Best 5% Cash Back Credit Cards of December 2020
Methodology: U.S. News reviewed hundreds of credit cards to identify those that offer 5% cash back, based on factors including rewards earning rate, rotating bonus categories, bonus spending limits, sign-up bonuses and annual fees.
Best Cards Summary
Chase Freedom Unlimited®
Why this is one of the best 5% cash back credit: Cardholders can earn 5% cash back on up to $12,000 in grocery store purchases (excluding Target and Walmart) the first year and 5% back on travel purchased through Chase. Add 1.5% cash back rewards and a variety of bonus categories, and this card is a solid earner.
Chase Sapphire Preferred® Card
Why this is one of the best 5% cash back credit cards: Chase Sapphire Preferred Card customers earn rewards for a variety of purchases, including five points per dollar on Lyft rides (valid through March 2022). Other earning categories include two points per dollar on travel and dining. There is a yearly fee of $95, but an appealing bonus may draw you in – 60,000 bonus points after spending $4,000 in the first three months.
Chase Freedom Flex℠
Why this is one of the best 5% cash back credit cards: If you’re looking for a rewards card with 5% cash back in rotating bonus categories each quarter you activate, this is a good choice. The card also offers 5% back on travel purchased through Chase, 3% at drugstores and restaurants, including takeout and delivery, and 1% on other purchases year-round.
Chase Sapphire Reserve®
Why this is one of the best 5% cash back credit cards: The Chase Sapphire Reserve is an elite travel card with a $550 annual fee. In addition to VIP benefits, cardholders earn 10 points per dollar on Lyft rides (valid through March 2022), three points per dollar on dining, three points on up to $1,000 in monthly grocery store purchases made from Nov 1, 2020 to Apr 30, 2021, and three points per dollar on travel immediately after earning your $300 travel credit. You’ll get 50% additional point value when redeeming for travel and select other categories via the Chase Ultimate Rewards portal. The sign-on bonus offers 50,000 points after spending $4,000 in the first three months.
The Platinum Card® from American Express
Why this is one of the best 5% cash back credit cards: Elite travelers choose the Platinum Card from American Express for its top-notch travel perks, as long as they can justify the $550 annual fee. Start by earning 10 points on eligible purchases made at U.S. gas stations and U.S. supermarkets, on up to $15,000 in combined purchases, during the first six months after opening an account. You’ll earn five points per dollar spent on flights directly booked with airlines or with American Express Travel (beginning Jan 1, 2021, bonus points in these categories will be limited to the first $500,000 in combined purchases each year). You’ll earn five points per dollar on prepaid hotels booked on amextravel.com and one point per dollar on all other purchases, while also taking advantage of up to a $200 airline fee credit per year.
Citi Prestige® Credit Card
Why this is one of the best 5% cash back credit cards: With the Citi Prestige Credit Card, you’ll earn five points per dollar on airlines and dining, three points per dollar on hotels and cruise lines, and one point per dollar for other purchases. There’s a $495 annual fee, but you can make more than half of that back just with the up to a $250 annual credit for travel expenses.
Wells Fargo Visa Signature® Card
Why this is one of the best 5% cash back credit cards: The five points per dollar on this card is short-lived, as it only applies to the first $12,500 spent on gas, grocery and drugstore purchases in the first six months. Afterward, and for all other purchases, you’ll earn one point per dollar. However, there is no annual fee and you’ll get some attractive Visa Signature benefits.
U.S. Bank Cash+™ Visa Signature® Card
Why this is one of the best 5% cash back credit cards: The U.S. Bank Cash+ Visa Signature card lets cardholders choose two categories each quarter for earning 5% cash back; you’re limited to the first $2,000 spent in those categories. In addition, you’ll get 2% cash back on one everyday category (like gas stations, grocery stores or restaurants), and 1% on all other purchases.
How Can 5% Cash Back Cards Offer More?
With 5% cash back credit cards, you have the opportunity to earn cash back on qualifying purchases at a rate that’s higher than the typical 1% to 2% cash back. You can usually earn 5% cash back on rotating bonus categories, your choice of categories, dedicated year-round categories or all purchases with a particular retailer. You’re not likely to find a card that offers 5% cash back on purchases in all categories.
Do 5% Cash Back Cards Have Limits?
Five percent cash back is a great rewards earning level. But it’s not without limits.
“These cards almost always come with a catch,” says Chelsea Hudson, senior public relations officer and personal finance expert at rebates website TopCashback.com. “From not offering 5% cash back across the board to caps on how much of your spending can qualify for the 5% rewards, research is key to maximize how much money you earn for every dollar you spend.”
Most cards with rotating cash back categories require that you activate the bonus rewards each quarter. Otherwise, you’ll just earn at the regular rate, usually 1% cash back. Activating is simple enough. You can do it when you log in to check your account or pay your bill.
More importantly, these cards may not offer unlimited earning on 5% bonus categories. It’s common to see a limit of 5% cash back on up to $1,500 in bonus category purchases each quarter. That’s a limit of $300 in 5% bonus cash back each year.
Although you’re often limited on how much you can earn at 5% cash back, most of these cards offer unlimited 1% cash back on purchases that aren’t in a bonus category or that exceed the quarterly bonus limit. Let’s say you spend $3,000 on dining annually. If that’s spread out evenly throughout the year and one quarter has a 5% cash back bonus, you’ll earn $37.50 cash back in the bonus quarter and $7.50 for each of the other three quarters. That’s $60 cash back on dining annually.
Cards with a quarterly limit on 5% cash back purchases may not be a good choice for a card that you use for most purchases year-round. Other cards can offer higher flat rates on cash back, up to 2%.
However, there are 5% cash back cards that don’t impose a limit on how much you can earn and don’t require activation of bonus rewards each quarter. For example, the Amazon Rewards Visa Signature Card earns 5% back on qualifying purchases year-round with no limit on earnings. But 5% earning is only available to cardholders with a paid Amazon Prime membership.
How Can You Maximize the Value of 5% Cash Back Cards?
Cards that offer 5% cash back with rotating bonus categories can be a good choice when your purchases line up with quarterly bonus categories – but not necessarily for purchases that don’t qualify for the higher cash back rate.
Research bonus categories and plan out your purchases accordingly when using rotating 5% cash back cards, Hudson says. If you know your card’s rotating cash back calendar for the year, or at least the upcoming quarter, plan purchases so that they align with the card’s bonus categories, especially if they are purchases you plan to make at some point in the year anyway.
When choosing a new 5% cash back credit card, look ahead at the cash back calendar, if possible, and compare it with your spending. It’s a good idea to look at past calendars to get an idea of which categories might be offered in the future, too.
A popular strategy for 5% cash back cards is to use them exclusively for purchases that qualify for 5% cash back, pairing them with another card that earns a 1.5% to 2% flat cash back rate on purchases that don’t qualify for the 5% rate.
“I would advise against using only your 5% card for all purchases,” Brackenbury says. “It will limit the amount of rewards you can earn for all of your spending.”
It can get complicated trying to keep up with which cards earn 5% cash back on which purchases throughout the year. Brackenbury recommends communicating with other cardholders in your household to make sure they know which purchases to use the card for.
How Should You Use a 5% Cash Back Card?
As with any credit card, you should use a 5% cash back card with caution. Be aware of the card’s limitations, and manage your account responsibly to avoid paying more in interest and fees than you earn in rewards.
“Be sure to read the terms and conditions closely to understand where rewards can and cannot be earned,” Brackenbury says. For example, your card may earn 5% cash back at grocery stores, but not if you’re buying groceries at Walmart or Target.
Brackenbury recommends staying up-to-date with categories by reviewing your account online and reading emails from your card provider.
And don’t give in to excessive spending just because you’re earning 5% cash back. If you carry a balance, you can expect to pay an annual percentage rate of about 17% to 24%, which far outweighs the value of 5% cash back rewards.
If your card has a $1,500 quarterly limit on bonus spending, the most bonus cash back you can earn in the quarter is $75. That’s valuable – but not worth straining your budget over. The best strategy for using 5% cash back cards is to make the most of bonus rewards on purchases you’d make anyway and nothing more.