What is Cash Back and How Does Cash Back Work?
Cash back is a perk offered by many credit card companies on some of their rewards credit cards. Cash back refers to earning back a percentage of the money you spend on your credit card. Some cards offer the opportunity to earn even more cash back on purchases made by enrolling in quarterly promotions or shopping through their virtual shopping portals.
“One of the easiest ways to spend smarter is by using a cash back credit card for everyday purchases,” says Maureen Powers, Vice President of Rewards for Discover. “Instead of using cash, or a debit card, which typically offers little-to-zero rewards, opt for using a credit card that offers cash back perks.”
There is often a limit or cap on how much cash back you can earn on purchases through promotions or quarterly rewards programs. For example, your card may let you activate 5% cash back at gas stations up to $1,500 for the quarter and provide 1% cash back on all other purchases. Be sure to read the terms and conditions to fully understand (and take advantage of) your card’s cash back rewards program.
How to Redeem Cash Back
Cash back can be redeemed in a number of ways:
Bank Deposit: cash back you have earned into your checking or savings account. Some cards may allow you to cash out your balance without needing to earn a minimum amount. Be sure to read your terms and conditions to understand your redemption thresholds.
Statement Credit: You can often apply your cash back to your current credit card balance.
Gift Cards: Some credit card companies allow you to get additional value by redeeming your cash back for gift cards or eCertificates for popular merchants.
Charitable Donations: Some credit card companies allow you to donate some or all of your cash back to a charity of your choosing.
As Always, Be Responsible
Cash back is not to be misinterpreted as an incentive to spend too much. Look at it instead as a bonus for the money you would spend regardless of whether you were earning rewards. (The last thing you should do is charge more than you can afford just to get more cash back.) If you overspend and fall into debt, you risk running up interest charges that could wipe out the perks of rewards.
Be sure to pay your credit card bills on time, every time. And pay as much as you can to avoid interest charges.