Last Updated on June 22, 2020 by Amanda Stancati

By RateHub.ca

There are many different types of of credit cards to choose from. Travel rewards credit cards are sometimes a good option but the rewards programs are often complicated or have a number of restrictions. But cash-back credit cards are simple and easy to understand because you get back a certain percentage on every purchase you make.

The benefits

With some credit cards, you’re limited to how you can redeem the points you earn. For example, some travel rewards cards will force you to only use one airline or a specific hotel chain, which can limit your options. There may also be blackout periods or seat restrictions. Cash-back cards are more flexible and you can use the money you earn to pay for travel, merchandise, or help pay off your balance. The possibilities are endless.

Here are some things you should keep in mind when choosing a cash-back credit card:

Returns—The return on a cash-back card is probably the most important feature of all. Many cash-back cards provide a minimum return of 1% (in other words, you earn $1 in cash for every $100 you spend). But some cards will offer better rates if you spend more at certain types of retailers.

Extra rewards on certain spending categories—If you spend more at the grocery or drug store, some cards will give you a better rate of return. You can often get two to four times more cash back in some cases.

No-fee options—While many travel rewards cards have a hefty annual fee, there are some cash-back cards with no annual fee. Cards with fees will usually provide you with a higher percentage of cash back.

Bonuses—When you sign up for most credit cards, you’ll get a reward. With a cash-back card, this will often be in the form of sign-up bonus, a higher return on spending for a short period of time, or a waived annual fee for the first year.

Limits—Some cards will allow you to earn cash back up to a certain threshold every year. If you don’t spend a lot, that’s not a problem. But if it is, you might want to consider a different card.

How to take advantage of cash-back cards

When you’re using a cash-back card, you should try and use your card on purchases that’ll earn you the best rate of return. Some cards will give you a higher return depending on the spending category.

For example, the Scotia Momentum Visa Infinite card allows you to earn 4% back on spending at gas stations and grocery stores (keep in mind that if you buy groceries at Walmart or Costco, they don’t count as grocery stores so your return rate won’t be as high). And the Tangerine Money-Back Credit Card allows you to earn 2% on two or three different cash-back categories.

If you have both cards, you could use the Scotia Momentum Visa Infinite card when you buy groceries and gas. And you should use the Tangerine Money-Back Credit Card when you go out for dinner or to the movies (we’ll assume you chose restaurants and entertainment as your cash-back categories). This kind of strategic spending will give you a better return and help you earn more cash back at a faster pace.

Choose the right card

There are a number of cash-back cards to choose from. If you can’t decide which one is best for you, we’ve narrowed it down to our two favourites:

Simply Cash Preferred Card from American Express

The Simply Cash Preferred Card from American Express has a low annual fee of $79 and provides an excellent rate of return for the first six months. You’ll earn 5% cash back on all purchases for the first six months (up to $400) on all purchases and 1.5% back thereafter. Once the six months are over, you’ll earn 1.5% cash back on the first $100,000 in annual spending. After you spend more than $100,000 annually, you’ll earn 1.25% on all other purchases.

Tangerine Money-Back Credit Card

This is also a great cash-back card and it has no annual fee. For the first three months, you’ll earn 4% cash back in different spending categories of your choice (for example, grocery, entertainment, drug stores, home improvement, and gas). After this introductory period is over, you’ll earn 2% back in the categories you’ve chosen. There are 10 different categories to choose from and you’ll get to choose two. But if you decide you want the cash back deposited into a Tangerine Savings Account, you’ll be allowed to choose three spending categories and earn 2% back in each. For all other purchases, you’ll earn 1% cash back.

The bottom line

If you find travel rewards cards are too restrictive or you don’t want to redeem your points towards a limited selection of merchandise, you can use a cash-back rewards card to help pay for travel or for your everyday purchases.

RateHub.ca is a website that compares mortgage rates, credit cards and deposit rates with the goal to empower Canadians to search smarter and save money.

Learn how to maximize the value of your travel rewards credit card – and when it’s worth paying cash for your trip:

How to Maximize the Value of Your Travel Rewards Credit Card