Many consumers view credit cards as simply a payment method, but it doesn’t stop there. Credit cards can be useful in a lot of different ways.

In fact, certain types of credit cards will actually reward you for spending money.

Cash-back credit cards not only boost your spending power, but also allow you to earn a percentage of your spending back that you can redeem later.

How cash-back credit cards work

A cash-back credit card is a type of rewards card that gives cardholders a percentage of the money they’ve spent on eligible purchases.

Certain cards reward cardholders with a percentage back on all purchases, and other rewards programs give cardholders a percentage back on purchases made at grocery stores, restaurants, gas stations, and more. Your cash-back card may even have rotating categories that will change how you earn cash back.

What’s true of all cash-back cards is that if your card rewards you for your everyday spending categories, you could stand to earn quite a bit in cash back that you can later redeem for a statement credit, a direct deposit into your bank account, gift cards, a physical check, or a payment toward another debt owned by your same credit issuer.

There are different types of cash-back credit cards that change the way and the rate at which you earn rewards.

• Flat-rate cash-back credit cards: Flat-rate cards are cash-back credit cards that will reward you with a flat rate on all your purchases. Most credit card issuers offer 1% to 2% cash back, although you can sometimes earn more. This type of card can be useful if you’d like to earn rewards on your everyday spending, but don’t want to keep track of rotating categories or spend within a specific category on a regular basis. The Citi® Double Cash Card offers 2% cash back on all of your purchases with no limits, as long as you make on-time payments.

• Tiered cash-back credit cards: Tiered cash-back credit cards offer cash back for different spending categories, but will not offer the same rate across the board. For example, the Blue Cash Preferred® Card from American Express (see rates and fees) offers 6% cash back at US supermarkets on up to $6,000 per year in purchases (then 1%), but just 3% cash back on transit including taxis/rideshare, parking, tolls, trains, buses and more, and 1% cash back on other purchases. Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit or at Amazon.com checkout.

• Rotating or bonus category cash-back cards: The most complex type of cash-back card is one with rotating bonus categories. This means that you’ll earn cash back in different categories that will change, usually on a quarterly basis. For example, the Chase Freedom Flex℠ card offers 5% cash back on rotating bonus categories (up to $1,500 per quarter) and cash back on certain categories year-round. The catch: You must activate the rotating bonus categories on your own each quarter.

Using a cash-back card to save on everyday purchases

Before you go ahead and add a new credit card to the mix, it’s important to be intentional about the card you apply for and determine if a cash-back credit card will actually help you save or create a larger debt burden.

Adding a new card to your wallet will also have a greater impact on your credit score. When considering a cash-back card, you’ll want to consider the following:

What are your top spending categories?

To save on everyday purchases, you’ll want to identify where you spend the most money each month. Take some time to comb through your most recent bank statements and split your monthly purchases into categories.

If you’re a big spender in key categories that credit card issuers offer cash back for, you can aim to add a new card to your wallet to reward that spending.

Cash-back cards commonly reward spending on groceries, dining, gas, streaming, restaurants, drugstores, entertainment, and more.

How much do you stand to earn based on your spending habits?

Once you have a good idea of what your top cash-back spending category is, you can then figure out how much you stand to earn in cash back and select a card that will offer you the highest rate of return on those qualifying purchases.

Say you spend $400 per month on groceries to feed your family, plus another $200 dining out at restaurants. If your cash-back card offers 2% cash back on dining and grocery store purchases, you could earn $12 back on that money you’ve spent.

If you continue to spend at the same rate, that amounts to about $144 each year in cash back, not including any other spending categories you could be taking advantage of to earn rewards.

Here’s how much you could stand to save in one month using the cash-back rates from the Blue Cash Preferred® Card from American Express (see rates and fees) as our example:

You should be mindful of annual fees that could eat into your potential earnings, although not all cash-back cards charge an annual fee. If a card charges a higher annual fee, you’ll need to earn enough cash back to save on your regular purchases and make sure that the perks justify paying that annual fee.

Which card offers a higher rate on your top spending categories?

Certain cash-back cards may offer a higher reward rate on specific categories.

The Capital One SavorOne Cash Rewards Credit Card offers 8% cash back on tickets at the Capital One Entertainment portal, 5% cash back on hotel and rental car bookings through Capital One’s travel booking site — Capital One Travel, 3% cash back on dining, entertainment, popular streaming services, and at grocery stores (excluding superstores like Walmart® and Target®), and 1% cash back on all other purchases.

If you spend more on dining and entertainment than on groceries each month, opting for a card that rewards those categories or offers a higher rewards rate can help you maximize your savings.

Make a plan to redeem your cash-back rewards

Once you’ve built up your cash-back balance, you can explore your redemption options for those cash-back earnings. Many issuers give you the option to redeem your cash back for a check or statement credit, which may be the easiest option. You may also choose to redeem your cash back for a gift card from one of your favorite retailers.

The Discover it® Cash Back card, for example, gives cardholders the option to redeem their cash back as gift cards (ranging from $5 – $200 in $5 increments).

No matter what you spend your cash back on, you should be mindful of any expiration date on your rewards balance so that you don’t miss out on those savings.

Cash-back credit cards can be a great way to rake in extra savings with the proper spending strategy in place. By paying close attention to where you’re spending the most money, selecting a card that rewards that spending, and redeeming that cash back wisely, you can be sure that you choose the right card for your finances and budget and expect to save a little more on your everyday expenses.