3 Little Known Disadvantages of Cash Back Credit Cards
Cash-back credit cards are a popular choice. It’s actually the most popular. More than half (56%) of Americans have at least one cash-back card, according to credit card research from The Motley Fool Ascent. This is more than any other type of credit card.
That makes sense, because there’s a lot to like about cashback cards. This saves you money and is very easy to use. However, there are also some disadvantages that are not often discussed. If you’re thinking about opening a new credit card, knowing these issues will help you make the right choice.
1. Bonus categories are often limited.
Many cash back cards have bonus categories that can earn you more than the regular rate. Bonus rates typically range from 2% to 6% depending on the card. Here are some examples of bonus categories that some cards offer:
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The problem is that bonus categories are often limited. For example, the card allows you to earn bonus cash back on groceries, but only up to $6,000 in annual spending. After that, only regular fares will be credited. Other common limits include $500 per month or $1,500 to $2,500 per quarter.
If you’re interested in a card with a bonus category, check to see if there’s a limit to the bonus cashback you can earn. Make sure the limits are right for you. If that amount is too low, you may want to consider choosing a card that gives you unlimited 2% back on purchases.
Cashback cards are, on average, much cheaper than travel credit cards. Most of them are not annual fee cards. And even cash-back cards with annual fees typically cost less than $100 per year.
This is great if you don’t want to pay a lot on your credit card. However, this also means that cashback cards typically don’t offer many additional benefits, such as:
These are all features you’ll find in popular travel credit cards. If you don’t travel that much, you probably don’t need it. On the other hand, if you like to travel, you might be better off buying a travel card rather than a cashback card.
3. Some of them have a minimum repayment amount.
Not all card issuers make cashback redemption that easy. Some of them allow you to redeem your cashback only if you meet a minimum redemption amount. Typically, the minimum is between $5 and $25 for cards that have it. Other credit cards don’t have this feature, so you can spend any amount you want, including as little as $0.01, at any time.
The redemption minimum is disappointing because you have to wait to redeem the cashback. If you stop using your card and don’t earn enough to meet the minimum, your cash back may remain unused.
If you really like the card, this doesn’t have to be a dealbreaker, but check to see if there’s a minimum repayment amount so you know what to expect. And if you’re not sure which card to choose, a good way to solve the problem is to find out which card will make it easiest to redeem your cash back.
Almost all credit cards have drawbacks, so none of these are a reason to completely rule out a cash back card. Keep them in mind when looking for new cards. Then they won’t scare you.
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