It's hard to turn down cash.
That reality explains why half of adults in the U.S. have at least one credit card that offers cash back — compared with just 1 in 5 people who have a travel rewards card, according to Creditcards.com.
"Even with a strong economy and low unemployment, life is expensive," said Ted Rossman, an industry analyst at Creditcards.com. "Cash-back credit cards help defray some costs." At the same time, he added, as other types of perks such as airline and hotel rewards grow more complicated to navigate, more people are opting for the easier, cash-back option.
Why exactly are credit card issuers handing over cash? Above all, to get you to swipe your card more often. Every time you use your card, the bank earns a fee, typically around 2% of the purchase. And so banks are willing to share a little bit of that profit to get you to keep using its card. "Of course, credit card issuers make a lot of money through interest payments and other fees, as well," Rossman said.
To that point, people who carry a balance on their cards — which is about 60% of holders, according to the American Bankers Association — should stick to the sidelines of the rewards game, Rossman said. "The math just doesn't work — 2 percent cash back on a 17% interest rate is a losing proposition," he said.
The average interest rate today is almost 18% compared with 12% a decade ago, according to Creditcards.com. And the average household with credit card debt owes $5,700. If you earned 2% cash back on that balance, you'd pick up $114. However, if it took you 15 months to get out of that debt, you'd pay $698 in interest.
Cash-back reward programs vary. Some cards offer a "flat rate," which means you'll get, say, 2% cash back whether you buy a plane ticket to Paris or a refrigerator. Other issuers offer more points for certain purchases. For example, the American Express Blue Cash Everyday gives 3% cash back at supermarkets, 2% cash back at gas stations and 1% cash back on everything else.
To decide on the best card for you, "know thyself," said Matt Schulz, chief industry analyst at Comparecards.com.
"Ask yourself how you plan to use the card and what you want to get from it," Schulz said. "Once you've honestly answered those two questions, you'll be on the right path."
If you don't want to put much thought into racking up cash back rewards, a flat-rate card might be best, Rossman said.
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If you're willing to expend a little more effort, you might want to get a few cards, so you can alternate between them depending on your purchase to get the most money. "You could get one card that offers 6% back at grocery stores, another that gives 4% back at restaurants, another for 3% back on travel and so on," Rossman said.
Keep in mind that while cash-back rewards tend to be the simplest to redeem, travel rewards tend "to give the best bang for your buck," Rossman said.
You can typically opt to have the cash applied to a credit card, or deposited into your checking account. "Many card issuers also let you exchange your cash back for gift cards or merchandise," Rossman said.