Credit card cash back rewards are rewards offered to credit card customers when they make purchases with their credit cards. Cash back rewards can be in the form of dollars or points – points can usually be redeemed on an online marketplace operated by the card issuer.
Cash back rewards are calculated as a percentage. Example: If your card has a 1.5% purchase rewards rate and you make a $100 purchase, you will receive $1.50 in cash back. These rewards may seem small, but they can add up quickly.
How do cash back credit cards work?
Cash back credit cards accrue rewards when you make purchases within specific categories on the card, such as grocery stores or gas stations. There are important differences in what kind of spending gets rewarded and what form the rewards take, such as the category of spins and the value of the points. You may also want to keep in mind that some cash back credit cards specify the maximum amount of cash back you can earn in a given time period.
How cash back credit cards reward you for your spending
Spending can be rewarded in several different ways.
By a fixed amount. With fixed rewards, your card activity is rewarded with the same percentage for every purchase. It’s easy to use a fixed-rate rewards card, but the reward percentage may be lower than the reward percentage you get with a specific category of cards.
In fixed categories. Fixed category rewards cards offer cash back on expenses in predefined categories such as travel, groceries or entertainment. The reward amount may be higher than with a fixed-rate rewards card, but it is up to the issuer to define the category and decide which merchants to include.
In the Spin category. Some cards in specific categories offer additional rewards in specific categories for a short period of time: usually monthly or quarterly. Sometimes the rotating category applies to spending in broad categories such as electronics, while in other cases it can apply to spending at a specific retailer.
How Cash Back Credit Card Rewards are paid to you
Cash back credit card rewards are paid in U.S. dollars or points.
Dollars: Cash rewards are provided in the form of a check, prepaid debit card or credit on a monthly statement, depending on what your card issuer allows.
Points: Points may be worth more than cash when redeemed through the issuer’s rewards portal, depending on the relationship between the issuer and the merchant.
How to earn cash back with your credit card
You can earn credit card cash back by signing up for a cash back card, making purchases to earn rewards, and redeeming rewards through your card issuer.
Shop around to find the right card for your spending.
With a wide variety of cards offering cash back, you can shop around to find the card that best fits your lifestyle. Know your score before you apply to gauge your chances of getting approved.
Take your time.
It may be wise to align your expenses (such as a new computer purchase) with a card whose cash back rewards are about to be transferred to the electronics category. You will typically receive an email or account notification (depending on your card’s notification settings) informing you of the cash back reward’s qualifying or rotating categories and information about the deadline or eligibility period.
Evaluate the value of rewards.
Cash rewards are easy to redeem, but points may be more valuable. Card issuers may offer rewards for points you redeem in their online marketplace.
What should I know before signing up for a cash back credit card?
Cash back credit cards are a great way to put your credit card spending to work. If you pay off your balance in full each month – thus avoiding interest and other fees – you may accumulate a significant amount of cash back rewards each year.
However, if you carry a balance on your card, the interest you pay each month may exceed the rewards you earn. Cash back credit cards may be best for consumers who pay off their balances in full each month.
Try to understand your spending habits. Before signing up for a cash back rewards card, review your spending behavior. Do you go out to eat often? Are you a regular hotel guest? Once you know how you spend, you can choose the credit card that fits your lifestyle and gets you the most rewards. Shop around to find the best card for you. Different cards offer different categories of rewards. Do your research to determine which card best fits your spending habits and offers rewards redemption in the format you prefer.
Compare credit card cash back bonus offers
Many card issuers offer cash back credit card membership bonuses for new cards. For cards that offer cash back rewards, these rewards may be in the form of statement credit cards or prepaid debit cards. For point-based rewards cards, you will typically receive points. Please note that bonus offers usually require you to spend a certain amount within a few months of opening the card.
