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As credit card issuers compete for your business, many cash-back rates have risen above 1%. Today, there are cards that offer a whopping 5% cash back in rotating categories, allowing savvy spenders to maximize their earnings.
Of course, there's a bit of a catch. In order to earn 5% cash back, you have to manually activate the offer each quarter, and there's a limit to how many points you can earn.
Ahead, CNBC Select breaks down how these cards work, how to maximize your rewards, and look at three of the most popular 5% cash-backs cards out there, so you can determine if one is right for your spending needs.
Each quarter, there are new bonus categories, like gas or groceries, that earn 5% cash back, up to a quarterly maximum (typically $1,500). Once you hit the cap, you earn 1% cash back on the rest of your spending.
These categories are typically pre-selected by the card issuer and released up to a year in advance via an annual cash-back calendar.
You have to activate each quarter's bonus categories in order to get the 5% cash back. This can be done online by using your card issuer's mobile app or over the phone. If you don't activate, all purchases will earn 1% cash back.
If the bonus categories are in line with your spending, it can be smart to take advantage of a 5% cash-back card. The bonus rewards you earn during those periods could outweigh what you'd get using a flat-rate card that only earns 1% to 2% cash-back year-round.
While a 5% cash-back card can be beneficial on its own, you can earn even more by pairing it with a flat-rate cash-back card.
For example, for everyday purchases you could use the Citi® Double Cash Card, one of CNBC Select's top choices for best cash-back cards, which earns an effective 2% cash back: 1% when you buy and 1% when you pay for purchases. Then, you could use a 5% cash-back card, like Discover it® Cash Back or Chase Freedom®, for bonus category purchases.
Here are three popular 5% cash-back cards and their bonus categories, to help you decide which card might be right for your lifestyle:
Discover offers four different credit cards that can earn 5% cash back on eligible purchases, up to a $1,500 quarterly maximum (then 1% cash back). Consumers can choose from the following cards: Discover it® Cash Back, Discover it® Student Cash Back, NHL® Discover it® and Discover it® Balance Transfer.
Discover typically releases the full cash-back calendar in December ahead of the new year. This allows cardholders to plan spending months in advance.
These is the Discover cash-back calendar for 2020:
If you maximize your spending in these categories, you could earn $75 cash back each quarter on top of the 1% cash back you earn in all the other categories. Bonus category purchases that exceed the $1,500 quarterly maximum, as well as all other purchases, earn 1% cash back.
Cardholders who use the Chase Freedom® credit card earn 5% cash back on up to $1,500 across all of that quarter's categories.
Bonus categories are revealed each quarter, so there's always something new to explore. This may be a setback for consumers who like to plan out their spending, but the 2019 cash-back calendar can provide insight into the bonus categories you might expect as you plan for 2020.
Here is the Chase Freedom cash-back calendar for 2020:
*Eligible streaming services include: Disney+, Netflix, Hulu, Sling, Vudu, Fubo TV, Apple Music, SiriusXM, Pandora, Spotify, YouTube TV, Google Play and ESPN+.
Bonus category purchases that exceed the $1,500 quarterly maximum, as well as all other purchases, earn 1% cash back. If you maximize your spending in these categories, you could earn $75 cash back each quarter on top of the 1% cash back you earn in all the other categories.
The U.S. Bank Cash+™ Visa Signature® Card is a flexible 5% cash-back card that lets you choose two categories each quarter to earn 5% cash back on up to your first $2,000 in combined eligible purchases. This is a helpful feature for consumers who want control over the bonus categories.
You can select two of these 5% cash-back categories:
You also can choose one of three categories to earn an unlimited 2% cash back: grocery stores, gas stations or restaurants. Bonus categories need to be selected every quarter, even if you want to keep the same selections.
All other purchases earn a standard 1% cash back.
If you maximize your spending in your chosen 5% rewards categories, you could potentially earn $100 cash back each quarter on top of the unlimited 2% cash back you earn on either grocery store, gas station or restaurant spending plus 1% in all the other categories.
If you are looking to maximize rewards, a 5% cash-back card can be a great asset. Oftentimes, they have standard interest rates and no annual fee.
However, these rotating category cards aren't for everyone. Trying to optimize your usage can be a lot of work, and many people don't want the hassle.
Further, because these cards typically have spending limits on their 5% back categories, you can often earn more in total cash-back rewards with a flat-rate cash-back credit card. With these cards, all purchases earn the same amount and you don't have to worry about rotating bonus categories, activation or quarterly caps.
For example, the Discover it® credit cards offer 5% cash back on select purchases in rotating categories upon activation, up to $1,500 in combined spending each quarter (then 1%), while CNBC Select's top pick for cash-back card, the Alliant Cashback Visa® Signature Credit Card, offers 2.5% cash back on all purchases (up to $250 in cash back rewards per billing cycle). It does have a $99 annual fee, which is waived the first year.
Based on our calculations, Discover it® cardholders would earn an estimated average of $696 in cash back after the first year, while Alliant Cashback Visa® Signature Credit Card users could earn $546. The savings grow the longer you use the cards: Discover it® cardholders would earn an estimated $2,088 in cash back after five years, while Alliant Cashback Visa® Signature Credit Card users could earn up to $2,335.
At the end of the day, the best cash-back card for you is the one that fits your spending habits and allows you to maximize desired rewards.
Information about the U.S. Bank Cash+™ Visa Signature® Card, Discover cards, Chase Freedom® and Alliant Cashback Visa® Signature has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.