Cash back is the most legible reward structure available: a percentage of spending returned
as money, with no points to value or redemption schedule to decode. That clarity makes it easy to
compare, and easy to overestimate.
Work out your own effective rate
Headline rates are usually tiered — a higher percentage in selected categories, a lower one
everywhere else. Whether the headline applies to you depends on where your money actually goes.
Take a year of spending, split it by the card’s categories, apply each rate, and add the results.
Divide by total spending and you have your effective rate, which is often substantially below the
advertised figure.
Then check the conditions attached. Elevated rates may be capped per quarter, require
activation, or exclude categories that look like they should qualify. A cap in particular can
reduce a generous-looking rate to something unremarkable once your spending exceeds it.
Compare against the alternatives honestly
With an effective rate in hand, the comparison is straightforward: subtract any annual fee and
compare against a flat-rate card with no fee. Flat-rate cards frequently win for people whose
spending is spread evenly, because they require no attention and have no caps.
And the condition that governs everything: rewards are a percentage of spending, while
interest is a percentage of a balance at a much higher rate. Any month in which the statement is
not cleared in full erases more than a year of rewards on that amount. Cash back is a benefit for
people who already pay in full — for anyone else, the rate to shop for is the interest rate.
