Imagine receiving a discount on every transaction you make. That is essentially what cash back credit cards offer. These cards offer a percentage of cashback on every qualifying transaction you make. If a credit card gives 1.5 percent cash back on purchases, you’ll get 1.5 cents for every dollar spent. Some cards additionally give significantly more than 1.5% in qualifying purchase categories, making cash back credit cards an attractive addition to most people’s wallets.

Unlike travel credit cards, which frequently reward cardholders with points or miles that vary in value based on how they are redeemed, cash back incentives have a set cash value.

While travel credit cards and other rewards credit cards can provide a lot of value to their cardholders, cards that earn points and miles rather than cash back can feel more difficult to use. Those who use cash back credit cards do not have to consider the value of their rewards; instead, they can redeem their cash back in the form of statement credits, online purchases, and other options.

Cash back credit cards range from simple to sophisticated, but each can be beneficial. When you use a cash back credit card to make a qualifying purchase in person or online, it earns a percentage of the total amount paid. That means if you spend $500 on a card that earns 1.5% cash back, you’ll receive $7.50 in rewards.

Cash back is often issued at the conclusion of the statement period or billing cycle and can be redeemed as a deposit into a bank account, statement credit, check, gift card, or possibly other choices, depending on the credit card.

Cash back credit cards come in a variety of types. Some credit cards earn a flat rate on all purchases, which means they receive the same rewards rate regardless of category. Other cash back credit cards generate higher returns in select popular spending areas while offering a lower base rate on everything else.

Here’s a detailed look at how cash back credit cards function.

What is Cash back?

Cash back is a type of credit card reward that you earn by making purchases with your credit card. You can use your rewards for statement credits, account deposits, or purchases. In some circumstances, cash back incentives can be converted into points and used for further redemptions.

Now, let’s discuss what cash back isn’t. Cash back, unlike a debit card, does not provide you with cash at the place of purchase. Your cash back incentives will not appear in your account until your transaction is fully completed — and in some circumstances, not until you’ve paid off the purchase — so don’t expect to be able to claim your cash back immediately after swiping your card.

When you use your cash-back credit card, you’re essentially earning pennies as a percentage of each purchase. It may not feel like much at first, but it adds up over time.

As long as your account is open and in good standing, you’ll earn cash back on all eligible purchases. But some transactions don’t qualify, including:

• Cash advances.
• Balance transfers.
• Cash-like transactions (like purchases of foreign currency, money orders or cryptocurrency).
• Lottery tickets.
• Gambling-related purchases.

Purchases made through a third party like a digital wallet or wireless card reader may also not earn rewards if the technology can’t provide enough information about the transaction to classify it as eligible for cash back.

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Depending on the type of credit card, cash back may be easy to earn or you may have to jump through a few hoops to earn a better rate. Different credit cards issue cash back in the following ways:

A flat rate on all purchases

A flat-rate cash-back credit card can offer 1.5% or more in cash back on all purchases. It’s typically the simplest way to earn cash back, but it may not be as straightforward on some cards. The $0-annual-fee Citi Double Cash® Card, for example, earns 2% back on all purchases: 1% when you buy and 1% when you pay the bill. It’s still fairly simple to earn cash back since the bill will be due. Other cards like the $0-annual-fee Wells Fargo Active Cash® Card offer more straightforward cash back. This card earns an unlimited 2% cash back on all purchases.

Elevated rewards in common everyday categories

Other cash-back credit cards may provide larger benefits in specific areas — such as petrol, restaurants, streaming services, or grocery — while offering a lower basic rewards rate (often 1%, but occasionally more) elsewhere. Some cards may also limit the amount of spending that qualifies for additional benefits. For example, American Express’s $0-annual-fee Blue Cash Everyday® Card provides 3% cash back at US supermarkets (up to $6,000 per year), 3% cash back at US gas stations (up to $6,000 per year), 3% cash back on US online retail purchases (up to $6,000 per year), and 1% back on all other eligible purchases. Terms apply.

Cash back in customized spending categories

Some cash back credit cards provide rewards in a few high-spending areas chosen from a list of popular selections that are likely to match your spending. For the first $2,500 in combined bonus category/grocery store/wholesale club spending per quarter, the Bank of America® Customized Cash Rewards credit card with no annual fee delivers 3% back on one of six categories and 2% back on grocery stores and wholesale clubs. Once you reach that criteria, you will receive 1% back. Purchases outside of these categories earn 1% back. Gas, internet shopping, dining, travel, drugstores, and home remodeling and furnishings are some of the major spending areas.

Another example is the Citi Custom Cash® Card, which charges no annual fee and gets 5% cash back on up to $500 in your top spend category per billing cycle from a selection of qualifying alternatives, as well as 1% on all other transactions. This card’s eligible reward categories are a little more extensive, including grocery stores, restaurants, gas stations, streaming services, drugstores, home improvement stores, fitness clubs, select travel, select transit, and live entertainment.

Bonus cash back in rotating categories

With a little effort, you can earn up to 5% cash back on typical purchasing categories. The $0 annual fee With activation, Discover it® Cash Back gives 5% back in rotating quarterly categories on up to $1,500 in purchases per quarter, as well as 1% back on everything else. Bonus categories include restaurants, grocery stores, and gas stations. The categories on these cards are hit or miss because they may not always correspond to your spending.

With these alternatives, your memory must be sharp, or you will need to create reminders to keep track of categories as they change. Failure to activate categories will result in a 1% base rate. It’s also vital to keep categories in mind while making scheduled purchases in order to take advantage of the higher rates.

What are the 3 Main Types of Credit Card Rewards?

It’s critical to understand what constitutes a rewards card. A rewards card is one that lets you earn cash back, points, or miles on your transactions. These cards either offer the same number of rewards on every purchase (known as flat-rate rewards) or additional rewards in specific categories (such as higher earning rates on dining out or grocery).

You can only receive rewards for new purchases, not balance transfers or cash advances.

Credit cards generally offer one of three reward structures: cash back, points or miles. The type of rewards you earn depends on the card you have.

Cash back

The majority of cash-back cards let you earn a certain percentage of cash based on your spending, such as the Citi Double Cash® Card, which provides 2% on every purchase with unlimited 1% cash back when you buy, plus an additional 1% as you pay for those purchases. Plus, for a limited time, earn 5% total cash back on hotel, car rentals and attractions booked on the Citi Travel℠ portal through 12/31/24.

However, some cash-back cards actually accrue points that can be converted into a dollar value. For instance, the Chase Freedom® and Chase Freedom Unlimited® are marketed as earning cash back, but rewards are provided as Chase Ultimate Rewards® points. The points vary in value based on how you choose to use them.

Points

Other rewards cards that don’t earn cash back either provide points or miles. For example, the Chase Sapphire Preferred® Card offers Ultimate Rewards® points, whereas the American Express® Gold Card offers Membership Rewards® points. Terms Apply.

Miles

Most co-branded airline cards offer miles as part of the brand’s unique membership rewards program. One example is co-branded Delta cards, like the Delta SkyMiles® Blue American Express Card, which offer rewards as SkyMiles (Delta Airlines’ membership rewards).

Each rewards program works a bit differently, so it’s important you understand the basic rules below.

Value of rewards

The amount your rewards are worth can vary by program. Cash-back cards are the most straightforward since you receive a percentage of your spending back. A 2% cash-back card means a $100 purchase effectively earns $2 back. However a $100 purchase with a 2X points or miles card isn’t always equal to $2 back. It can be less or more, depending on the card and how you redeem them.

When deciding on how to use your points, it’s a good idea to strive for a 1:1 value, meaning one point/mile is worth a penny. To calculate if you’re getting a 1:1 value, take the cost of the redemption item (such as a gift card or travel reservation) and divide it by how many points/miles are needed.

Redemption options

While the value of rewards varies between programs, redemption options are often similar. Here are common options:

• Statement credit
• Deposit to a linked bank account
• Pay with points at checkout for select online websites
• Gift cards
• Travel reservations
• Merchandise
• Charity

When you can redeem rewards

Some card issuers require you to reach a certain threshold — typically $25 or 2,500 points/miles — before you can redeem rewards. However, certain card issuers, such as Capital One and Chase, let you redeem points at any amount.

Rewards expiration

In most cases, as long as your account remains open and in good standing, you’ll have access to your rewards. But if you close your account or become delinquent, you’ll risk losing your rewards.

How to Redeem Rewards

After making a purchase, you are probably ready to claim your rewards. However, incentives can take one to two billing cycles to appear on your account. Once they show, you will be able to begin the redemption procedure.

Card issuers frequently feature rewards sites that act as a one-stop shop for seeing and redeeming your points. Simply log into your account and go to the rewards section. You’ll then be able to see your rewards balance and browse the different redemption choices.

Before deciding on a redemption, make sure to evaluate the worth of your incentives. The value of your rewards vary depending on whether you redeem them for statement credit, a gift card, vacation, goods, or something else. Aim for a 1:1 value to avoid devaluing the cashback, points, or miles you earn.

The timetable for receiving your reward redemption varies depending on the option you select. A statement credit can take up to a week to post to your account, whereas an e-gift card can arrive in your inbox in minutes.

Final Thoughts

You might be able to earn even more cash back by combining your credit card with a cash back app. These apps, browser extensions, and websites allow you to earn a small percentage of cash back for qualified purchases made through the app or website. They may also allow you to compare prices, create price decrease notifications, and look for promo codes.

After you’ve earned a specific amount of money, you can transfer it to a financial provider like PayPal or your bank account. It’s worth noting that the cash back gained through these programs differs from the cash back obtained with a cash-back rewards card. The prizes will accumulate in various accounts.

Popular cash back sites include:

• Rakuten. This website and its app and browser extension connect you with cash back deals at more than 3,500 top retailers, such as Walmart, Target and Old Navy.
• Dosh. By linking this app to your debit and credit cards, you can earn cash back on qualifying purchases at retailers, hotels and restaurants. Once your balance hits $15, your rewards can be transferred to you or even donated to charity.
• Ibotta. While this app and browser extension has partnerships with many retailers, it stands out for its deals on groceries. You can claim these whether you’re shopping in person or online.

To make the most of these services, use a cash back credit card to pay for your purchases. You’ll maximize your rewards by earning cash back both through the credit card and the app.