What is Cash Back?
Cash back is a type of reward offered by credit card companies, banks, and retailers, where a percentage of the amount spent is returned to the consumer. This can be in the form of a statement credit, a check, or direct deposit into a bank account. When you make a purchase with a cash back credit card, the card issuer receives a small fee from the merchant and returns a portion to you as cash back.
Types of Cash Back Programs
Flat-Rate Cash Back
These cards offer a consistent percentage back on all purchases, typically 1.5-2%. The Chase Freedom Unlimited is a popular example, offering 1.5% back on everything.
Category Bonus Cards
These cards offer higher rewards in specific spending categories. For example, the American Express Blue Cash Preferred offers:
- 6% back at U.S. supermarkets
- 6% back on select streaming services
- 3% back on transit and gas stations
- 1% back on everything else
Rotating Category Cash Back
Features categories that change quarterly, usually offering 5% back in selected categories during each period.
Sign-Up Bonuses
Many cards offer a one-time bonus if you spend a certain amount within the first few months of opening the account.
Common Cash Back Categories
- Groceries: Often 2-6% back
- Gas stations: Typically 2-5% back
- Restaurants: Usually 3-4% back
- Travel: Commonly 2-5% back
- Online shopping: Various rates, often 1-5%
Redemption Options
| Redemption Method | Typical Value |
|---|---|
| Statement credit | 1 cent per point |
| Direct deposit | 1 cent per point |
| Gift cards | 0.8-1.1 cents per point |
| Travel rewards | 1-1.5 cents per point |
Benefits of Cash Back
- Savings: Cash back rewards can lead to significant savings over time
- Flexibility: Unlike points or miles, cash back can be used for anything
- Simplicity: Cash back programs are straightforward to understand
- No rotating categories: Some cards offer consistent rewards without tracking categories
- No foreign transaction fees: Some cash back cards waive these fees
Tips for Maximizing Cash Back
- Choose the Right Card: Select a card that aligns with your spending habits
- Pay Off Your Balance: Avoid carrying a balance as interest charges outweigh rewards
- Take Advantage of Bonuses: Look for sign-up bonuses and promotional offers
- Monitor Rotating Categories: Track and adjust spending to maximize rewards
- Stack rewards with shopping portals
- Set up automatic payments to avoid interest charges
Important Considerations
Watch Out For:
- Annual fees
- Spending caps on bonus categories
- Redemption minimums
- Foreign transaction fees
- Reward expiration dates
"The best cash back card is the one that matches your spending patterns and offers rewards in categories where you spend the most." - The Points Guy