Cash Back Credit Cards: An Overview

Way back in the 1980’s a credit card company got a late start in the marketplace. The Discover Card was competing in a commoditized and very saturated market where their two main competitors had so much brand recognition that it is unlikely that anyone in the United States had not heard of Visa or MasterCard, also called MasterCharge until 1979.

Discover used a marketing scheme of offering cash back with every purchase to make headway into the market. Although it was slow going, and competition was fierce, they did get a foothold and obviously are still here today.

The cash back offer is a simple idea. A percentage of the amount you charge on your card on new purchases is returned to you at a predetermined time, usually on an annual basis. The first cash back plan offered by Discover was 1% back on every purchase, and this set the standard. Now almost every issuer has a cash back card, some offering increased cash back on certain purchases, as well as other offers. Tiered offerings are becoming very common, where the percentage of cash back that you receive is determined by the amount you purchase with your card. For several examples you can visit this site Cash Back Credit Cards.

The question is, are the cash back credit cards being issued today as valuable as they would like you to believe? The answer is, yes…sometimes.

One way creditors are making the same if not more profit off of cash back cards is that they tend to carry a slightly higher interest rate that other offerings. These cards still come in the typical Elite, Premium, and Standard flavors that the other offering but you will find that the APR is usually slightly higher.

So what this means to the consumer is, if you want to take full advantage of the cash back credit card you have, you must find a way to reduce your APR, or avoid interest charges altogether. Here are a few ways that can be done:

• Pay your balance in full each month
• Do not use the card for cash advances
• Do not use the card for balance transfers

To clarify, in almost every credit card agreement cash advances and balance transfers work a little differently than new purchases. Interest is applied immediately to cash advances, and usually to balance transfers (as well as a transfer fee). This small amount would begin to chip away at the cash back benefit, and if you make a regular habit of it end up costing you more than a standard offer.

If you intend on carrying a balance, the most important concern you should have is the interest rate that is associated with your card. This rate will affect your payments every month you carry a balance, and will determine how much more you must pay to clear your debt. 1%-5% cash back is negligible when compared to APR if you carry a balance.

Cash back credit cards are a great way to save money when used properly. If the balance is not managed however it is more than likely that they will cost you more in the long run.