Cash Back Credit Cards vs. Low Interest Credit Cards
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Credit cards can be powerful financial tools when used responsibly, offering convenience, security, and the potential for rewards on everyday spending. They allow you to make purchases without carrying cash, build credit history, and sometimes even earn rewards like cash back, travel points, or discounts. However, not all credit cards are the same.
There are various types of cards, each designed to meet different financial needs—whether you're looking for rewards, low interest rates, or specific perks like travel rewards. Choosing the right credit card requires careful consideration of your spending habits, financial goals, and how you plan to manage your balance. By understanding the types of cards available and selecting one that aligns with your lifestyle and financial situation, you can maximize the benefits while minimizing potential costs. If you are someone who indulges in online shopping often and is always on the lookout for low interest cards, we help you understand the difference between cash back credit cards and low interest credit cards.
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What is a cash back credit card?
Cash back credit cards offer a way to earn a percentage of your spending back as cash rewards. When you use the card, you receive a cash back percentage on your purchases, which can vary by card type and spending category. Some cards offer a flat-rate cash back on all purchases, while others have tiered or rotating categories for higher rewards. You can redeem the cash back as a statement credit, direct deposit, or sometimes for gift cards. Although these cards provide rewards, it's important to be mindful of any annual fees or high interest rates and to pay off your balance in full to maximize the benefits.
Pros and cons
Pros
- Rewards on spending. Earn a percentage of cash back on your purchases, which can add up to significant savings over time.
- Flexible redemption options. Cash back can often be redeemed as a statement credit, direct deposit, or gift cards, providing multiple ways to use your rewards.
- Sign-up bonuses. Many cash back cards offer attractive sign-up bonuses if you meet a minimum spending requirement within the first few months.
- No annual fee options. Many cash back cards come with no annual fee, allowing you to earn rewards without extra costs.
- Simple rewards structure. Some cards offer straightforward rewards, making it easy to understand how you earn and redeem cash back.
Cons
- Higher interest rates. Cash back cards often have higher APRs, which can negate the benefits if you carry a balance from month to month.
- Annual fees. While many cash back cards have no annual fee, some premium cards charge annual fees that can offset the rewards if you don’t spend enough.
- Complex reward structures. Some cash back cards have rotating categories or tiered rewards, which can be confusing and require careful tracking to maximize benefits.
- Limited rewards categories. You might need to choose a card with specific reward categories or spending limits to get the most cash back, which may not align with your spending habits.
- Redemption minimums. Some cards have minimum redemption thresholds or restrictions on how and when you can redeem your cash back.
Who should choose cash back credit cards?
Cash back credit cards are ideal for:
- Individuals who pay their balance in full. If you consistently pay off your credit card balance every month, you can take full advantage of the cash back rewards without incurring interest charges.
- Frequent spenders. People who spend a lot on everyday expenses such as grocery stores, dining, and gas can benefit from earning cash back on those purchases, especially if they choose a card with higher rewards in those categories.
- Those who prefer simple rewards. If you like the idea of straightforward rewards without complicated redemption processes, cash back cards offer an easy way to earn and redeem cash back.
- Rewards seekers. If you enjoy earning rewards for your purchases and want to get some financial benefit from your spending, cash back cards provide a tangible return.
- Consumers who avoid annual fees. Many cash back cards have no annual fee or offer rewards that can easily offset any fees, making them a good choice if you want to avoid extra costs.
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What are low interest credit cards?
Low interest credit cards are designed to offer lower annual percentage rates (APRs) compared to standard credit cards. This means you'll pay less interest on any outstanding balances carried from month to month. These cards are ideal if you often carry a balance and want to minimize interest charges. They may come with other features, such as intro APR of 0% on balance transfers or purchases, but typically, they don’t offer the same level of rewards or perks as rewards credit cards. Choosing a low interest credit card can help cardholders save money on interest, especially if you tend to carry a balance.
Pros and cons
Pros
- Reduced interest charges. Lower APRs mean you pay less interest on any balances carried from month to month, making it easier to manage and reduce debt.
- Introductory 0% APR offers. Many low interest cards offer 0% APR for an introductory period on balance transfers or new purchases, which can help you save on interest and pay off debt more efficiently.
- Financial flexibility. Lower interest rates provide more flexibility if you need to carry a balance occasionally, without incurring high interest charges.
- Easier debt management. Lower interest rates make it easier to pay off existing debt, as more of your payments go toward the principal balance rather than interest.
Cons
- Fewer rewards and perks. Low interest cards often offer minimal or no rewards, cash back, or additional perks compared to rewards or cash back cards.
- Annual fees. Some low interest rate cards may have annual fees, which could offset the benefits of the lower interest rate if you don’t use the card frequently.
- Introductory rates expire. The 0% APR offers are typically temporary and revert to a higher standard APR after the introductory period ends, which could impact your financial planning.
- Fewer promotional offers. Low interest cards might not have the same level of promotional offers or bonuses as cash back or rewards cards.
Who should choose low interest credit cards?
Low interest credit cards are best suited for:
- Individuals who carry a balance. If you often carry a balance from month to month, a low interest credit card can help you save on interest charges, making it easier to manage and reduce debt. Timely payment can also help improve your credit score.
- People with large purchases or balance transfers. Those planning to make a large purchase or transfer existing high-interest debt can benefit from introductory 0% APR offers on balance transfers or new purchases, which help avoid interest charges during the promotional period.
- Budget-conscious consumers. If minimizing overall interest payments is a priority, low interest cards offer financial relief by reducing the cost of borrowing compared to higher APR cards.
- Those who want financial flexibility. A low interest card can provide a buffer in case you need to carry a balance occasionally, offering more flexibility in managing cash flow without accruing high interest.
Related: Best Low-Interest Credit Cards
Using Self's Credit Builder Account can get you an average credit score bump of 49 points.
- No hard pull
- Automate payments
- Track your credit score
- Reports to all 3 bureaus
- Cancel anytime
Cash back credit cards vs low interest credit cards
Functionality
Cash back cards reward you with a percentage of your spending as cash back. This can be a flat rate on all purchases or higher rewards rates on specific categories like groceries, dining, or gas. On the other hand, with low interest credit cards ,the primary benefit is the lower APR, which reduces the cost of carrying a balance month-to-month. This can save you money on interest payments, especially if you frequently carry a balance.
Offers
Cash back can often be redeemed as a statement credit, direct deposit, or gift cards. Some cards also allow you to use cash back for travel or merchandise. While many low interest cards offer 0% APR for an introductory period on balance transfers or eligible purchases. This can be beneficial for paying down existing debt or making large purchases without immediate interest costs.
Perks and bonuses
Many cash back cards come with additional perks, such as sign-up bonuses, purchase protection, and extended warranties. Since low interest credit cards focus solely on the rate of interest, the lower interest rates provide more financial flexibility if you sometimes carry a balance, helping to manage your debt more effectively.
Interest rates
Cash back credit cards often have higher APRs compared to low interest cards. If you carry a balance, the interest charges could offset the rewards you earn. Since low interest credit cards have minimal interest rates, they typically offer minimal rewards or none at all. The focus is on providing financial relief through lower interest rates rather than earning rewards.
Fees
Some cash back cards charge annual fees, which could diminish the value of the rewards unless you spend enough to outweigh the fee. Some low interest cards might also have balance transfer fees or annual fees, which could affect the overall benefit.
Choosing the right card
- If you pay off your balance monthly. A cash back credit card might be more advantageous, as you can earn rewards on your spending without worrying about interest charges.
- If you often carry a balance. A low interest credit card could be more cost-effective, helping you save on interest and manage debt more efficiently.
Your choice will depend on your spending habits, financial goals, and how you manage your credit card balance.
Best cash back credit cards
Chase Freedom Flex℠
The Chase Freedom Flex offers 5% cash back on rotating quarterly categories (up to $1,500 in combined purchases), 5% on travel purchased through Chase Ultimate Rewards, 3% on dining and drugstores, and 1% on all other purchases. However, it requires activation of rotating categories, and the 5% categories have spending limits.
Citi® Double Cash Card
With a Citi Double Cash Card you enjoy simple rewards structure with 2% cash back on all purchases—1% when you buy and 1% when you pay off your balance. No rotating categories or activation required. It has no bonus categories or introductory offer, and you need to pay off your balance to earn the full 2% cash back.
Blue Cash Preferred® Card from American Express
Offered by American Express, the Blue Cash Preferred Card earns 6% cash back at U.S. supermarkets (up to $6,000 per year, then 1%), 6% on select U.S. streaming services, 3% on transit and U.S. gas stations, and 1% on other purchases. Has a strong welcome offer.It has a $0 intro annual fee for the first year, then $95 afterward, which might offset rewards for low spenders.
Discover it® Cash Back
Discover it cash back credit card offers 5% cash back on rotating quarterly categories (up to $1,500 in purchases each quarter, requires activation) and 1% on all other purchases. Discover matches all the cash back earned in the first year as an introductory offer. It also requires activation of rotating categories, and the 5% categories have spending limits.
Best low interest credit cards
Citi® Diamond Preferred® Card
The Citi Diamond Preferred Card offers a 0% introductory APR on balance transfers for 21 months and on purchases for 12 months. After the intro period, a competitive variable APR applies. No annual fee and no rewards program, so it's best suited for those focused on reducing interest costs rather than earning rewards.
U.S. Bank Visa® Platinum Card
U.S. Bank's card provides a 0% introductory APR on purchases and balance transfers for 18 billing cycles. After the intro period, a variable APR applies. It has no annual fee and the credit card issuer has no rewards program or cash back, focusing solely on low interest benefits.
Wells Fargo Reflect® Card
A popular name in the industry, Wells Fargo offers a 0% introductory APR on purchases and qualifying balance transfers for up to 21 months (if you make on-time minimum payments during the introductory period). It come with no annual fee, no cash back and no rewards.
Using Self's Credit Builder Account can get you an average credit score bump of 49 points.
- No hard pull
- Automate payments
- Track your credit score
- Reports to all 3 bureaus
- Cancel anytime
FAQs
What is the difference between flat-rate and tiered cash back?
Flat-Rate: Earns a consistent cash back percentage on all purchases, e.g., 1.5% cash back on everything.
Tiered: Offers different cash back rates for specific categories, e.g., 3% on groceries and 1% on other purchases.
Are there any fees associated with cash back credit cards?
Some cash back cards have annual fees, which could affect the overall value of the rewards. It’s important to review the card’s terms and conditions to understand any fees.
What is an introductory 0% APR offer?
An introductory 0% APR offer allows you to make purchases or transfer balances without paying interest for a specified period, usually 6-18 months. After the introductory period, a standard APR applies.
Do low interest credit cards offer rewards?
Typically, low interest credit cards offer minimal or no rewards. Their primary benefit is the reduced APR.
Are there fees with low interest credit cards?
Some low interest cards may have annual fees or balance transfer fees. Be sure to review the card’s terms to understand any additional costs.
The bottom line
While cash back credit cards are ideal for those who pay off their balance each month and want to earn rewards on their spending, though they often come with higher interest rates and complex reward structures. In contrast, low interest credit cards are better suited for individuals who frequently carry a balance and want to minimize interest charges, offering lower APRs and potential savings on debt but typically with fewer rewards and perks. Your choice should align with your personal finance habits and priorities—whether you value earning rewards or reducing interest costs.
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