Can You Get Cashback on a Credit Card?

Cashback is a benefit offered by many credit cards, providing cardholders with a small percentage of their eligible spending back as a reward. This effectively functions as a rebate or a tiny refund on purchases made with the card.

Understanding Cashback Rewards

Credit card companies offer cashback as an incentive to encourage card usage and attract new customers. For instance, spending $500 on a card that offers 1.5% cashback would result in $7.50 in rewards.

Cashback is typically earned on qualified purchases, meaning not all transactions may count. Exclusions often include balance transfers, cash advances, fees, and cash-like transactions such as buying foreign currency, money orders, or lottery tickets. While often referred to as “cash,” these rewards can also accumulate as points or miles that can later be converted into cash value. The earned cashback usually accrues throughout a billing cycle before becoming available for redemption.

Earning Cashback

Cashback can be accumulated through various earning structures designed to reward different spending patterns. One common method is flat-rate cashback, where a consistent percentage, often between 1% and 2%, is earned on all eligible purchases regardless of the spending category.

Another structure is tiered cashback, which provides different percentages based on specific spending categories. For example, a card might offer a higher percentage on groceries or gas, and a lower base rate on all other purchases. Additionally, some cards feature rotating bonus categories, offering elevated cashback rates, sometimes as high as 5%, in specific categories that change quarterly or monthly. These categories often include popular spending areas like gas stations, restaurants, or grocery stores, though they typically require activation and may have spending caps.

New cardholders can also earn cashback through sign-up bonuses. These are one-time offers, often ranging from $200 to several hundred dollars, typically awarded after meeting a specified spending threshold within the first few months of account opening. For example, a card might offer a $200 bonus after spending $500 in the first three months. Annual fees, interest charges, balance transfers, and cash advances generally do not count toward meeting these spending requirements.

Redeeming Cashback Rewards

Once cashback rewards have been accumulated, cardholders have several options for converting them into tangible value. A common method is receiving a statement credit, where the cashback directly reduces the outstanding balance on the credit card.

Another popular redemption option is a direct deposit into a linked bank account. Some credit card programs also allow cardholders to convert their cashback into gift cards for various retailers or restaurants, sometimes offering an increased value compared to other redemption methods. Furthermore, certain cards that earn rewards as points or miles may allow conversion to cashback, though the value per point might be lower than if redeemed for travel or other specific rewards. Some issuers even allow using cashback to pay for purchases directly at checkout with select online merchants.

Key Considerations When Choosing a Card

When choosing a cashback credit card, several factors should be evaluated. Annual fees are a notable consideration, as they can range from no fee to over $500 for premium cards, with common fees around $95 for rewards cards. While many cards have no annual fee, those with fees often offer enhanced rewards or benefits, necessitating a calculation to determine if the earned cashback will offset the fee.

The Annual Percentage Rate (APR) on a cashback card is also important, especially if a balance is carried. The average credit card APR can be around 20% to 24%, and carrying a balance means interest charges can quickly negate any cashback earned. Some cards offer introductory 0% APR periods on new purchases or balance transfers, which can provide a temporary reprieve from interest.

Aligning the card’s earning structure with personal spending habits is crucial for maximizing benefits. If a card offers higher cashback in categories like groceries or dining, it is most beneficial for individuals who spend heavily in those areas. Conversely, a flat-rate card might be better for those with varied spending. Redemption flexibility is another factor, as some cards offer more convenient or valuable ways to access earned rewards. Eligibility for certain cashback cards often depends on one’s credit history, with higher credit scores typically required for cards offering more generous rewards or lower APRs.