Alternate name: Cash rewards
Let’s say you make a $200 purchase on a credit card that offers 2% cash back on all purchases. You would earn $4 in cash back.
How Cash Back Works
Credit card issuers offer cash-back rewards credit cards paying between 1% and 5% per transaction. Cash-back rewards incentivize consumers to sign up for credit cards and encourage loyalty. Each time you make a qualifying purchase, you earn a certain amount of cash back as defined by your credit card rewards program. If you have a credit card that pays 1% cash back, for example, you’ll earn $1 in cash back on a $100 purchase. The cash back you’ve earned accumulates until you redeem it. Redemption options vary by credit card issuer but may include a statement credit, deposit into your checking or savings account, gift card, or even a charitable donation. When a credit card offers cash back in specific categories, the card issuer uses the merchant category code—a four-digit code that identifies the type of business receiving your payment—to determine whether your purchase qualifies for cash back. There are some caveats to earning cash back. For one, the card issuer may limit the amount of cash back you can earn or have a minimum redemption amount. Not all transactions qualify for cash back. Balance transfers, cash advances, and cash-equivalent transactions (cryptocurrency, casino chips, gambling balances, etc.) typically will not earn cash back. You may not earn cash back if you’re late on credit card payments. If your account is closed or canceled, you may not be able to redeem your cash balance. If a transaction that previously earned cash back is refunded or reversed, the amount of cash back will be deducted from your rewards balance.
Types of Cash Back
Credit card cash-back programs generally fall into one of three categories.
Flat Rate
Flat-rate cash back allows you to earn the same amount of cash back on all purchases, regardless of the category or merchant. For example, the FNBO Evergreen Rewards Visa Card offers 2% on all purchases.
Tiered
Tiered cash back offers a higher percentage of cash back on purchases in specific categories and a flat rate of purchases on all other categories. A tied cash-back credit card may offer 3% cash back on groceries, 2% on gas, and 1% cash back on everything else.
Bonus Categories
Similar to tiered cash back, credit cards with bonus categories offer a higher amount of cash back in specific categories that rotate periodically and a flat rate on all other purchases. You may be required to activate your rewards before you can start earning in the higher tier. Discover it Cash Rewards and Chase Freedom Flex are examples of cards with bonus categories.
How To Get Cash Back
Earning cash back starts with opening a cash-back credit card. There are dozens to choose from, with some offering a sign-up bonus for new cardholders who meet initial spending requirements. Understand which purchases qualify for cash-back rewards and focus on using your credit card for those purchases. If you have a credit card that requires activation for bonus categories, complete your activation before the start of the bonus period to increase the amount of time you have to earn rewards. Your credit card may allow you to redeem your cash back at any time for any amount, or you may only be able to redeem in certain increments. Choose the cash-back option that’s most convenient for you. For example, a bank deposit gives you more flexibility to spend your earnings but a statement credit reduces your credit card balance.
