Bonus vs. Flat-Rate Cash-Back Credit Cards

There are basically two types of cash-back rewards credit cards. Find out how to pick the one that's right for you.Image source: Getty Images.

Who doesn't like a cash-back credit card? After all, it's very satisfying to get money in our pocket (well, technically, statement credit on our account) in return for simply using the card.

So a cash-back card is a no-brainer. Where it can get tricky is the type of cash-back card that works best for you. Some cards feature relatively high-earning bonus categories for purchases in selected goods and services categories. Others pay out at a steady, unchanging rate.  

The bonus vs. flat-rate credit cards question is a compelling one, but it doesn't have to be difficult to answer. We're here to help you figure out which is the better choice for your situation.  

Basics of bonus and flat-rate cards

Arguably, the most important starting point is to determine what type of cash-back consumer you are. Here's a quick breakdown of the two types of cards in this category:

1. Bonus -- Certain categories earn a higher cash-back rate. These bonus categories can either be permanent, or temporary. Cards in the latter segment tend to rotate their categories on a quarterly basis.
2. Flat-rate -- A card that offers the same cash-back rate no matter the category of good/service being bought or the timing of the purchase.

Do you frequently stock up on food? A credit card with grocery rewards might be a good fit for you. Are you a road warrior who needs to regularly fill up on gas? If so, you might be best suited for a gas rewards card.

Bonus cash-back credit cards

Restaurants and gas stations are only two of many cash-back bonus earnings categories. There are a host of others; the ones on offer depend on the issuer and the particular card. Popular higher-earning cash-back generators include:

• Grocery store and supermarket purchases.
• Buys at wholesale retailers.
• Use of rideshare services (Uber, Lyft, and the like).
• Paying with your card through e-payment apps (Apple Pay®, Chase Pay®, PayPal, etc.).

The difference between a card's earnings in the bonus categories and those in its base rate can be considerable. It's not unusual for such a card to earn 5% cash back if you use it to buy goods and services in the quarterly rotating bonus categories, but only 1% for everything else.

This is another compelling reason for obtaining such cards, but only if you're an active spender in at least one of the bonus categories.

It should be noted that most cash-back cards with bonus categories cap the earnings you can reap with such purchases. These tend to land in the low four-figure range. Any spending above that cap will likely earn at the card's "base" rate; in the generic example above, this would be 1%.

Still, concentrated spending on bonus categories can rack up cash-back rewards quickly. For example, take a card that has a $1,500 bonus earnings maximum for each of its higher-earning categories every quarter. A diligent and determined cardholder hitting that maximum in each quarter of a calendar year would earn a handsome $6,000 at the end of said year.

Luckily, it's not unusual for a cash-back credit card with no annual fee to fall into the bonus cash back category. This is a smart deal -- you can rake in potentially high cash-back earnings for no yearly buy-in.

Flat-rate cash-back cards

One drawback to a bonus cash-back credit card is the necessity to track which categories earn the bonus. Compounding this for the cards with rotating categories is the standard issuer requirement to opt into the current bonus category or categories.

This isn't burdensome (typically a customer opts in either through their account management portal or by simply clicking a link provided in a reminder email from their issuer). Still, it's yet another set of details to remember for the many of us who lead busy lives.

A flat-rate cash-back credit card mitigates this entirely by offering an across-the-board earnings rate. So no matter if you buy groceries, take your sweetheart for a meal at that fancy new restaurant, or fill your private plane with aviation gas, you'll be clocking cash-back rewards at the same clip.

Since there are a plethora of flat-rate cards from a variety of issuers, we can't say that there's any "standard" flat-rate earnings level. To generalize as far as we can, such a percentage isn't as high as the prize categories in a bonus card -- 1% or 2% are common flat-rate card levels.

Another low-maintenance element of flat-rate cash-back cards is that they rarely place a cap on the cash back you can earn from your purchases. This saves you the time and trouble of figuring out when you might hit the earnings wall.

So should you get a flat-rate cash-back card? Probably yes, if your spending doesn't skew too much towards one or more of the popular bonus categories mentioned in the section above.

A flat-rate card might also be appropriate if you want a low-management, straightforward product that doesn't require tracking rotating bonus categories.

Cash-back card perks

Since there are so many cards on the market, it's not enough to simply decide between bonus and flat-rate cash-back credit cards. Another critical consideration is what perks you want or need with your card.

That's because these days, our credit cards are not only a convenient means of payment but also a source of commercial extras. Fortunately for us, the world of credit cards is so competitive that many issuers must provide at least some of these perks.

Helping greatly are the major credit card networks -- especially the two kings of this realm, Visa and Mastercard. Both provide their own extras no matter which issuer is behind the particular card. Visa and Mastercard each have three basic levels of native feature sets of increasing exclusivity, as follows:

• Visa
• Visa standard
• Visa Signature
• Visa Infinite
• Mastercard
• Mastercard standard
• Mastercard World
• Mastercard World Elite

We don't have enough real estate to get into the details of each company's tier, but the features cover such popular areas such as travel insurance and extended product warranties. Also, the number and value of the perks tend to rise as you move up the ladder.

As with other types of credit cards, cash-back cards come with numerous and varied extras. These depend on card network and issuer, and perks include but are by no means limited to:

• Car rental insurance
• Lost/delayed baggage insurance
• Purchase protection
• Airline lounge access
• Smartphone insurance
• Travel credit

As with the bonus vs. flat-rate cash-back decision, the perks you desire or require depend on your consumer profile.

Do you travel frequently? If so, consider a card weighed with travel extras like car insurance. Are you glued to your smartphone? Then perhaps one of the growing number of cards with phone insurance is suitable. Happily, there are many perks baked into cash-back credit cards, so you won't be hurting for choice.