What Is Cashback and How Does it Work?

What is Cashback: Key Takeaways

• Credit card holders can receive some of their cash back when buying products or services through a money-back benefit offered by a cash back credit card. This is called “cashback.”
• The offer can be applied to your credit card bill, received as a check, deposited into a bank account, or used as store credit.
• The amount received back typically varies from 1% – 5% depending on the type of purchase made.
• If you spend more than the cost of the items you’re buying using a debit card, you can get the extra amount back in cash during checkout.
• Some cashback deals may come with annual fees or high annual rates. Consider this before signing up.
• Many popular US stores have a rebate program, including Walmart, Amazon, Target, Best Buy, etc.

🔥 Popular Stores That Offer Cashback

Definition of Cashback

Cashback is a type of reward offered by credit card companies, debit card issuers, and retailers that allows customers to earn a percentage of their purchase amount back as a reward. This reward can come in various forms, such as cash, statement credits, or other benefits. Cashback is a popular rewards program designed to incentivize customers to make purchases using their credit or debit cards. By offering cashback, card issuers and retailers encourage customer loyalty and increased spending.

How Does Cashback Work?

Cashback works in a way that helps customers get back a percentage of their purchase through cash or credit card rewards points, effectively earning cash on their purchases. After completing a purchase at a participating retailer, you’ll receive the benefits via the app or website that tracks the purchase.

The card issuer plays a crucial role in determining the specific terms and conditions of the cashback rewards, including the timing and expiration of the rewards.

You can then redeem your cash or use it as a credit to offset future purchases. Here’s an example:

• Step 1: A customer signs up for a cashback app or website.
• Step 2: They link their credit or debit card to their app/website account.
• Step 3: The customer shops at a participating retailer and pays with their linked bank card.
• Step 4: The app or website tracks the purchase and applies a percentage of the purchase amount to the customer’s account.
• Step 5: The customer can then exchange that credit for actual money or use it as a credit to reduce the cost of future purchases at that store.

Cashback rewards sometimes have restrictions, such as minimum purchase amounts or exclusions for specific products or categories. Read the terms and conditions of rebate deals before purchasing to ensure the transaction is eligible.

Basic Mechanics of Cashback

The basic mechanics of cashback involve a partnership between credit card companies, debit card issuers, and retailers. When a customer makes a purchase using their credit or debit card, the retailer pays a small percentage of the transaction amount to the credit card company or debit card issuer. The card issuer then passes a portion of this amount back to the customer as a cashback reward. This reward can be earned on eligible purchases, such as those made at grocery stores, online retail purchases, and other categories. The process is seamless for the customer, who simply needs to use their card to start earning rewards.

Cashback Websites and Apps Pros & Cons

The Pros 👍

• Save money: cashback deals help you save money by providing a portion of the purchase as cash or rewards points, allowing you to earn cash on your purchases.
• Easy to use: these platforms are generally easy to use, with simple sign-up processes and automatic tracking of purchases.
• Wide variety of retailers: many apps and websites have offers for a wide variety of retailers, whether they are online or brick-and-mortar stores. Big brands also tend to run their own cashback promotions.
• Extra discounts: rebate apps and websites can also offer coupons and deals that’ll help you save even more money on purchases. In a survey about coupons statistics, we found out that 85% of people use coupons in the United States.

The Cons 👎

• Minimum threshold for redemption: there might be a minimum threshold for redeeming cash returns. So, you’ll have to spend a certain amount before redeeming it for cash or using it to offset future purchases.
• Exclusions and restrictions: rebate deals don’t apply to some product categories. Check specific terms and conditions.
• Time lag: cash can take time to be applied to your account and become available for redemption. Sometimes, you might have to wait a few days to a few weeks for the cashback to become accessible.
• Limited earning potential: most cashback offers are a percentage of the purchase price. So, the more you spend money, the more you’re getting back.
• Risk of identity theft: linking your credit or debit card to a rebate app or website carries an identity theft risk. To be as safe as possible, use a secure and reputable money-back service that explains how it protects your personal and financial information.

5 Types of Cashback Rewards

Flat-Rate Rebate

These cards give you the same flat rate cash back on all purchases, regardless of the category. For example, the Citi Double Cash Card offers 2% cashback. 1% when you buy and 1% as you pay off those purchases.

Unlimited 1% Cashback

• On all other purchases outside of the quarterly categories, customers earn a consistent 1% cash back. This feature ensures that even regular spending adds up over time, making it a versatile choice for various spending habits.

Tiered Money-Back

These rewards credit cards offer different rates depending on the spending category.

For example, The Bank of America Customized Cash Rewards credit card works like this:

• 3% cashback for a chosen product category (online shopping, dining, travel, gas and EV charging stations, drug stores, home improvement, cable, internet, phone plans or streaming )
• 2% at grocery stores and wholesale clubs (up to $2,500 in combined quarterly purchases)
• 1% on all other purchases

Rotating Category Cashback

These cards offer higher rates on specific categories that change each quarter. Cardholders may need to activate these categories each quarter to earn the higher rate.

For example, the “Discover it” cashback card offers 5% on everyday purchases at different places each quarter, such as Amazon, grocery stores, restaurants, or gas stations. Customers also get unlimited 1% cash back on all other purchases.

Bonus Category Rewards

Some cards offer high cash return rates on specific categories. For example, American Express Blue Cash Preferred provides 6% back at US supermarkets and select US streaming subscriptions. There’s also a 3% back offer for transit, including rideshare, parking, trains, buses, and more.

Redemption Bonus Cashback

Many rewards cards offer increased value or bonus cash when you redeem your cashback for specific options, like gift cards or travel bookings. Various credit card issuers provide these bonuses.

For instance, some issuers may present higher redemption values if you opt for gift cards from certain retailers. An example would be an offer where you can redeem $20 in cashback for a gift card valued at $25.

3 Types of Rewards Credit Cards

Store Credit Cards

Some retailers offer store credit cards that offer cashback deals. The amount of cash earned may vary based on the type of purchase and the specific terms of the store’s credit card program. Store credit cards incentivize customer loyalty via discounts or rewards at affiliated stores.

Gas Credit Cards

These are for cashback on purchases made at gas stations. The amount earned may depend on the type of gas purchased and the specific terms of the credit card program.

Travel Credit Cards

Travel credit cards offer rewards when you buy flights, hotel stays, and car rentals. The amount of cash you get could vary depending on the kind of purchase and the credit card program’s rules.

Earning Cashback

Earning cashback is a straightforward process that requires customers to make purchases using their credit or debit card. The amount of cashback earned depends on the credit card company’s or debit card issuer’s rewards program. Some credit cards offer a flat rate cashback on all purchases, while others provide higher cashback rates on specific categories, such as grocery stores or online retail purchases. By understanding the rewards structure of their card, customers can maximize their cashback earnings on everyday spending.

Cash Rewards on Debit Cards and Bank Accounts

Debit cards and bank accounts can also offer cash rewards, although the rewards structure may differ from credit card cashback programs. Debit card cashback rewards are typically paid directly by the bank to the customer, whereas credit card cashback rewards are paid by the credit card company. Some bank accounts may also offer cash rewards for certain types of transactions, such as direct deposits or bill payments. This makes it possible for customers to earn cash rewards even if they prefer using debit cards over credit cards.

Maximizing Cashback Rewards

Maximizing cashback rewards requires customers to choose the right cashback program for their spending habits. This involves researching different credit card companies’ and debit card issuers’ rewards programs to find the one that offers the highest cashback rates on the categories where they spend the most. Customers can also maximize their cashback rewards by using their credit or debit card for all eligible purchases, taking advantage of bonus cashback offers, and redeeming their cashback rewards regularly. By being strategic about their spending, customers can significantly increase their cashback earnings.

Choosing the Right Cash Back Program

Choosing the right cashback program involves considering several factors, including the credit card company’s or debit card issuer’s rewards structure, the categories where cashback is earned, and the redemption options. Customers should also consider the fees associated with the credit card or debit card, as well as the interest rates and terms. By choosing the right cashback program, customers can earn significant cash rewards on their purchases and maximize their rewards earnings. It’s essential to align the cashback program with personal spending habits to get the most value out of the rewards.

Cash Rewards FAQs

Can You Get Cashback from a Credit Card?

Yes, you can get some of the money you spend with a credit card back as a statement credit, check, or deposit into a bank account. The cash can be applied to the credit card bill, received as a check, or deposited into a bank account. The amount of cash earned varies based on the type of purchase and the specific terms of the credit card program.

Does Apple Pay Have Cashback?

Yes (sort of). Some merchants and payment apps offer cashback rewards for purchasing with Apple Pay. However, the availability and rewards terms for Apple Pay purchases vary. Check with the merchant or payment app to see if rebates are offered and see the specific terms and conditions.

Does Google Pay Have Cashback?

Yes, you can receive cashback when buying from your Android phone with Google Pay. The availability and terms of this offer differ from business to business.

Are Cashback Rewards Essentially Free Money?

Cashback deals are not really free money. They are typically earned through spending and are often subject to specific terms and conditions. Without spending, you’re not getting anything back; and without spending a lot, you might not get back that much.

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