How do cash-back credit cards work?
Editor's Note
What is a cash-back credit card, and how does this kind of card work?
In short, cash-back credit cards are, as the name suggests, cards that provide a cash-back return on some or all purchases made with the card. The earning rates on these cards can be complex or incredibly simple.
Cash-back cards are generally compared to travel credit cards, which instead offer rewards points or miles with a given card issuer, hotel or airline. Let's take a closer look at the ins and outs of cash-back cards so you can determine if they're right for you.
What is a cash-back credit card?
Most cash-back cards offer a simple return rate on purchases made in a given set of categories. For example, if a credit card offers 2% cash back on every purchase, you'll earn 2 cents back per every dollar spent.
Some credit cards offer a flat return rate on all purchases, while others offer higher return rates on popular spending categories.
Unlike travel credit cards, cash-back cards offer rewards with a fixed cash value — a double-edged sword, depending on how you redeem your rewards.
Related: The pros and cons of cash-back credit cards
How do cash-back credit cards work?
Cash-back credit cards are typically more straightforward than their points and miles counterparts. Generally speaking, you'll earn cash back on all eligible purchases, excluding things like:
- Cash advances
- Balance transfers
- Money orders
- Purchases of foreign currency and/or cryptocurrency
- Gambling-related purchases (including lottery tickets)
Purchases made through a digital wallet or wireless card reader can also be difficult to categorize, meaning you may not always earn the full rewards rate for those transactions.
Cash-back is generally issued at the end of your card's statement period or billing cycle and can be redeemed as a bank account deposit, statement credit, check, gift card or other option, depending on the card.
Related: How to choose a cash-back credit card
Bottom line
Cash-back credit cards offer simple rewards for those who don't want to deal with points and miles.
Some cash-back cards offer a flat return rate, while others offer higher returns for different categories of purchases. Cash-back rewards can generally be redeemed for statement credits, converted into online shopping credits or deposited directly into bank accounts.
Related: Are cash-back credit cards worth it?