Quick Wins: The Straightforward Arithmetic of Big Cash Back Credit Card Rewards

When it comes to credit card rewards, it doesn’t take long to see how valuable they can be in the long run. This is especially true for cash-back credit cards, which offer a percentage of every purchase back to you as a cash reward. 

While travel credit cards can require some heavy math lifting to figure out exactly what you can do with your points, this is not at all the case with cash back credit cards. It doesn’t matter if it’s 2% or 5% rewards, as there is a very easy way to calculate what you will receive at the end of every month. 

Why Cash Back Cards Are Better

There is no question that cash-back credit cards have become increasingly popular in recent years. Due to a flurry of different options with varying benefits, consumers have far more choices than ever. The good news is that more cards mean more competition, which forces credit card issuers to get creative with rewards. 

This means that in addition to the cashback rewards, you’ll also get things like extended warranties, purchase protection, no annual fees, car rental protection, no foreign transaction fees, and so much more. Of course, the biggest question of all isn’t what kind of protection you’ll have, but exactly how much you can earn with a cash back credit card. 

Doing the Math 

In simple terms, the best way to look at how much cash you will earn is to multiply the purchase amount by the cash back rate, which is expressed as a decimal. In other words, if you spend $100 and have a credit card that earns 1.5% cash back, you’ll have made $1.50 on this purchase. 

Now, consider the same scenario with $1,000 in purchases at 1.5%, which is equivalent to $15 for every $1,000 spent. The same goes for 2% cash back cards, where you will have earned $20 for every $1,000 spent. If you only earn 1%, it’s the very same principle in which you will have only earned $10. 

This can go on and on for the course of a month or a year, as most cash-back rewards never expire. With rare exceptions, there are no limits to how much cash back you can earn or how quickly you need to spend it. 

The only real caveat is that some credit cards offer rotating category bonuses at 5%. In this case, companies like Discover, US Bank, and Chase all limit cash back rewards to between $1,500 and $2,000 per quarter. There are still no limitations on purchases, but in the quarterly bonus categories, you do have a limit on how much you can earn. 

Quick Example

Let’s say you are someone who wisely uses their cash back credit cards for points every year to purchase holiday gifts using these points. Trust me, I know someone who does exactly this. Spoiler: it’s me. 

If this is also you and you have a 2% Fidelity card that earns a flat rate no matter what you purchase, here’s what you can earn. Let’s say you put just about everything on a credit card except for your mortgage, car payments, and a few other expenses. 

Given this, you might be charging $3,000 or more monthly for utility bills, dining out, groceries, miscellaneous expenses, etc. On a 2% credit card, you earn $60 monthly in rewards for 12 months. This gives you $720 in cash back for the whole year just on this card, which you can then spend on anything. 

Using the same math, if you had a card that earns 1.5%, you would have earned $540 for the whole year. No matter which amount you end up with, you have plenty of money available at the end of the year for gifts, presents, or a little extra money to help you kick off your New Year’s Resolution. 

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