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. 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.
How do cash back credit cards work?
Cash back credit cards accrue rewards when you make purchases within specific categories (such as grocery stores or gas stations) on the card. There are important differences in what kinds of spending get rewarded and what format the rewards take, such as rotating categories and the value of points. You may also have to keep in mind that some cash back credit cards specify a maximum number of cash back you can earn within a specific time period.
How cash back credit cards reward your spending
Spending can get rewarded in a few different ways:
- By a flat amount. With flat rewards, your card activity gets rewarded by the same percentage each purchase. Using flat-rate rewards cards is easy, but the rewards percentage may be lower than what you would earn with a category-specific card.
- In fixed categories. Fixed-category rewards cards offer cash back on spending in pre-defined categories like travel, groceries or entertainment. Reward amounts can be higher than with flat-rate rewards cards, but it's up to the card issuer to define the categories and decide which merchants are included.
- Within rotating categories. Some category-specific cards offer extra-generous rewards in particular categories for a short amount of time: typically monthly or quarterly. Sometimes the rotating category is for spending within a broad category like electronics, while in other cases it can apply to spending with a specific retailer.
How cash back credit card rewards are paid out to you
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.
- Points: Points may hold more value than cash when redeemed through the card issuer's reward portal, depending on the card issuer's relationships with merchants.
How to earn cash back on your credit cards
You can earn cash back on your credit cards by signing up for a cash back card, making purchases to accrue rewards, and redeeming the rewards through your card issuer.
Shop around for the card that suits your spending.
There are so many different types of cards offering cash back that you can afford to shop around to find the one that best fits your lifestyle. Know your score before you apply to gauge your chances of being approved.
Time your spending.
It might be smart to time your spending — like the purchase of a new computer — to align with a card whose cash back rewards are about to rotate into an electronics category. You'll usually get an email or account notification (depending on your card's notification settings) informing you about eligible or rotating categories for cash back rewards as well as information about deadlines or eligibility periods.
Evaluate the value of the rewards.
Cash rewards are simple to redeem, but points may be more valuable. Card issuers may offer you a bonus on points redeemed in their online marketplaces.
What to know before signing up for a cash back credit card?
A cash back credit card is a great way to put your card spending to work. If you pay off your balance in full every month — thus avoiding interest and other fees — you might be able to accrue a generous number of cash back rewards each year.
However, if you carry a balance on your cards, you are likely to pay more in monthly interest than what you earn in rewards. Cash back credit cards may be best suited for consumers who pay off their balances in full each month.
Seek to understand your spending habits. Before signing up for a cash back rewards card, take a look back at your spending behavior. Do you dine out often? Are you a regular hotel guest? Once you understand how you spend, you can pick a card that fits your lifestyle and maximizes your rewards. Shop around to find the best card for you. Different cards offer rewards in different categories. Do your research to identify which card best matches your spending habits and offers rewards redemption in a format that you like.
Compare credit card cash back bonus offers
Many card issuers offer a cash back credit card new cardmember bonus. For cards that offer cash back rewards, these bonuses may take the form of a statement credit or a prepaid debit card. For points based rewards cards, you'll generally receive points instead. Note that bonus offers typically require you to spend a certain amount within a few months of opening the card.