How To Choose A Cash Back Credit Card – Forbes Advisor Canada

Earning cash back with credit cards for purchases you’d make anyway can be very rewarding. Even so, you should watch out for these common pitfalls when looking for the perfect cash back credit card for you.

Each Cash Back Program Has Different Rules

First, look into the credit card’s rewards program before you apply for the card. Each rewards program works in different ways. Some programs require you to accumulate a certain amount of cash back before you can redeem it, such as $25.

If you only spend $500 per month on a credit card that offers 1.5% cash back and requires a $25 minimum redemption amount, it’d take a little over three months to earn enough cash back to redeem it for the first time. Other cash back credit cards allow you to redeem at any amount earned.

Next, make sure you understand your redemption options. Cash back redemption options are often straightforward. However, some cards require you to redeem your cash back in a specific manner to get the most value.

Certain cards may only allow you to redeem your cash back once per year. The Simplii Financial Cash Back Visa Card distributes the cash back you earn annually, as a credit on the cardholder’s January statement.

Watch Out for Annual Fees (But Paying One May Be Worth It)

Finally, some cash back credit cards come with annual fees. These cards often offer higher cash back rates. You need to run the numbers to verify the additional rewards you earn more than offset the annual fee.

For instance, the CIBC Dividend Visa Infinite offers the following rewards: 4% cash back on gas and groceries (up to $20,000 per year or up to $80,000 in annual net credit card purchases for each), 2% cash back on dining, transportation and recurring bills (with the same limit as above) and 1% back on all other purchases with no limit. The card also comes with a $120 annual fee, which is waived the first year. Overall, we calculated you can earn $537.50 with this card, factoring in the $120 annual fee, based on average Canadian spending. 

It’s more basic version, the CIBC Dividend Visa, charges no annual fee, but offers lower earn rates (as well as fewer perks). The card offers the following rewards: 2% cash back on groceries, and 1% cash back on gas, dining, transportation and recurring bills (up to $20,000 per year or up to $80,000 in annual net credit card purchases for each listed category). Beyond that, this card earns 0.5% back on all other purchases with no limit. Overall, we calculated that, based on the same spending, this card would only earn $295.14 in a given year.

In this case, it makes more sense to pay for the card with an annual fee. However, there are instances where the cash back earnings do not outweigh the card’s annual fee and you could end up in the red.

How To Pick the Best Cash Back Card for You

The best cash back credit card depends on your specific spending patterns. For those getting started with cash back, a no-annual-fee card with a flat rate, such as the SimplyCash Card by American Express, offers a great way to begin. You don’t have to remember to activate rotating categories or keep track of category spending limits.

Once you feel comfortable with cash back credit cards, you’ll need to take a close look at your regular spending. Then, find a credit card that offers the highest total cash back for all of your purchases.

Those that spend heavily on groceries and gas but very little in other categories may earn more cash back with the CIBC Dividend Visa Infinite (details above) or the BMO CashBack World Mastercard. This card will earn 5% cash back at grocery stores and 3% on gas. If you prefer to dine out or hit the town, you might benefit from a card like the Simplii Financial Cash Back Visa, which earns 4% on restaurants, bars and at coffee shops.