How to Calculate the Real Value of Cash Back

Cash back is easy to understand, but comparing cards requires more than looking at the advertised percentage.

Start with annual spending

Estimate how much you spend in the categories that earn rewards. Multiply eligible spending by the applicable reward rate.

Subtract fees

If the card has an annual fee, subtract it from your expected annual rewards. Compare the result with a no-fee alternative.

Consider caps

Some cards offer higher rewards only up to a spending limit. Once you pass that limit, the rate may change.

Account for excluded purchases

Certain transactions may not earn rewards. Read the current program terms before estimating your return.

Example

If a card earns 2 percent on 10,000 of eligible annual spending, the basic reward would be 200 before fees or other adjustments. A 100 annual fee would reduce the net value to 100, assuming no additional benefits.

The goal is to calculate the reward you are likely to receive, not the reward the marketing headline makes possible. Your normal spending pattern should drive the calculation.