What Is Cash Back and How Does it Work?

Cash back is a credit card rewards benefit that refunds the cardholder a small percentage of each purchase made with the card. Percentages typically range between 1 and 1.5% for a flat rate cash back card,² but can go as high as 5% or even 6% depending on the card issuer, type of card, and what you’re buying.

For example, some cards might offer flat-rate cash back bonuses of 1% on all eligible transactions. Other cards might offer a tiered structure, which could be, for example, 3% cash back on gas purchases, 2% on groceries, and 1% on all other purchases. Then there are cards that offer high rewards in rotating bonus categories. This means you could earn as much as 5% cash back in a particular spending category, but the category may change every few months.

How you can go about redeeming your cash back rewards will depend on your card provider, and which options they have. Some of the ways that some credit card issuers could allow you to redeem cash back may include one or more of the following: 

• Statement credit. You may be able to redeem your cash back rewards in the form of statement credits.
  
• Make a charitable donation. Some card issuers may let you transfer your cash back bonus to a charity of your choice.
  
• Buy a gift card. Many cards offer a virtual shopping portal to purchase gift cards to select retailers—and some might even offer an extra $5 incentive to do so.
  
• Apply cash back at online checkout. Some card issuers partner with retail sites to let you use your cash back bonus when making an online purchase.

It’s a good idea to check with your card provider to learn all the redemption opportunities available to you.

With so many different types of cash back credit cards and issuers, choosing the best cash back credit card for you is important to get the most out of your card. Consider the type of cash back rewards the card offers and find one that fits your spending habits.

It’s important to note that some cash back cards come with restrictions that can vary depending on how you choose to redeem your cash back. You might be able to make a charitable donation for an amount as small as a penny, for example, but you might have to use at least $20 of your cash back to get a gift card. In addition, there’s usually a limit or cap on how much cash back you can earn on your purchases. In most cases it’ll reset quarterly or yearly. 

It’s also worth noting that, depending on your card issuer and the card itself, some cash back rewards might expire. There’s no industry standard or law that determines if and when your bonus expires, so it’s best to check with your card issuer to make sure you understand the terms and conditions. But keep in mind: you might lose your cash back if you close your account or go into default.