Credit card companies often advertise cash back rewards as a major benefit of their cards. One common offer is 5% cash back on certain categories of spending. But what exactly does 5% cash back mean and how does it work?
How cash back rewards work
Cash back rewards give you a percentage of your spending back as a statement credit or reward points. For example, if you earn 5% cash back on grocery store purchases, for every $100 you spend on groceries, you’ll earn $5 in rewards.
These rewards can add up quickly, especially if you focus your spending in categories with high cash back rates. For a 5% cash back credit card, here’s how much you could earn on common spending categories:
| Spending Category | Monthly Spending | Annual Spending | 5% Cash Back Earned |
|---|---|---|---|
| Groceries | $500 | $6,000 | $300 |
| Gas | $250 | $3,000 | $150 |
| Dining out | $200 | $2,400 | $120 |
| Total | $950 | $11,400 | $570 |
As you can see, with monthly spending of $950 across these three categories, you could earn $570 back in a year! That’s free money you can use for anything.
What purchases qualify for 5% cash back?
Credit cards don’t offer 5% cash back on all your spending. These high rates are reserved for specific spending categories that rotate each quarter.
Here are some common categories that may qualify for 5% cash back:
- Groceries
- Gas stations
- Dining at restaurants
- Travel purchases
- Online shopping
- Drugstore purchases
- Home improvement stores
There is often a quarterly or annual cap on the rewards you can earn, commonly $1,500 to $2,000 per quarter. The spending categories and caps vary among credit card issuers.
How you can earn and use cash back
Here are some key things to know about how cash back rewards work:
- Rewards are earned as a statement credit or points you can redeem for cash.
- Most cash back is earned on purchases, not balance transfers or cash advances.
- You need to pay your balance in full each month to earn rewards.
- Rewards can be redeemed for cash back, gift cards, travel, or other options.
- Some cards offer a signup bonus of $200+ cash back after meeting spending requirements.
Cash back rewards are easy to earn and provide great value. A 5% cash back credit card can help you earn hundreds of dollars per year in rewards on your normal spending.
Maximizing a 5% cash back credit card
Here are some tips to maximize value from a 5% cash back credit card:
- Focus spending on rotating 5% categories each quarter
- Use the card for big purchases in those categories, like grocery and gas
- Pay your balance off in full each month
- Check for bonus category promotions like 10% back at Amazon
- Combine with other rewards cards for daily spending
- Use online shopping portals to earn extra bonus cashback
- Redeem your rewards for maximum value, like travel
You can optimize a 5% cash back card by tracking bonus categories, aiming spending at those merchants, and redeeming rewards strategically. This takes a bit of effort but can add up to hundreds of dollars in rewards.
Common 5% cash back credit cards
Here are some popular credit cards offering 5% cash back:
- Chase Freedom Flex – 5% back in rotating categories, $200 signup bonus
- Chase Freedom Unlimited – 5% back on travel booked through Chase, 3% back on dining and drugstores
- Citi Custom Cash Card – 5% back automatically in top eligible spending category each month
- U.S. Bank Cash+ Visa Signature Card – 5% back in two categories you choose each quarter
- Bank of America Cash Rewards credit card – 3% back on one category, 2% at grocery stores
Cash back credit cards offer a simple and automatic way to earn money back on your spending. Aim for cards that offer 5% back in categories where you spend the most.
Conclusion
A 5% cash back credit card can earn you hundreds of dollars per year in rewards with no extra effort. Look for cards that offer bonus categories that match your spending profile and remember to pay your balance off each month. With a strong cash back card strategy, you can offset some of your everyday expenses with rewards.