Credit Cards » Credit Card Guides » How Do Cash Back Credit Cards Work?
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How Do Cash Back Credit Cards Work?

With cash back credit card you can earn back money on qualifying purchases, in the form of cash, statement credit or gift card
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

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Table Of Content

What Is Cashback On A Credit Card?

A cashback credit card is a form of rewards card that allows you to receive money back on your purchases. Because the value of your rewards is apparent, a cashback card may be easier to use than a travel rewards card. However, cashback cards might range significantly depending on the rewards program and the exact card.

Credit card issuers offer cashback programs to encourage users to use their cards. For example: If you use a credit card that provides cashback and gives 3% cashback, you will earn $3 for every $100 spent. It's not free money because you have to spend money to get cash back.

Cash back on credit card
(Photo by New Africa/Shutterstock)

How Cashback Credit Cards Work?

When you use a cashback card, cashback equal to a percentage of the amount you spent will automatically be added to your account after each transaction. If your credit card offers a cashback incentive of 3%, for example, you will receive $3 back for every $100 spent.

Depending on the type of card you have selected, the cashback rewards might be sent into your account either monthly or annually, in the form of a statement credit, paper check, or direct transfer to your bank account.

The motivation of your credit card companies comes from two things:

  • The credit card firm receives a portion of each transaction fee when a merchant accepts credit cards as payment.
  • As a customer, you may do additional activities that may drive revenue to your issuer. For example, carrying debt on your card.

Cash Back Credit Card Pros and Cons

Just like any other bank product, cash back credit cards do have some advantages and disadvantages.

Pros
Cons
Cash Rewards And Welcome Bonus
No Travel Rewards
No Annual Fee
Earning Caps
Pure Cash
High APR

There is no space for ambiguity regarding cashback credit card rewards because points are earned and redeemed in dollars, and it's one of the top reasons why people use credit cards.

Credit cards that offer cash back may also include signup incentives

Most of the credit cards that offer cash back do not charge an annual fee. 

So, you won't have to give up any of your rewards to pay a fee, and you can keep the card open even if you decide to use a different one more often in the future.

Unlike point rewards cards, cash-back rewards are expressed in monetary quantities, they are the most reliable kind of credit card reward (however, cash back programs can be changed).

However, it is up to the card issuer to determine the value of points and miles, which is subject to alter at any moment.

A travel rewards card is probably better if you want to use rewards for travel expenses or transfer points to an airline or hotel partner.

 Most cash back credit cards do not offer travel rewards.

There are cashback credit cards that offer limitless rewards and those that restrict your cashback earnings on both regular and bonus categories of spending.

For example, the Citi 

The regular APR is likely high, even if a cashback credit card has an introductory period with 0% APR.

Interest can quickly wipe out the value of cashback earnings as a whole.

How To Choose A Cash Back Card?

Credit cards that provide cash back come in several varieties, including a flat rate of return, a set bonus category, and a rotating bonus category. The most excellent cashback credit card for you is the one you'll use, giving you rewards on the purchases you make most often.

There is no “best” cashback credit card because it depends on the individual cardholder's spending patterns to determine which credit card will yield the most rewards.              

Here are some of the tips for choosing a credit card:

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There are three cashback programs for cashback cards, and it's important to know what they are.

  • Flat-rate cashback cards: These credit cards have one cashback rate that applies to all transactions, often between 1 and 2 percent of the purchase price. The Capital One QuicksilverOne, which offers Unlimited 1.5% cash back on all purchases and unlimited 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply), is an example to flat rate cashback card.
  • Rotating bonus: A fixed bonus category card provides a greater cashback rate. These cards generally have 5% cashback categories that rotate every quarter. The revolving types may change from year to year.
  • Fixed bonus category cards: Fixed bonus category cards give a greater cashback rate in selected categories and at least 1% on other transactions. Dining, grocery, and petrol are common fixed bonus categories.

Examine your credit card or bank bills and monthly budget to determine your largest spending areas. Then, decide if you want a flat cashback card that earns on every transaction or a card with bonus spending areas.

Even though many of the top cashback cards don't charge an annual fee, some card issuers do.

But you can often make up the cost of a yearly fee with cash back, statement credits, or other card benefits. If the card you're interested in has an annual fee, look at the rewards and benefits to see if it will be worth it for you to pay it.

Credit cards can provide a good cashback percentage on purchases. However, the cashback you get may not always be worthwhile. After accounting for these costs, reassess how much value you get from your cashback credit cards every few months.

Take note of whether the rewards credit cards you're considering have cashback restrictions. Some of them do, and these restrictions are worth keeping track of if you spend a lot of money on a monthly credit card. 

Card
Rewards
Annual Fee
Cashback Type

Discover it® Cash Back
1-5% 5% cashback on up to $1,500 in rotating category purchases each quarter when you activate the bonus category (then 1%), as well 1% percent cash back on all other purchases
$0
Rotating Categories
citi-custom-cash_
Citi Custom Cash℠ Card
1-5% 5% cash back on your highest eligible spend category each billing cycle up to the first $500 spent and 1% cash back thereafter
$0
Rotating Categories

chase freedom unlimited card

Chase Freedom Unlimited®
1.5% – 5% 5% on travel purchased through Chase Ultimate Rewards, 3% on dining at restaurants, including takeout and eligible delivery services, 3% on drugstore purchases and 1.5% cash back on all purchases
$0
Fixed Category Bonus

Capital-One-Savor-One

Capital One SavorOne Cash Reward
1% – 8% Earn unlimited 3% cash back on dining, entertainment, popular streaming services and grocery store purchases (excluding superstores like Walmart® and Target®), 1 percent on all other purchases. 10% percent cash back on purchases made through Uber and Uber Eats. 8% cash back on Capital One Entertainment purchases. 5% cash back on hotels and rental cars booked using Capital One Travel.
$0
Fixed Category Bonus

citi double cash

Citi® Double Cash Card
1% – 2% 2% cash back rewards rate – 1% every time you swipe and another 1% upon payment.
$0
Flat Rate

Wells Fargo active cash card

Wells Fargo Active Cash® Card
2% 2% cash rewards on purchases (unlimited)
$0
Flat Rate

How to Apply For A Cash Back Card

Everything online has made it easy to apply for a card. When it comes to building a robust and reliable credit profile, credit cards can be beneficial.

Here are the steps to get a credit card.

1. Know Your Credit Score

Credit scores assist lenders in figuring out whether or not they can trust you to repay a loan.

So, if you have bad credit, your application could be turned down. This is why you should know your credit score before you apply.

You can get your credit score from any of the three leading credit agencies—TransUnion, Equifax, or Experian—or from the company that gave you your credit card.

2. Check Your Needs And Do The Proper Research

After you have determined which credit cards you may potentially be approved for depending on your credit score, it is essential to consider the requirements that you have for a credit card and avoid some things before applying.

Carry out in-depth research on your various credit cards, considering your needs and aspects such as annual fees, cashback percentage, cashback caps, penalties, signup bonuses, etc.

3. Prequalify For Cashback Credit Card

When a lender says they have prequalified you for credit, it means that they have examined your financial information or credit history and concluded that you have a reasonable probability of being approved for credit if you apply.

A preapproval letter from a lender indicates that they have reviewed your credit report and are satisfied with it.

4. Gather The Necessary Information And Apply

You can apply to most cards online, but you can always go to the bank that gave you the card and apply in person or call a representative.

Information required while applying for a cashback credit card:

  • Name of the applicant
  • Date of birth
  • Social security number
  • Address
  • Income proof

It's possible that acquiring a cashback credit card is an excellent financial move for you, but it's usually not worth your time or money to apply for or receive a credit card that doesn't fit your spending patterns.

Learn your credit score and compare it to the features of several credit cards to determine which one best suit your needs.

How to Maximize Your Cashback Card?

How you spend your cashback might make a huge impact.  Here are some ideas for making the most of your cash-back credit card:

  • Maximize cashback by paying bills: Check to see if you can pay for other bills using your credit card to maximize the amount of cashback you receive by using your credit card for essential needs like groceries, petrol, and restaurants.
  • Use the cashback for spending: Say you have a credit card that gives you 2% cash back on every dollar you spend. Add up all the costs you can put on the card and pay with money. Examples include groceries, dining out, and entertainment. Instead of using the money in your checking account, charge these things to your card. After each purchase, pay the bill with the money you set aside, so you don't use up all of your credit.
  • Know the rules & Spend more on higher categories: choose a card that provides higher cash back on categories you regularly spend on and spend smartly to maximize your rewards. 
  • Use the card issuer portal for additional rewards: several card issuers provide their customers with online portals via which they can earn extra cashback.  The Chase Ultimate Rewards portal and the Amex membership club are the top portals, as well as the Capital One Travel and the Citi ThankYou portal.
  • Don't let your account be in the red: Avoid debt and hold a balance if you want the most cash back. You may do this by charging what you can afford, documenting your expenditure, and paying your debt in full and on time each month.

Cash Back Card Alternatives

If you can't get a cash-back card or are not sure which credit card you should get, you may want to consider one of the following alternatives:

1. Secured Credit Cards

Secured credit cards are legitimate credit options, unlike prepaid debit or credit cards. You should get a secured credit card if you have poor credit and trouble connecting to a regular one.

To put it simply, this can help you repair your credit. Secured credit cards, on the other hand, require users to put out an effort to manage their finances responsibly by limiting their spending to the amount they have deposited.

2. Balance Transfer card 

If you have good credit, many credit card companies will let you transfer balances to cards with exceptionally low-interest rates. Some have introductory interest rates of 0% for a certain amount of time, usually between six and 18 months.

A balance transfer is when you move the balance from one credit card to another. It can be a good way to save money on interest and pay off expensive credit card debt.

3. Debit Card

Debit cards, which come with current accounts, are an apparent alternative to credit cards. A debit card offers convenience and consumer protection when you can't use cash.

Without an overdraft, you can't spend money you don't have, but a debit card will help you control your spending.

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FAQs

If your cashback credit card pays 1.5% cash back on purchases, you will get $1.50 for every $100 that you spend, so if you spend $5000, your cashback will be (5000*1.5)/100=$75. Can I get a cashback card with fair credit?

Credit cards are a type of unsecured credit. This implies that issuers set a limit for you depending on your creditworthiness. Most financial institutions will not accept your credit card application if your credit score is too low.

Card issuers provide signup bonuses to attract new customers and grow their business.

Some credit cards give new cardholders a signup bonus if they spend a certain amount in their first few months with the card. The card determines the minimum amount and the premium itself.

The 2% cashback rate is one of the best flat-rate rewards programs on any cashback credit card. A cashback rate of 2% is higher than the average cashback rate on credit cards.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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Welcome Bonus:
80,000 points 80,000 Membership Rewards® points after you spend $8,000 on purchases on your new Card in your first 6 months of Card Membership

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Rewards Plan:
2X – 6X 6 Marriott Bonvoy points for each dollar of eligible purchases at hotels participating in the Marriott Bonvoy™ program, 3 points at Worldwide restaurants and on flights booked directly with airlines and 2 points on all other eligible purchases
Welcome Bonus:
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Welcome Bonus:
50,000 miles 50,000 bonus miles after you spend $3,000 in your first six months
Advertiser Disclosure
The product offers that appear on this site are from companies from which this website receives compensation.
Top Offers From Our Partners

amex platinum

Rewards Plan:
1X – 5X 5X points on up to $500,000 spent on directly-booked airfare and flights and prepaid hotels booked through American Express Travel (per calendar year), 2X points on prepaid car rentals through American Express Travel and 1X points on all other purchases
Welcome Bonus:
80,000 points 80,000 Membership Rewards® points after you spend $8,000 on purchases on your new Card in your first 6 months of Card Membership

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Rewards Plan:
2X – 6X 6 Marriott Bonvoy points for each dollar of eligible purchases at hotels participating in the Marriott Bonvoy™ program, 3 points at Worldwide restaurants and on flights booked directly with airlines and 2 points on all other eligible purchases
Welcome Bonus:
95,000 points 95,000 Marriott Bonvoy bonus points after you use your new Card to make $6,000 in purchases within the first 6 months of Card Membership

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Rewards Plan:
Up to 3x miles 3 miles per $1 spent on United purchases immediately after earning your $125 annual United purchase credit, 2 miles on all other travel and select streaming services, 1 mile on all other purchases
Welcome Bonus:
60,000 miles 60,000 bonus miles + 500 Premier qualifying points (PQP) after you spend $4,000 on purchases in the first 3 months your account is open.
Advertiser Disclosure
The product offers that appear on this site are from companies from which this website receives compensation.

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