Comparing flat-rate and bonus-category cash-back credit cards

Cash-back credit cards can be great. You know exactly what you’re getting in return every time you swipe your credit card: an almost instant bonus for your purchase and no need to worry about the valuation down the road (as you would with many travel rewards credit cards).

But even though cash-back credit cards are supposed to be the simpler option, there’s still some complexity.

This stems from the fact that cash-back credit cards tend to offer two different types of earnings — some earn a flat rate on every single purchase made, while others offer variable returns based on the category of the purchase.

There isn’t one type that’s universally better than the other, but instead, your spending habits — and potentially your personality — will dictate which one works best for you.

How do cash-back credit cards work?

As the name suggests, cash-back credit cards allow you to earn a certain percentage of cash back on the amount spent on your purchase. Cash back can be received in many ways — such as a check in the mail, a statement credit on your account or a deposit to your bank account. The cash can then be used for anything you wish — whether it offers you more savings or gives you a head start on the next large purchase you are looking to make.

With cash-back cards, you also know the exact amount you’re earning on every purchase you make. There are no surprises down the road, and with most — although not all — you can receive the cash back within a month or two of the purchase being made.

Related: 3 reasons why you want a cash-back credit card in your wallet

What are flat-rate cash-back credit cards?

With a flat-rate cash-back credit card, you’ll receive a fixed amount of cash back every time you make a purchase — regardless of the item purchased. Whether you are filling your tank up with gas or buying a toy at a big-box retailer, you’ll receive the same percent back.

Up until a few years ago, most credit cards offered 1% to 1.5% cash back, but it’s becoming more common to find 2% cash-back cards. This means for every dollar spent, you’ll receive 2 cents in return. For example, a $50 purchase will net you $1 cash back and a $100 purchase will put $2 back in your pocket. Even better, some of these cards have no annual fee.

For example, the Citi Double Cash® Card (see rates and fees) earns 2% cash back — broken down as 1% when you make a purchase and 1% when you pay off that purchase. There’s also no cap on the amount of cash back you can earn. This card allows you to not have to think twice when at the store — or making a purchase online. You’ll still earn 2% cash back with ease.

Related: A review of the Citi Double Cash Card

What are bonus-category cash-back credit cards?

Bonus-category cash-back credit cards allow you to earn more cash back on just select category purchases and then the normal earning rate on everything else you buy with the card. You’ll find that some cards offer fixed categories throughout the year, while others change monthly or quarterly.

There are even cards available that allow you to pick your own bonus category, allowing you to truly customize your cards to maximize your cash back.

Every card in this bucket offers different increased categories, so depending on your spending habits, you can get a card that works best for your purchases.

For example, if you find yourself with high grocery bills, you might enjoy the Blue Cash Preferred® Card from American Express. That is because this card earns 6% cash back on purchases at U.S. supermarkets (on up to $6,000 in purchases per calendar year, then 1% thereafter). This means you’re earning three times the amount you’d earn with a 2% cash-back card like the Citi Double Cash every time you go to the store.

Cash Back with Blue Cash Preferred is received in the form of Reward Dollars that can be redeemed as a statement credit or during checkout at Amazon.com.

This particular card includes a few other increased cash-back categories as well. You’ll also earn 6% back on U.S. streaming subscriptions and 3% cash back at U.S. gas stations and on transit purchases. However, on all other purchases that fall outside of these categories, you’ll only earn 1% cash back. Terms apply.

If you like the idea of picking your own categories for increased earning rates, the Bank of America® Customized Cash Rewards credit card allows you to select one category of your choice — gas and EV charging stations, online shopping (including cable, streaming, internet, and phone services), dining, travel, drugstores or home improvement and furnishings — where you’ll earn 3% cash back, and then you’ll earn 2% cash back at grocery stores and wholesale clubs (these earning rates apply on the first $2,500 in combined purchases per quarter). Then — on all other purchases, or after you hit the quarterly cap — you’ll earn 1% back.

The rotating bonus-category cards are also interesting, as they can allow you to earn 5% cash back on a variety of categories. For example, the Chase Freedom Flex® allows you to earn 5% back on up to $1,500 in combined purchases across bonus categories that change each quarter. The only issue is that these cards require you to pay more attention, and there are times when the bonus categories might not work with your current purchases.

Should you get a flat-rate or bonus-category card?

There are pros and cons to both, and the right answer depends on how and where you spend.

Flat-rate cards are by far the simpler method. There’s no worrying about which credit card to pull out of your wallet or remembering to activate a certain bonus. You’ll receive the exact same amount back, regardless of the category, without having to think twice while swiping. For those who want just one credit card — and a hassle-free approach to maximizing cash back — then a flat-rate card is the best way to go.

You’ll also find that many types of purchases don’t typically fall in an increased cash-back category, such as extracurricular activities for kids, ski lift tickets, specialty stores and utility bills, making them perfect opportunities to use a flat-rate credit card.

But, if you want to use the best credit card possible for every purchase you make — and truly maximize the cash back you earn — then a bonus-category credit card may be your best bet. This is because some credit cards offer significantly more cash back on those select category purchases than what you’d receive with a flat-rate cash-back card. In fact, you might even find yourself juggling a few different cards depending on where you spend the most.

Just be aware that if your goal is to maximize your purchases, you’ll need to be on top of your game.

Related: Cash back vs. travel rewards: How to choose a credit card

Our top picks for cash-back cards

While you can see our full roundup of best cash-back cards, we’ll list some of our top picks (including some that were mentioned above) below:

Bottom line

Since there’s no one best card that works for everyone, it’s great to see that there are plenty of options when it comes to cash-back credit cards. For those who want to take a “set it and forget it” approach, a flat-rate cash-back card will probably work best for you. However, those willing to manage a maximization strategy might prefer a bonus-category credit card.

Alternatively, you can combine a bonus-category card with a flat-rate card — using the bonus-category card on those purchases offering increased cash back and a flat-rate card on all other purchases.

Related: How to choose a cash-back credit card

For rates and fees of the Blue Cash Preferred Amex, click here.