How do cash-back credit cards operate?

What exactly is a cash-back credit card, and how does it function?

Essentially, cash-back credit cards do exactly what their name implies: they offer a cash-back reward on certain or all purchases made with the card. The rates at which you earn cash back can be either straightforward or quite intricate.

Cash-back cards are often compared to travel credit cards, which provide rewards points or miles from specific issuers, hotels, or airlines. Let’s delve deeper into the specifics of cash-back cards to see if they suit your needs.

What is a cash-back credit card?

Most cash-back cards provide a straightforward return rate for purchases made within specific categories. For instance, if a card offers 2% cash back on all purchases, you’ll receive 2 cents for every dollar spent.

Some credit cards have a consistent return rate across all transactions, while others provide elevated return rates for certain popular spending categories.

In contrast to travel credit cards, cash-back cards deliver rewards that have a fixed cash value — which can be a mixed blessing depending on how you choose to redeem your rewards.

How do cash-back credit cards function?

Cash-back credit cards are usually more straightforward compared to their points and miles alternatives. Typically, you’ll earn cash back on all eligible purchases, with some exceptions such as:

• Cash advances
• Balance transfers
• Money orders
• Foreign currency and/or cryptocurrency purchases
• Gambling-related transactions (including lottery tickets)

Transactions made via a digital wallet or wireless card reader can be tricky to categorize, which means you might not always receive the full rewards rate for those purchases.

Cash-back is typically issued at the end of your billing cycle or statement period and can be redeemed as a bank deposit, statement credit, check, gift card, or other options, depending on your card.

In summary

Cash-back credit cards provide straightforward rewards for those who prefer to avoid the complexities of points and miles.

Some cash-back cards feature a fixed return rate, while others offer enhanced returns for various purchase categories. Typically, cash-back rewards can be redeemed for statement credits, converted into online shopping credits, or directly deposited into bank accounts.