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While cash-back offers sound enticing, under the surface often lies a host of disclaimers, restrictions and requirements. The most common red flags to watch for are the following:
A limit on the reward. Most rebate cards have a limit on how much cash you can earn, with most offering 0.85 to 2 percent cash back on purchases. For example, the Fifth Third Bank MasterCard rewards 1 percent of each dollar (a penny) that a cardholder spends, up to $500 per year — meaning you would have to spend $50,000 to receive $500 cash back.
A tiered formula. Many cards have a tiered formula — the more you spend, the more cash back you earn. With the Discover Card, you earn 0.25 percent for the first $1,500 you charge per year, which is equal to $3.75. However, the reward increases to 0.50 percent for charges above $1,500, but below $3,000, and moves up to 1 percent for charges over $3,000.
The bigger the balance, the bigger the "reward." Many cash-back cards require users to carry a balance, and unfortunately, for the 48 percent of Americans who carry a balance on their credit cards, the lure of getting more money back can be a dangerous incentive to spend more than they can afford. For example, to get 5 percent cash back with an American Express card, you must carry a balance.
Rewards With a Twist
In an effort to entice new customers to sign up for rewards cards, many card companies are moving away from common rewards such as airline miles and cash, instead offering customers unique experiences and products in exchange for their spending.
