Rule of Thumb for Earning Cash-Back Rewards

Maximize rewards to get the most out of your credit card

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It’s tough to choose one cash-back credit card amid all the dazzling reward programs offered. But one simple rule of thumb can help you keep it simple: Aim for a card that pays at least 1.5% cash back on every purchase, and pay off your balance every month. This provides a good baseline, and if you want to fancy it up with another card that offers higher-tier rewards on other categories, you can. 

But this rule of thumb doesn’t apply to all people. Learn more about how to use this rule of thumb and its limitations.

Key Takeaways

  • Aim for a cash-back card that offers at least 1.5% on all purchases.
  • Pay off your balance every month.
  • You can add other cards that offer higher bonuses in certain categories, but keep in mind this increases your workload because you’ll need to manage multiple credit cards. 
  • You’ll generally need a good or excellent credit score to get approved for a good cash-back credit card.

What Is the Rule of Thumb for Earning Cash-Back Rewards? 

Using a rule of thumb for cash-back rewards can help you maximize the value of your credit card, while preventing you from piling up debt.

Choose a Card That Earns at Least 1.5% on All Purchases

Cash-back cards generally fall into two categories: 

  • Flat-rate cash-back cards: One cash-back percentage for all purchases. 
  • Bonus category cards: A base cash-back rate with higher cash-back percentages in certain categories like groceries, restaurants, or gas (e.g., 3% back on groceries, 2% on gas, and 1% on all other purchases)

Given these two options, the rule of thumb is to choose a flat-rate cash-back card with the highest percentage back that you can find in a card that you’re likely to qualify for based on your credit. 

Most flat-rate cash-back cards offering 1.5% rewards require good or excellent credit. 

Aiming for a flat-rate card that offers 1.5% cash back is a good rule of thumb. Several of the major card issuers have such cards (the Capital One Quicksilver and the Wells Fargo Cash Wise card are two examples). However, it’s also possible to find flat-rate cards with even higher cash-back rates. For example, the Citi Double Cash Card offers 2% cash back on all purchases: 1% when you make a purchase and 1% when you pay it back. 

Always Pay Off Your Entire Balance Each Month

Part of the cash-back rule of thumb is another rule that goes for using any kind of credit card, it’s this: Always pay off your balance in full each month. 

If you do, you’ll avoid interest and using your card will be fee-free if there is no annual fee and you don’t make late payments. Should you carry a balance and owe interest, what you pay could easily exceed what you earn in cash back. 

The average American carried $5,313 of credit card debt in 2020, according to the credit monitoring service Experian. Meanwhile, according to our analysis of credit card terms, the average interest rate at the end of the year was 20.28%. At that APR with that balance, you’d pay around $1,195 in interest in one year, which exceeds the $375 in cash back that we estimate you could earn with a 1.5% cash-back rate.

Credit card rewards often spur you on to buy more than you need, and that’s how a lot of people end up in debt. 

If you make it a personal rule to always pay off your balance, it’ll never creep up beyond what you can pay. You’ll get all of the benefits of credit card rewards without any of the downsides of debt. 

Pair Your Base Card With a Bonus Category Card … If You Want

Choosing the highest flat-rate rewards card you can find gives you a good base for all of your spending. But another rule of thumb for rewards cards is to pair your base card with a card that offers an even higher rate of cash back on bonus categories like takeout, travel, groceries, and other categories. You’ll earn the best of both worlds: high cash-back rewards on specific purchases, and a solid flat rate on all other purchases. 

Most bonus-category cards offer a low cash-back flat rate on all non-bonus-category purchases—typically 1%—but that’s less than most flat-rate cards, which offer 1.5% or 2% cash back. So let's go back to our example card that earns 3% on groceries, 2% on gas, and 1% on everything else. You could use that card for groceries and gas, and use a 1.5% flat-rate card for everything else.

It’s important to keep in mind that this rule of thumb is optional, though. You don’t have to get a bonus-category card. If you do, you’ll need to manage two (or more) cards instead of one. If that means you’re less likely to pay off all your charges each month, it’s not worth it

Grain of Salt

Keep in mind that you’ll need good or excellent credit to qualify for the best cash-back credit cards. If your credit could use some work, it might be a better idea to work on improving your credit first, because this will help you in other areas of your financial life, too. 

Many people also use travel rewards cards to earn points or miles to pay for trips. While you can use cash from a cash-back card to finance your travel, choosing a dedicated travel card can help earmark those rewards so you’re not tempted to spend them on other things. And your travel points may be worth a little bit more than cash back when redeemed for flights or hotel stays. In that case, choosing a travel rewards card might be best for you, even if the rewards aren’t as flexible as plain old cash back.