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How to calculate cash back on credit cards

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    If you're still working on figuring out your cash back rewards, you may find yourself struggling to understand how to calculate cash back on credit cards. Knowing how to do this calculation may also come in handy if you're trying to decide which cash back card would be most beneficial for you.

    How does cash back work?

    Cash back is a credit card benefit you may see often, but how does it work? While exact terms vary between cards and issuers, cardholders generally receive a percentage of the cost of a purchase back. How much will depend on your card's benefits.

    Additionally, the percentage can differ among cash back categories.

    Some cards have set bonus categories. For example, Chase Freedom Unlimited® offers a set cash back percentage on all purchases, but higher percentages on travel purchased through Chase Ultimate Rewards, dining (including takeout and eligible delivery services), and drugstore purchases.

    Some cards, however, offer rotating bonus categories. The Chase Freedom Flex card, for instance, has cash back bonus categories that change each quarter. These may include things like grocery stores, gym memberships, gas stations/electric vehicle charging or live entertainment purchases.

    Calculating cash back

    Calculating your cash back requires some math, but the formula is a relatively simple one. The only information you need is your purchase total and your cash back rate. You may find it helpful to keep a note handy with the cash back rates for different categories if it varies with your card.

    If you want to plug your numbers into a calculator, turn your cash back percentage into a decimal. Remember that the percentage is out of 100. So, if 100% is equal to 1.00, then 2% cash back would be plugged into a calculator as 0.02.

    The formula for your cash back calculation will be: Purchase Price x Cash Back Percentage (as a decimal) = Cash Back Total.

    An example would be if you bought a pair of sneakers for $75 using a card with a cash back rate of 1.5%. You would calculate: $75 x .015 = $1.125 cash back. Alternatively, if you bought those sneakers using a card with a bonus cash back rate of 3%, you would calculate $75 x .03 = $2.25 cash back.

    How to redeem cash back

    Earned cash back may be redeemed as a statement credit, direct deposit, check or gift card — the options will depend on your card and issuer. Some may issue the credit automatically, or you may be able to request it — some issuers may have a minimum threshold you have to meet before redeeming.

    Your cash back rewards information will likely all be available through your online banking statement or your credit card's app. Once the cash back has been distributed to you, what you do with that money is a purely personal choice. You may wish to use it toward your balance, set it aside for a rainy day or anything else!

    Some issuers may let you redeem your cash back through gift cards, or by putting it toward travel if you book through their portal. Be sure to take a good look at your terms and conditions to really understand all the ways you can make the most of your cash back rewards.

    In summary

    If you want to know how to calculate cash back on credit cards, you only need to know your purchase total and your cash back percentage. If you want to check that information, you can likely find it on your credit card's app or online banking service. From there, some quick multiplication will help you get the answers you're looking for. And once you know how much cash back to expect, you can start deciding what to do with it!

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