Compare cash back earnings against interest costs for two credit cards
Our Cash Back vs Low Interest Calculator helps you decide between a rewards credit card and a low-interest card. By comparing cash back earnings against interest costs based on your annual spending and monthly carried balance, it recommends the most financially beneficial option.
Choosing between a cash back credit card and a low-interest card is one of the most common financial dilemmas consumers face. The right choice depends entirely on your spending habits and whether you carry a balance from month to month. Paying interest can quickly wipe out any rewards you earn.
This calculator factors in both cards' annual percentage rates (APR), your monthly carried balance, and annual spending to give a clear, numbers-based recommendation. By adjusting the inputs, you can see the exact break-even point where one card becomes better than the other for your specific financial situation.
Cash back earnings are calculated as annual spending multiplied by the cash back rate. Interest costs are the monthly carried balance times the monthly interest rate, multiplied by 12 months. The net benefit is cash back minus interest paid.
A cash back card is better when you pay off your balance in full each month, because you earn rewards without paying interest. If you regularly carry a balance, a low-interest card may save you more despite having no rewards.
The average cash back credit card offers 1–2% back on purchases. Some category-specific cards offer 3–6% on certain spending types like groceries or gas. A 2% flat-rate cash back card is considered excellent for general spending.
The break-even point is where the cash back earned equals the additional interest paid on the higher APR card. You can find this by dividing your annual cash back by the monthly APR difference on your carried balance. This calculator does this comparison automatically.
Many cash back cards charge foreign transaction fees (typically 3%), which can negate your rewards on international purchases. If you travel frequently, consider a travel rewards card with no foreign transaction fees instead of a standard cash back card.
Cash back rewards are generally considered rebates or discounts on purchases, not income, so they are not taxable. However, sign-up bonuses and bank account bonuses may be taxable as interest income. Consult a tax professional for your specific situation.