WHAT IS CASH BACK? Types & How They Work

Signing up for a cash-back rewards credit or debit card is a great way to get cash back on your purchases. You can use an app or website that gives you cash back to find deals on goods and get some of your money back. The more you use your cash-back rewards programs, the more money you can make. Let’s find out more about cashback and the best cash-back credit cards, stores, sites, and apps in 2023.

What Is Cash Back?

Cashback, often known as “cashback,” refers to two forms of financial transactions involving credit and debit cards that have increased in popularity over the previous two decades. It is most typically a credit card feature that reimburses the cardholder a tiny percentage of the amount spent on each purchase that exceeds a specified dollar threshold.

Cashback is another term for a debit card transaction in which cardholders receive cash when they make a purchase—usually a tiny amount more than the item cost.

How Does Cash Back Work?

Cash-back programs date back to 1986 when the Discover card was introduced nationally as an offshoot of credit card issuers’ general rewards schemes. Since then, they’ve become common, and almost every major credit card company now has at least one product that can do it. It’s a perk for customers who already have the card to use it often and early, and it’s also a way to get new customers or take them away from a competitor.

Unlike traditional rewards points, which can only be used to purchase goods or services, or gift cards provided by the card issuer, cash-back rewards are precisely that: cash. They are often displayed on the cardholder’s monthly credit card statement.

Consumers can get their cash-back incentive via direct deposit to a linked bank account, as a statement credit applied to that month’s bill, as a gift card, or by cheque in the mail.

Is Cash Back a Form of Free Money?

Not quite. When a credit card company gives cash-back rewards, they are betting that the increased spending of the cardholders will exceed the money spent on cash rewards. Cardholders pay for the cashback by paying higher interest rates and merchant fees.

Can I Get a Cash Back Signing Bonus?

If you sign up for a cash-back card with a cash signing bonus, it may be worth up to $1,500 if you achieve certain criteria, such as spending a specific amount in a certain time.

Credit Cards with Cash Back

Cash-back credit cards give you a percentage of your purchases back in cash. For example, if a credit card gives 1.5 percent money back on all purchases, you’ll get 1.5 cents in cash rewards for every dollar spent. Some credit cards give you a flat percentage back on everything you buy, while others give you better cash-back rates on things like groceries and gas.
Cash back rewards have a fixed cash value, unlike travel credit cards, which commonly reward cardholders with points or miles that vary depending on how they are redeemed. Cardholders can use cash-back rewards for statement credits, online purchases, and more.

Let’s take a closer look at the various types of cash-back cards and see what you need to know before selecting a cash-back credit card.

Types of Cash Back Credit Cards

Cash-back rewards programs differ depending on the credit card. Some credit cards provide the same cash-back percentage on all purchases. Others offer higher cash-back rates for items such as travel, eating, grocery, or gas. A few cards allow you to choose and change your bonus category or rotate your highest-earning cash-back categories every quarter.

#1. Cards With Fixed Cash-back Rates

Flat-rate cash-back credit cards provide the same percentage of cash back on all qualifying purchases. It makes no difference whether you buy food at Costco or shop online at Amazon—you get the same rate of money back for each dollar spent.

For example, the Capital One Quicksilver Cash Rewards Credit Card offers a flat 1.5 percent cash back on all purchases. That’s a reasonably common cash-back percentage for a flat-rate cash-back credit card, equating to $15 in cash back for every $1,000 spent.

#2. Bonus Cash-Back Credit Cards

Some credit cards provide higher cash-back percentages on specific purchases. These cards are known as bonus category cash back cards. Because you get a more significant cash back rate, usually 2-3%, on certain expenditures, such as travel or groceries, All other purchases typically get 1% back.

For example, the American Express Blue Cash Everyday® Card allows you to earn 3% cash back at U.S. supermarkets, U.S. gas stations, and U.S. online retail purchases up to $6,000 per calendar year (then 1%) and 1% cash back on all other expenditures.

If you spend $6,000 on groceries in the United States in a single year (or $500 per month), you might receive $180 in cash-back rewards.

And that’s before you consider the rewards you could receive from a gas station and U.S. online retail transactions, as well as the 1% cash back you’ll get on everything else.

#3. Cash Back Cards With Rotating Categories

Cashback cards with rotating categories are a little more tricky.
Rotating category cards, like bonus category cash back cards, give increased cash back percentages on specific categories of purchases. These purchasing categories rotate every quarter, and cardholders must activate their rotating bonus categories before earning rewards.

The Chase Freedom FlexSM and Discover it® Cash Back cards offer cash-back rewards in rotating categories. Both cards provide 5% cash back on rotating categories every quarter (activation required) for up to $1,500 purchases per quarter (then 1 percent). That’s $75 cashback per quarter or $300 per year if you spend the maximum amount in each rotating area.
These boosted cash-back categories cover anything from groceries to streaming services and frequently contain well-known online retailers such as Amazon.com and Walmart.

#4. Cash-Back Cards With a Pick-Your-Own-Category Option

Finally, some cards allow you to choose your bonus cash-back category. You’ll often receive a higher rate in a few specified categories and 1 percent cash back on general expenditures, just like with ordinary bonus category cash-back cards. Instead of having a constant bonus category or keeping track of rotating bonus categories, you can choose your bonus category from a list of alternatives.

For example, the Bank of America® Customized Cash Rewards credit card allows you to earn 3 percent cash back on gas, online shopping, dining, travel, drugstores, or home improvement and furnishing purchases, as well as 2 percent at grocery stores and wholesale clubs (up to $2,500 in combined 3 percent and 2 percent category purchases per quarter, then 1 percent). You can modify it once per calendar month.

Which Credit Cards Offer the Best Cash Back?

Credit card offers vary regularly, so it is worthwhile to research the most recent submissions. Here are the top three cash-back credit cards in 2023:

#1. Active Cash Card from Wells Fargo

The Wells Fargo Active Cash® Card is a flat-rate card that delivers one of the finest rewards on the market: unlimited 2% cash back on purchases. Active Cash is worth one-third more than the average 1.5 percent cash that many competitors offer.
In addition, new cardholders who spend $1,000 on purchases during the first three months will receive a $200 additional cash reward.

#2. American Express Blue Cash Preferred Card

The American Express Blue Cash Preferred® Card is one of the highest-earning bonus category cash back cards available.
Cardholders earn 6% cash back at U.S. supermarkets (up to $6,000 in purchases per year, after that, 1%), 6% cash back on certain U.S. streaming subscriptions, 3% cash back on transit and U.S. petrol station purchases, and 1% cash back on all other transactions.
In addition, new cards can receive $250 after spending $3,000 on purchases in the first six months of card membership. You will receive cashback in the form of statement credits.

The Blue Cash Preferred card has a $95 annual fee ($0 intro annual fee for the first year), but cardholders can more than make up for the expense by earning the welcome offer, so keep that in mind if you’re debating whether paying an annual fee is worthwhile.

If you spend a lot of money on groceries and streaming services each month, the Blue Cash Preferred card may be able to help you earn some of the highest cash-back rates on the market.

#3. Discover it. Cash Back

The Discover it® Cash Back card provides 5% cash back on rotating categories every quarter (activation required, up to $1,500 in purchases per quarter, then 1%). On all other purchases, cardholders receive 1% cash back.
The changing categories in Discover’s 2023 Cashback Calendar are as follows:

Grocery stores, health clubs, and gym subscriptions from January to March
From April to June, petrol stations and Target
Restaurants and PayPal from July to September
Amazon.com and digital wallet purchases from October to December

Discover cardholders must first activate their quarterly rotating categories to earn the increased cash back on purchases, but this is a simple process. Simply keep an eye out for an email reminder or log in to your Discover online account, then click or tap the button that activates your category.
Discover does not give a sign-up bonus, but at the end of your first year as a cardholder, Discover will match everything cash back you earn—so make sure you activate those categories each quarter.

Apps and Sites that provide cash back

Cash-back applications and websites can also assist you in earning money while shopping by utilizing their resources. Many cash-back websites collaborate with merchants like Amazon and Target to offer specific promotions on things like toys or seasonal clothing.

Cash-back websites often work: To begin, you must download the app or extension and register for a free membership. Then you sign into the cash-back site, click on a link to the retailer you wish to shop at and begin shopping.

The cash-back site or app tracks your purchases, and you earn money once your transactions are approved and completed. The cashback (a percentage of your assets) is usually sent to a PayPal or bank account. Cash-back applications can help you locate money-saving bargains while earning cash in various categories, such as restaurants and delivery services.
Rakuten, Ibotta, and Shopkick are three prominent cash-back programs, but there are others.

#1. Rakuten

In a previous incarnation, this cash-back website was Ebates. The site, which was rebranded as Rakuten in 2019, makes money by receiving commissions from over 2,500 businesses, including Lowe’s, Kohl’s, Walmart, and Macy’s, for directing online deal hunters it’s a way. Rakuten customers share the commissions, which is how you make up to 40% cashback. If you have a PayPal account, your earnings will be sent there. Otherwise, the company will mail you a check.

On the Better Business Bureau (BBB) website, Rakuten obtained a B rating owing to product and service difficulties, including consumers who claimed they never received their cash-back rewards. Despite this, the average customer rating is 4.25 out of 5 stars, based on 330 reviews.

#2. Ibotta

This cash-back app can be used in stores and online through your mobile device. It specializes in groceries. Hundreds of markets and large chain stores, including Trader Joe’s, Whole Foods, Wegmans, Costco, Hannaford, Walmart, Target, Aldi, and Albertsons, and convenience stores like 7-Eleven, Wawa, and Stewart’s Shops, have enabled the app.

lbotta works with over 1,500 shops and brands in industries like health and wellness, travel, home and car, kids and babies, pet supply, sports, and outdoors.
Additionally, it provides cash back on subscriptions, restaurants, and food delivery services. Ibotta does not specify the percentage back you will earn by using the app. Nonetheless, according to its website, lbotta has paid over $980 million to over 35 million users since its inception in 2012. The firm claims that the redemption will appear in your account within 24 hours or less.

Ibotta, like Rakuten, has a B rating from the Better Business Bureau, and there are both compliments and complaints from users, some of which claim they haven’t received their cash back on time, while others believe they are making money promptly. Three hundred thirty-two customer evaluations result in an average customer rating of 2.55 stars out of five.

#3. Shopkick

This smartphone app allows consumers to earn gift cards instead of cash, so while it is not a cash-back tool, users can earn reward points, known as “kicks,” for using the Shopkick app and scanning purchases in participating merchants. You can exchange those points for gift cards from shops like Starbucks, Amazon, Target, Sephora, Best Buy, Barnes & Noble, PayPal, Apple, AMC, and others.

When you download the app, it will show you which retailers and products are participating and can earn you kicks. Through Bluetooth recognition, you can even earn a reward for entering a store without making a purchase. The app may also provide users with exclusive incentives and discounts, as well as reward points.

Shopkick has an A+ rating from the Better Business Bureau; however, as of July 29, 2021, there were only 27 customer reviews, the majority of which were complaints, with a 1.44 rating out of five stars.

Cash Back in Hand

Customers who use debit cards and some credit cards may be able to get cashback right away at a supermarket or other location. The customer can request that the merchant add the amount to the purchase price and receive the extra cash.

Service providers frequently do this to allow customers to leave a cash tip. However, unlike the cash-back process described above, the practice does not result in a refund; instead, the customer simply charges more on the card.

Cash Back Pros and Cons

Pros

Cash-back apps and websites may offer product discounts in addition to cash-back rewards.
Some cash-back credit cards include a sign-up bonus.
Cash-back apps and websites make it simple to earn cash rewards while shopping.

Cons

Cash-back apps and websites do not always return your cash.
Cash-back credit cards may have a higher annual percentage rate (APR) than non-rewards cards.
There may be a limit to how much cash you can earn back.

How to Make Use of Cash Back

When you earn cash-back rewards, they are saved on your credit card account until you redeem them. There are numerous applications for cash back. Statement credits, online shopping, and gift cards are among the most popular redemption methods.

Certain cards also allow you to deposit your cash back directly into a bank account or donate it to charity. Some cards even allow you to use your cashback to book travel through the issuer’s website.

Some credit card companies allow you to link your cash-back rewards to PayPal or Amazon.com, enabling you to use your cash-back rewards to cover a portion or all of your purchase.
Make sure you understand all of the ways your credit card allows you to redeem your cash-back rewards—that way, you can put every dollar of cash back to good use.

Conclusion

Cash-back credit cards give cardholders a percentage of their purchases back in cash. Some cash-back cards provide a flat cashback %, but others offer more enormous cash-back rewards for specific purchases. Cash back rewards can be redeemed for statement credits, converted into online shopping credits, or deposited directly into bank accounts—it’s up to you to decide what to do with your cash back once you’ve earned it.