What is a Cashback in Credit Card & How Cashback Works? (2024)

FAQs

What is a Cashback in Credit Card & How Cashback Works? ›

Cash back refers to credit and debit card benefits that give you a percentage of your money back for each purchase. Unlike points or miles, which vary in value, cash back offers a simple percentage of your spending as a rebate.

Cash back is a form of credit card rewards you earn by making purchases with your credit card. You can redeem those rewards for statement credits, account deposits or purchases. In some cases, you can convert the cash back rewards into points and use them for other types of redemptions.

For every purchase a customer makes with their card, the retailer has to pay a certain percentage back to the card company. The credit card company then passes some of this payment back to the customer in the form of cashback. Debit card cashback is generally cashback paid directly from the bank to the customer.

When a credit card gives you 5% cash back, it means that you will earn 5 cents in rewards for every dollar you spend on qualifying purchases. You can usually redeem cash back rewards for a statement credit, a check in the mail, or a deposit into an eligible bank account.

There are a few drawbacks to a cash-back rewards card, including a higher-than-usual APR, having to wait to access your cash-back funds, and a cap on how much you can earn each year. Also, when it comes to travel rewards such as airline miles, sometimes the miles are worth more than the cash. Experian.

Cash back is not free money, but rather a reward for making purchases on expenses like gas, groceries, restaurant meals or even streaming services. Understanding how cash back works and what to look for in your next card can help you maximize rewards and earn more money back on everyday purchases.

Once you're ready to redeem rewards, cash back can be used to fund a bank account, pad an emergency fund, cover a purchase or shave a few dollars off of the credit card bill.

If you need to pay down your credit card balance, redeem and apply cash back as soon as possible to head off interest.

Choosing a flat-rate cash-back credit card

Generally, a 2% card wins out over a longer period and benefits high spenders (assuming the 2% cash back is unlimited.) But the 1.5% card with a bonus is better in the short term and better for low spenders. If it's a tie, think short-term.

Does cashback show up on a bank statement? ›

Cash back rewards for qualifying purchases made with your debit card will typically appear in your account after the close of each statement period.

How 3% Cash Back Works. The way 3% cash back works is simple: You make purchases on your card, and then rewards equaling 3% of those purchases appear in your account, which can sometimes take one to two billing periods. For example, if you spend $1,000 on purchases eligible for 3% cash back, you get $30 in rewards.

Cash back rewards operate on a percentage basis. An example: If you have a card with a purchase rewards rate of 1.5% and you make $100 in purchases, you would earn $1.50 in cash back. These rewards may seem small, but they can add up quickly.

When you request a credit card refund, the merchant or retailer sends the refund to your credit card issuer first. Your credit card issuer then applies the refund to your statement or balance as a credit.

And it can be worse if you're using a cash-back card, which is considered a “rewards” credit card because you earn a bonus on your spending. These types of credit cards tend to have higher interest rates, on average, than others.

Cash advance

Fees for cash advances may differ across cards, but you'll often pay around 5% of the amount withdrawn. You'll also incur a higher interest rate on the amount withdrawn, typically up to 29.99%.