What does it mean when a card offers cash back?
Credit card cash back rewards are bonuses provided to credit card customers when they use their cards to make purchases. Cash back rewards can take the form of dollars or points — with points typically redeemable on an online marketplace operated by the card issuer. Cash back rewards operate on a percentage basis.
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.
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.
Cash back cards give you back a certain percentage of your qualifying spending in the form of cash rewards. Some cash back cards have a flat rate reward structure where you get the same cash back percentage across all shopping categories, while others have different rewards structures for different categories.
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.
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 makes a purchase through a cashback site's affiliate link, the cashback site earns a commission on the sale.
You can usually get cash from your credit card at an ATM or bank branch. Convenience checks might be another option. They're blank checks from credit card issuers that are charged to credit card accounts. Getting cash from a credit card may come with fees and higher interest rates than other credit card purchases do.
Cash back is the most stable form of credit card rewards because its units are in dollar amounts. The value of points and miles, however, are up to the card issuer, and can change at any time. Signup bonuses are common among cash back credit cards. Cash back credit cards can come with cash signup bonuses.
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.
With this type of cash back, you make a purchase, and the credit card company will offer you a reward worth a set percentage of that purchase. For example, let's say your credit card offers 1% cash back on all purchases. If you spend $100, you'd get a $1 reward.
Is there a downside to cash back credit cards?
The main downside of cash-back cards is you can't strategize to get outsized value, like plotting to use airline miles for a first-class ticket that would otherwise cost thousands of dollars. And they come with fewer perks than you'll find on higher-end cards — no airport lounge access or free hotel nights.
You should redeem cash back as soon as you can because it continually loses value due to inflation. Even though your cash back won't lose much of its value year to year, it doesn't make sense to hold on to it. Maximize its value by redeeming it immediately.
Today, cash-back cards allow you to earn money back on various purchases at the end of each statement cycle. Your cash rewards can then be used as a statement credit, deposited to your bank account or a few other options.
For example, a customer purchasing $18.99 worth of goods at a supermarket might ask for twenty dollars cashback. The customer would approve a debit payment of $38.99 to the store, and the cashier would then give the customer $20 in cash.
The term "100% cash back" can be a bit misleading, as it doesn't actually mean that you'll get 100% of your purchase price back in the form of cash. Usually, what this means is that you'll get 100% of the purchase price refunded to you in the form of credit or points depending on how you accessed the offer.
Cashback, effectively a reward or incentive, is primarily used by credit card companies to encourage consumers to make purchases on credit more often.
Cashbacks are also emotionally and psychologically effective. They appeal to consumers' desire for instant gratification and provide a sense of reward for making a purchase. Cashbacks can also create a sense of loyalty to the brand, as consumers feel that they are being rewarded for their loyalty.
Fill out a withdrawal slip with the info that's required on it — your bank account number, etc and the amount you wish to withdraw. Go to the drive-through at your bank or inside to a teller and give them the W/D slip and your ID. The bank gives you your ID back along with the cash amount you requested. And that's it.
For example, if you spend $1,000 on purchases eligible for 3% cash back, you get $30 in rewards. Then, you can usually redeem that cash back as a statement credit or a deposit to a bank account, and sometimes for a check.
What Is 2% Cash Back? If you're wondering, 'What does 2% cash back mean exactly?,' here's how it works. Earning 2% cash back simply means that for every $100 you spend on your credit card, you'll get $2 back.
What does $15 cash back mean?
You can think of cash back rewards like getting a small rebate on every eligible purchase. Here's an example. If your card offers 1.5% back for any purchase in any spending category, and you spend $1,000 in a month, you'll get $15 in cash back rewards.
They advise against using your credit card to pay for things like rent, gas, cash advances, medical bills, buying a car, and expensive events like weddings. While it can be tempting to put everything on your debit card for budgeting purposes, there are financially savvy reasons to swipe your credit card.
Key Takeaways
Credit cards make it all too easy to overspend. Buying on credit can also make your purchases more expensive, considering the interest you may pay on them. Getting into too much debt can not only hurt your credit score but also strain relationships with family and friends.
If you don't use your credit card, the card issuer may close your account. You are also more susceptible to fraud if you aren't vigilant about checking up on the inactive card, and fraudulent charges can affect your credit rating and finances.
If you travel often, you're likely to get more value out of a rewards card that offers points instead of cash back. But if traveling isn't your thing, or you value simplicity and low annual fees, a cash back credit card may be a better choice for you.
