes more sense to get a travel credit card.
Cash back rewards are considered a rebate/discount by the Canada Revenue Agency, so you won’t be taxed. Cash back is really no different from a coupon, which is obviously not taxable.
That said, if you earn cash as part of your employment, it may be taxable. For example, let’s say you have a company cash-back credit card. Your employer allows you to deposit the cash back earned directly into your bank account. In this case, the cash back would be taxable since it’s a form of income.