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Should I get a cashback credit card?

Cash is king - but is a cashback credit card the best choice for you?

cashback credit cards

Choosing to get a credit card is an important financial decision. It is a great way to establish your credit, and a seriously convenient way to pay for things, for both goods and services - but of course comes with obligations, too.

There can be some downsides to having a credit card, like the annual fee some of them have or the interest rates charged. However, there are plenty of upsides as well, including rental car insurance, buyer protection, and fraud protection. Plus it’s hard to beat the convenience that a credit card offers by not having to carry all that cash around.

To encourage credit card use, and entice users, many credit card companies offer a benefit in the form of a reward, with the more you spend, the more of a reward the user gets. These perks come in many forms, with overwhelmingly the most common being cashback credit cards.

How do cashback credit cards work?

Cashback credit cards are actually really simple to understand, with each dollar spent on the card getting applied to the cashback bonus. Also, depending on the card, certain purchases in a category can increase the points further. For example,  double points when charging gasoline or on dining.

It's no wonder that cashback credit cards tend to be so popular - after all, “cash is king!”. And unlike travel points or gift cards (more on which below) it can truly be spent just about anywhere on any purchase.

Cashback cards typically provide this bonus at as low as 1% of the purchase, and higher percentage options are available if you look around. They can go as high as even 5% in the best cases.

Be sure to read the fine print as on some cards the bonus amount gets capped to a maximum amount, and then resets each quarter. Some folks think about a cashback card as getting a discount on each purchase, as opposed to another payment method that does not include a cashback benefit.

Cashback cards are available in three different versions. The first is the simplest, that gives a flat-rate back on purchases. The second is a tiered card with a base rate that increases to a higher rate once a spending threshold is reached. Finally, there are bonus category cards that give a higher cash back reward for certain categories of spending, and 1% on everything else.

Whichever one you choose, a cashback credit card is a great way to get money back on all your credit card purchases. To see which are the most attractive on the market right now, head to TechRadar's guide to the best cashback credit cards.

What other rewards are available?

But wait one moment...before applying for that cashback credit card, you may prefer to go for a card that offers a different type of perk.

You see, rewards can fall into a handful of categories and come from all the biggest providers - think the likes of Capital One, Bank of America, Wells Fargo and Chase credit cards.

The first most obvious example are travel benefits, which are points that can be applied for airline miles or hotel points. They are typically saved up, and applied for a free airline ticket, or an upgrade to first class when traveling. If you travel often, either for business or leisure, then you will get the most benefit from this type of card. Check out our guide to the best credit cards for travel to see which ones may fit you best.

Another reward offered is the option for gift cards. Again, purchases award the user a certain number of points, that can then get traded for a gift card. There is typically a selection of gift cards from a number of establishments, and the card member gets to choose which vendor to cash their points in for. Typically, a dollar of spending gets you a point, and eventually maybe 2,500 points gets traded for a $25 gift card. The problem is that you are limited to the credit card company’s list of gift card offerings, which can be limiting when you want something specific, such as a dinner at a non-chain restaurant.

Do I really need a credit card?

Before going ahead and getting hold of that new cashback credit card, it's well worth pausing and thinking about why you're actually getting it.

If it's to pay for a known big purchase on your horizon, or you intend to do all your spending on it to rack up the cashback before paying the balance promptly, then it's a terrific idea. You'll effectively get a discount on your purchases.

But if you're getting it as a quasi-loan because you haven't really got the money to spend, then we'd seriously advise against getting it. The interest that credit card companies apply can be absolutely crippling and before you know it you could be in a real financial catastrophe.

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.