Guide to 5% cash back credit cards
Quick insights
- A 5% cash back credit card allows you to earn one of the highest cash back rates available, but it may come with category restrictions and spending limits.
- These cards may be a good option for disciplined spenders who pay off their balance in full each month to avoid interest charges.
- To maximize rewards, make sure to pay off your balance in full each month and avoid overspending to prevent high-interest charges and fees.
If you’re searching for a credit card that puts money back in your pocket, a 5% cash back credit card could be a game-changer. These credit cards offer some of the highest reward rates available, with the opportunity to earn 5% back on select purchases. The categories typically rotate throughout the year (such as grocery stores, gas stations and dining). With smart and intentional spending, you can turn everyday purchases and retail purchases into savings. This type of card could be a great choice for anyone looking to get the most value from their credit card.
What is a 5% cash back credit card?
A 5% cash back credit card is a type of rewards credit card that offers 5% cash back on purchases in specific categories. Some cards have fixed bonus categories, such as gas stations or grocery stores, while others feature rotating categories that usually change every quarter.
Generally, there’s a cap on how much you can earn at the 5% rate each quarter, after which purchases may earn a lower base rate–often 1% or 1.5%. These credit cards can be a way to maximize rewards, but they may require activation and strategic spending to get the most out of their benefits.
Different types of credit cards
Credit cards come in various types, each designed to suit different spending habits and financial goals. Here are some of the most common types of credit cards:
- Cash back cards: Earn a percentage of your purchases back as cash rewards, either at a flat rate or in bonus categories.
- Rewards cards: Earn points or miles on purchases, redeemable for travel, gift cards or statement credits.
- Travel cards: Designed for frequent travelers, travel rewards credit cards may offer perks like airline miles, hotel rewards and no foreign transaction fees.
- Business cards: Tailored for business expenses, these cards offer rewards on office supplies, travel and higher spending limits.
Common credit card reward program benefits
Many rewards and cash back credit cards offer bonus earnings in specific spending categories. Here are some popular ones:
- Dining and take out: Earn extra rewards at restaurants, cafes and food delivery services.
- Grocery stores and supermarkets: Get cash back or points when shopping for household essentials.
- Gas and commuting: Save on fuel, public transportation, rideshares and tolls.
- Travel and hotels: Earn rewards on flights, hotels, rental cars and vacation packages.
- Entertainment and streaming: Get bonuses for concerts, movie theaters, amusement parks and streaming subscriptions.
- Retail and online shopping: Maximize rewards when shopping at department stores, e-commerce sites and specialty retailers.
- Health and wellness: Earn points on gym memberships, fitness equipment and medical expenses like prescriptions.
Benefits of 5% cash back credit cards
A 5% cash back credit card can help you maximize credit card rewards on your everyday spending, allowing you to earn cash back in select categories. Here are some of the potential benefits of using this card:
- High earning potential: Earn 5% cash back on select purchases, which is one of the highest reward rates available.
- Great for day-to-day expenses: Some credit cards offer 5% back on common spending categories like dining, gas, grocery stores or online retailers.
- Rotating bonus categories: Some cards provide quarterly bonus categories, keeping rewards fresh and aligned with seasonal spending.
- Additional perks: Some 5% cash back cards may come with extra benefits such as purchase protection, extended warranties and travel insurance.
- No annual fee options: Several 5% cash back cards have no annual fee, making them a cost-effective way to earn rewards.
Drawbacks of 5% cash back credit cards
While these credit cards offer excellent rewards, they may not be the best fit for everyone. Here are some potential downsides:
- Spending caps: Many cards limit the amount you can earn at the 5% rate each quarter, after which you earn a lower rate (typically 1%).
- Category restrictions: You may only earn 5% back in specific categories, which might not align with your spending habits.
- Activation requirements: Some cards require you to activate or opt in to bonus categories each quarter to earn the 5% rate.
- Lower base rewards rate: Purchases outside of the bonus categories usually earn just 1%, which is lower than some flat-rate cash back cards.
- Potential for overspending: The appeal of earning more cash back could lead to unnecessary spending just to maximize rewards.
- Higher credit score requirements and potential annual fees: Many 5% cash back cards have higher approval standards, requiring a good to excellent credit score (typically 670 or higher). Additionally, some cards with high cash back rewards may come with annual fees, which could reduce the overall value of the rewards if not carefully considered. Compare fees with the potential cash back earnings to determine if the card is beneficial for your spending habits.
The difference between 5x points credit cards and 5% cash back cards
When choosing a rewards credit card, you may see 5x points cards and 5% cash back cards–but these cards work differently. Understanding how cash back and points work can help you pick the best option for your spending habits.
Reward structure:
- 5x points cards: Earn points that can be redeemed for travel, gift cards, merchandise and potentially cash back.
- 5% cash back cards: Earn a percentage of your spending as cash back, typically credited to your statement or bank account.
Redemption options:
- 5x point cards: Points can often be transferred to travel partners, used for flights or redeemed for gift cards. Some cards offer points that can also be redeemed for cash back.
- 5% cash back cards: Cash back is usually redeemed as a statement credit, direct deposit or sometimes gift cards.
Value of rewards:
- 5x point cards: Points may be worth more when redeemed for travel (for example, 5x points may translate to a 10% travel rebate). Note that this typically happens when redeeming through a specific issuer or travel site.
- 5% cash back cards: A straightforward 5% return on spending, with no need to track redemption values.
Earning potential:
- 5x points cards: This type of credit card is often limited to specific categories such as travel or dining and may require using a card issuer’s travel portal.
- 5% cash back cards: Typically rotate categories quarterly or require activation but offer a high return on everyday purchases.
Selecting the right 5% cash back credit card for you
When deciding which 5% cash back credit card is right for you, consider how and where you spend money. Not all credit cards offer the same rewards structure, so it’s important to find one that aligns with your financial habits.
- Assess your spending habits: Look at where you spend the most. If you frequently shop at grocery stores or dine out, a card that offers 5% cash back in these categories can help maximize your rewards. For example, if you spend $500 a month on groceries, a 5% cash back card could earn you $25 per month ($300 per year).
- Consider your financial behavior: Think about whether you pay off your balance in full each month. If you carry a balance, a lower-interest card may be better than chasing cash back.
- Look at the card's other features: Some 5% cash back cards come with added perks like purchase protection, extended warranties or travel insurance.
- Think about your long-term needs: Consider whether the card’s categories align with your lifestyle. Some cards rotate categories, while others may offer fixed 5% cash back on specific purchases.
In summary
When selecting a 5% cash back credit card, take into account where you spend the most, your financial habits and the card’s benefits. A card that rewards your everyday purchases can provide value, but compare options to ensure you can take full advantage of the rewards. Take the time to explore different cards and choose one that fits your lifestyle for the best long-term benefits.
