Between flat rate credit cards with cash back – the ones that give you the same rate of rewards regardless of what you buy with them – 1.5% return with no annual fee is the very least you have to settle for.
Many of the major issuers have cards that get a fixed 1.5% refund, including American Express, Capital One, US Bank, and Wells Fargo.
If you avoid interest charges by paying your bill in full each month, these cards can earn you hundreds of dollars a year in rewards.
How we got to 1.5%
All the big credit card trends start with one issuer. If the feature is a hit with cardholders, other issuers will introduce it as well.
“Everyone gets on the bandwagon,” says Tiffani Montez, a senior analyst at banking consultancy Aite Group. “But then as things progress again, everything starts to flatten out and it becomes a new normal of what is acceptable for cash reimbursement. Later [issuers] look for a new source of differentiation, such as frictionless credit monitoring and reward redemption. “
“Everyone jumps on the bandwagon … and it becomes a new normal for what is acceptable for cash back.“
Tiffani montez, Senior Analyst, Aite Group
It was an offer that launched a large number of flat rate cards. Over the next three years, other major issuers followed suit, giving us the Citi® Double Cash Card – 18 Month BT Offer, the Barclaycard CashForward ™ World Mastercard®, the Wells Fargo Cash Wise Visa® Card and the US Bank Cash 365 American Express. These cards were differentiated by their sign-up bonuses, 0% APR periods, and redemption options. But except for the Citi® Double Cash Card – 18 Month BT Offer, who pay a higher reward rate, all made the same basic speech to consumers.
It’s not much different from what happened 30 years ago when cards started advertising “up to 1% back.”
In 1986, Sears introduced the first Discover card. He paid rewards of “up to 1% cash back,” a more generous offer than any other card at the time. But the program was complicated. It gave users:
0.25% cash back on the first $ 1,000 spent.
0.5% cash back on the next $ 1,000.
0.75% cash back on the next $ 1,000 after that.
1% on any expense over $ 3,000.
The card was successful and other issuers piled on their own free cash back cards. Reward rates increased from “up to 1%” to “up to 2%”. And they added limits that limited how much cardholders could earn.
These cards no longer exist. The 1.5% cards have taken their place, far above what was considered “good” in the 1990s, without the complicated systems of graduated cash-back rates and annual reward limits.
By combining 1.5% cards with modern tier cards, which offer cash back rates of 3%, 5% or more in certain categories and 1% in everything else, you can increase your combined cash back rate by above 1.5%. But without decades of fierce competition between issuers, these cards may not have existed.
“It always takes one person to push it a little higher, and eventually, the rest will follow suit,” says Montez.
Whats Next? Maybe not a 2% standard
Whenever you see multiple credit cards making identical offers (1.5% cash back and no annual fee, for example), you know something is about to change. But it’s hard to predict what that something might be.
“Yes, there are 2% cash back cards, but they are rare and have not set a new standard. At least not yet.“
Based on cash back rates over the past few decades, you might think the next trend is a 2% cash back. And we’ve seen cards that offer something similar, including the Citi® Double Cash Card – 18 Month BT Offer. The Fidelity Rewards Signature Visa it also offers you a 2% reward rate if you deposit your winnings into your Fidelity account; not a traditional cash back, but close enough.
A credit union even offers a card with a yield of more than 2%. The Alliant Cashback Visa® Signature Credit Card offers a 2.5% cash back on spending up to $ 10,000 on eligible purchases per billing cycle, though it charges an annual fee.
Still, these 2% cash back cards are rare and haven’t set a new standard. At least not yet.
Choosing a Fixed Rate Cash Back Credit Card
As long as issuers stick with the 1.5% reward rate, here’s how you can get the best deal:
Prioritize long-term value. Cards that pay 1.5% are great. But if you can qualify for a more generous card, go for that one.
If it’s a tie, think short term. If you can’t get a free card that offers more than 1.5%, use the additional features of the cards as a tiebreaker. Planning to renew a balance for a few months? Find a card with a good 0% APR period. Are you traveling abroad? Go with one that does not charge foreign transaction fees. Otherwise, choose the card with the largest sign-up bonus. If you pay your balance in full each month, the interest rates won’t make a difference.
Information related to Wells Fargo Cash Wise Visa® Card It has been compiled by NerdWallet and has not been reviewed or provided by the issuer or provider of this product or service.