Alternate name: Cash rewards card
For example, a cash-back credit card offering 1% cash-back rewards on all purchases would add $10 to your rewards balance when you make a $1,000 purchase.
How Do Cash-Back Credit Cards Work?
When using your cash-back credit card for an eligible purchase, the credit card issuer credits your rewards balance with a percentage of the purchase amount. Some credit cards offer the same flat-rate cash rewards for all purchases, while others provide a higher percentage for purchases in certain categories, whether you choose them or as assigned by the issuer. After your rewards are credited to your balance—it can take up to two billing cycles—you can redeem your rewards for cash back. For example, a credit card may offer 2% rewards on gas purchases and 1% rewards on everything else. Spending $500 on gas and $1,000 on other shopping within a month could earn $20 in rewards.
Assigning Rewards
Many cash-back credit cards offer higher rewards for purchases in specific categories. With these cards, purchases qualify based on where you’ve shopped, not necessarily what you’ve purchased. For example, you may not receive a higher percentage designated for gas purchased at a warehouse club versus gas purchased at a standalone gas station. Credit card issuers use the business’s merchant category code to determine which purchases qualify for bonus rewards. Purchases may not be eligible if the merchant’s category code doesn’t qualify or the payment technology doesn’t relay the code accurately.
Welcome Bonus
Many cards offer a welcome bonus to new cardholders. To get the bonus, the cardholders must meet a minimum spending requirement in the months after opening the credit card. For example, a $200 bonus if you spend $500 within the first 90 days after opening your account.
Redemption Options
Once you’re ready to redeem your rewards, you can choose among your credit card issuer’s options. Common redemption options include:
Statement creditDeposit to your linked bank accountCheckGift cardsContribution to a 529 educational plan or other investment account
Types of Cash-Back Credit Cards
Cash-back credit cards can be categorized based on the rewards program structure.
Flat-Rate Cash-Back Cards
Flat-rate cash-back credit cards offer the same reward rate on all purchases. For example, earning 1.5% cash back for every $1 spent on all purchases. The rewards rate is generally low but available for more purchases. Since every spend earns rewards, you don’t have to think about which credit card you’ll use.
Tiered Bonus Cash-Back Cards
Tiered cash-back credit cards offer higher rewards for specific categories and flat-rate on all other purchases. You’ll commonly find higher rewards on travel, dining, and gas purchases. A tiered credit card may offer 5% on travel, 2% on dining, and 1% on everything else.
Rotating Bonus Cash-Back Cards
Custom Bonus Cash-Back Cards
Some cards allow you to select your own bonus categories, on a quarterly or monthly basis. You might need to set your bonus purchase categories to be eligible for the higher rewards rate.
Merchant Co-Branded Cash-Back Cards
Cash-Back Credit Card Fees
Cash-back credit cards may come with a few fees, some of which can be avoided.
Annual Fee
An annual fee is a yearly fee charged on cash-back credit cards. Annual fees aren’t common in the cash-back credit card world.
Transaction Fees
Most cash-back credit cards have transaction fees, taken as either a percentage amount or a flat rate:
Foreign transaction fee: From using your credit card while traveling internationally or making purchases from foreign countries. Balance transfer fee: moving the balance of one card to another. Cash advances: taking out cash using your cash-back card.
Penalties
Most cash-back credit cards also have penalties that you can avoid by carefully watching payment deadlines and terms:
Late fee: Charged when you fail to make your payment by the cutoff time on the due date. Returned payment: Charged when a card payment is returned. Penalty APR: A higher interest rate charged on future purchases when you miss a minimum payment date.
How To Get a Cash-Back Credit Card
Consider where you spend money to narrow down your credit card options, and how much you spend. Shop around with major credit card issuers to compare currently available offers and carefully review the categories offered. Some people spend a lot on groceries, while others spend more on dining out. In addition to the cash-back rewards program, pay attention to the welcome bonus, promotional APR, fees, and any credit card perks.Look for a cash-back credit card that fits your credit profile. If you’re working on your credit, consider a secured cash-back credit card to get your foot in the door. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
