What is Cash Back and How Does Cash Back Work? (2024)

FAQs

What is Cash Back and How Does Cash Back Work? ›

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.

No, cash back is not free money. You need to make a purchase with your card to earn cash back. Cash-back rates typically range from 1% to 5%, so you will still be paying for the majority of your purchase out of pocket.

Most commonly, it's a credit card benefit that refunds the cardholder a small percentage of the amount spent on each purchase above a certain dollar threshold. Cash back also describes a debit card transaction in which cardholders receive cash when they make a purchase—generally, a small amount above the item cost.

Downsides of cash back programs

Sometimes, the issuer delays or caps your rewards at a certain amount, limiting your ability to get cash quickly. Higher costs for some. Cash back cards can carry higher annual percentage rates (APR), meaning you have to pay high fees if you carry a balance. Annual fees.

Cashback, effectively a reward or incentive, is primarily used by credit card companies to encourage consumers to make purchases on credit more often. A cashback feature on a credit card allows the cardholder to earn a percentage (ranging typically from 0.25%-5%) of eligible spend.

The cash back is typically issued at the end of the statement period or billing cycle and you can redeem it as a deposit into a bank account, statement credit, check, gift card, and potentially other options, depending on the credit card. Cash-back credit cards come in different forms.

If your cash back rewards have an expiration date, it's best to redeem those cash rewards as soon as you can; otherwise, you may lose the bonus cash accumulated through each eligible purchase. If you don't want to forfeit your active cash rewards, consider applying them as a statement credit if the card issuer allows.

Cash back credit card rewards are either paid out in dollars or points. Dollars: Cash rewards are delivered in the form of a check, a prepaid debit card or a credit on your monthly statement, depending on what your card issuer allows.

When merchants accept payment via credit card, they are required to pay a percentage of the transaction amount as a fee to the credit card company. If the cardholder has a participating cash back rewards program, the credit card issuer simply shares some of the merchant fees with the consumer.

Pay off debt

The smartest thing you can do with your cash back is to pay off your credit card debt. By applying cash back directly to your card balance, you're effectively lowering the principal and reducing the amount of interest that accrues.

What is an example of cash back? ›

For example, they may pay 1% cashback on groceries, but 2% in clothing stores or petrol stations. You may also find cashback credit cards that offer a higher rate of cashback if your yearly spending exceeds a certain amount.

Cashback does seem to be a safe and legitimate site, but you should use it with caution. If you're not comfortable giving away personal data to the site, or to its third-party brands, you should steer clear.

Cash-back fees are levied on low pre-set cash withdrawal amounts. Many merchants pre-determine the withdrawal amount options in a single transaction, commonly between $5 and $50.

There are many ways to use cash back, with some of the most popular redemption methods being statement credits, online shopping and gift cards. Certain cards also allow you to deposit your cash back directly into a bank account or use it to make a charitable donation.

Many credit and debit cards offer cash-back rewards programs, which refund a small percentage of cash for every qualifying purchase. The percentage reward functions like a discount on things you buy. For example, a credit card or debit card holder may get 1.5%, or 1.5¢ back for every dollar spent on eligible purchases.

Merchants offer cash back to attract customers and reduce their cash handling costs. In its recent engagement and market monitoring, the CFPB observed that some retailers charge a fee for this transaction.

There can be some catches to cash-back programs, such as: Some cards require a minimum amount of spending to earn cash back. There may be limits on how much cash back you can earn in a specific period, and the types of purchases for which you can earn cash back on.

Cashback sites earn money through affiliate marketing, which is the process of promoting the products or services of another company in exchange for a commission for every successful sale. When a customer purchases through a cashback site's affiliate link, the cashback site earns a commission.

Five of the eight companies that the CFPB sampled offer cash back for free. They include Albertsons, a grocer; the drugstore chains CVS and Walgreens; and discount retailers Target and Walmart. (Kroger proposed a $25 billion merger with Albertsons in 2022, but that deal is pending in court.)