A look at 5% cash back credit cards that pay 5% rebates on certain purchases
5% Cash Back Credit Cards
Maximize your cash rebates with 5% Cash Back Credit Cards
In this article, we look at the popularity of so-called 5% cash back credit cards and what the fuzz is all about with these cards.
The 5% cash back credit cards are one of the most popular type of credit cards, be it cash rebate or reward credit cards. The reason is simple : you get 5% cash rebates for spending on certain category of items.
Definition of "everyday purchase"
American Express first came up with this term in their green and gold charge cards. They defined it as purchases made from standalone supermarkets, gas stations and drugstores. They paid a higher two points for every dollar you spend on these items rather than the usual one point. Some credit card issuers also include standalone home improvement stores as well in this definition.
However, one has to be careful about the precise definition of "everyday purchases". They are defined as purchases from standalone supermarket, gas stations and drugstores. If you read the terms and conditions of all 5% cash back credit cards, you will find that the definition excludes discount stores and retailers, wholesalers. Hence, you will have to shop at a "regular" supermarket and gas stations.
The 5% cash back credit card came about when Citibank started the Citi Dividend Platinum Select Card. This card pays 5% rebates for every dollar you spend on "everyday purchases". You get a 1% rebate for 'other purchases". For a long time, they were the only 5% cash rebate credit card and probably one of the most popular credit cards. In July 2005, Chase introduced a similar card called the Chase Cash Plus Rewards Visa, which also pays 5% rebates on 'everyday purchases". However, Chase has recently stopped offering this card and more recently, Citi has also discontinued the Citi Dividend Platinum Select Card.
Limits on rebates
The above mentioned 5% cash back credit cards impose a limit on the amount of rebates you can earn. The Citi Dividend Platinum Select Card limit that to $300 a year. The Blue Cash allows you to earn rebates of up to $50,000 in annual spending. The reason for this cap is simple. All cash rebate credit cards these days do not charge any annual fee at all. Though these card offer perhaps the best value for consumers, they are less profitable for credit card issuers (because they have to pay out 5% rebates), especially compared to an airline credit card for example, that charges an annual fee. Credit card companies only really money if you carry a balance on these 5% cash rebate cards.
Other types of 5% cash back credit cards
Tiered 5% cash rebate cards - Another card that pays 5% rebates on "everyday purchases" is the Blue Cash® from American Express. You also get a 1.5% rebate for other "other purchases". However, you need to spend $6,500 from the beginning of your "calendar year" before you earn these rebates. Before that, you earn 1% and 0.5% respectively. Hence, the tiered formula. However, this card allows you to earn unlimited rebates. Given that both the Chase Cash Plus Rewards and Citi Dividend Platinum Select Card has been discontinued, the Blue Cash® from American Express is the card we recommend. Aside from the cards mentioned above that pay 5% rebates on "everday purchases", there are other type of credit cards that pay 5% rebates as well. Some gas credit cards pay as rebates as high as 5% when you use your card as their gas stations.
Discover® Platinum Card also allow cardholders to earn 5% rebates, but only when they make purchases from specific merchant partners. These merchant partners are part of the GET MORE MERCHANTS network. They are in only credit card that pays 5% rebates for purchases at regular merchants (they do have to be part of the network).
We have just gone through the characteristics of a typical 5% cash back credit card and other types of credit cards that paid 5% rebates. Those who want to earn cash rebates from their credit card should definitely consider any of these cards as 5% is a good rebate number. Most reward credit cards (when you do the math) pay only 1% to 2% rebates. Personally, I'd take cash anytime over reward points. And when it comes down to it, the higher the rebate, the better. At present 5% seems to be the maximum that credit card issuers are willing to give back to consumers. If you are looking for a cash rebate credit card, do not settle for anything less than 5%.