What are Credit Card Cash Back Rewards

How does Credit Card Cash Back Work

Credit card cash back rewards are simply meant a rebate (in specific value-actual cash) that you get on the percentage of your qualifying purchases.

let’s say for example you make purchases on specific merchants (usually gas, restaurants, and grocery stores) and the reward rate is 1%, a purchase of $1,000 will give you back a cool $1. Seem small? Over time, and with a little strategy (everyday spending card), this may add up to huge savings! Gift cards are exactly what the name implies- cash!

These are usually funded by deals cut between the credit card issuer and the participating merchants with the cardholder benefiting simply by enrolling in the reward scheme.

They come in different forms and flavors suited for different personalities.

• Flat-rate Cash Back credits

  Every qualifying purchase earns the same percentage rate of cash back. Usually works best for the ‘set it and forget it’ kind of personality but comes with the least rewards compared with the other forms of rewards structure.

• Bonus category Cash Back credits

  Rewards are offered on purchases in predefined categories-common in popular goods like groceries, gas, and dining which get the highest rewards. Card issuers are the ones who create the categories and the participating merchants. Best for the kind of personality that is strategic and tends to buy from specific merchants and their spending habits are flexible. It’s always a pain to keep track of categories enrolled.

• Bonus within rotating category Cash Back credits

  This is more specific to Bonus category cash back, usually for limited times periods (quarterly) and very generous. The deal may be in a specific category like groceries and probably narrowed to a specific retailer. The catch is the cardholder has to activate or subscribe to qualify for each special promotion. The major disadvantage is that it’s too hard to follow what’s on offer.

• Tiered rewards Cash Back credits

  It’s a graduated type of return (‘up to’). More spending means more percentage to a certain maximum. For example a customer may be offered 0.25% for the first $1,000 purchases, 0.5% for the next $1,000 and 1% for all purchase above $2,000. It offers more consistency than category-based cards as bonus rates are fixed all year round.

How do Cash Back credit card rewards paid to you

• Dollars

  Certain issuers allow you to deposit cash (direct deposit) back into your account or make charitable donations using the same or send you a gift card with a specific amount or a surprise check in the mail. You can also be allowed to use it as a statement credit. Certain issuers do allow connections to PayPal or Amazon so that you can use them for your next purchase.

• Points or Miles

  It’s a bit tricky as points earned are not necessarily equivalent to one cent’s worth in value, they can be way more or less depending on how you redeem them. Points are usually more favorable than cash as you get lucrative rewards through the issuer’s own online portal and usually have more redemption options. You can easily get bonus points for redeeming on the issuer’s market places.

Making the most of your Credit Card Cash Back

How to earn Cash Back on your Credit Cards

This is the best way to maximize your rewards;

Get the right Credit Card

Sign for a hybrid credit card that combines flat-rate cash back with either bonus category or tiered rewards. Always use the bonus category every time you are shopping on featured categories with the highest rewards and the flat-rate cash back for all other purchases, this simple trick can earn you an extra 0.5%! How? You would be kicking yourself in the food if you purchase a featured product at a flat rate.

Maximize the sign-up (welcome) bonus on a Credit Card

Go for a card that offers at least 1.5% cash back on all spending and at least in the flat rate category and 5% cash back on the other categories.

Time your spending to coincide with major offers

This usually applies to high-value purchases like a laptop or kitchen appliances. Make sure you are eligible and make the most of it. Always check for limited-time offers that have elevated rates.

Multiple Credit Cards

Always check the value of rewards on each card on each purchase and each category. May seem complicated, but points are way better especially when redeemed on the issuer’s marketplace. Always maximize rewards.

Exclusively use your Credit Cards instead of cash

Charge everything on your card and Pay off credit card balances on time, as it opens up more rewards as well as keeps penalties and fees at bay. Always pay in full your balances every month as it’s key to balance off the rewards vs. interest paid.

Hidden Perks

Make sure you read each promotion and each term and condition that applies to your card. Discover each tier that applies to the card.

Combine rewards

If you have multiple cards with the same issuer, do request to combine the points for a bigger payout! This mostly applies to cards of the same type of cards.

Cash Backs Sites and Apps

Major shopping sites encourage customers to shop using downloadable apps or links to their sites and earn rewards on sign-ups (memberships). First-time usage also qualifies a customer for more discounts and cashback. Introducing a referral also earns next-level points and cash back.

They do provide specific deals on certain items like toys or sports gear at certain times when clearing stock.

Popular Apps and sites are Rakuten, Capital One, Ibbota, RetailMeNot, Dosh, and shop kick.

Rakuten (Formely Ebates)

• Best for overall shopping- has over 2,500 popular retailers including Macy’s, Walmart, Nike
• Offers a $10 sign-up bonus
• Cash Backs up to 40%
• Has double cashback deals
• Processes cashback payments through PayPal or check in the mail
• The biggest drawback is that it pays out every 3 months as opposed to weekly cash backs

Capital One

• Best for shopping comparison- Tells you whether you are getting the best price
• Automated search for redeemable coupons codes
• Automated price drop alerts- including automated follow-up claims should price drops during a purchase.
• Don’t need a Capital One account to shop

Ibbota

• Best app for shopping for groceries
• App has the ability to automatically track purchases and link cash back rewards to your account
• Offers a $20 sign-up bonus
• Allows withdrawals of as little as $20 in cash back

RetailMeNot

• Cash Backs up to 60% on popular brands like Carters
• Automatically finds deals and cashback offers in the shop.
• Processes cashback payments through PayPal or Venmo
• The biggest drawback is the cashback limits (20 rewards per month) and the long processing time of cashback (45 days).

Dosh

• Best app for dining and traveling
• App has the ability to automatically track purchases and link cashback rewards to your account
• Can make major reservations through the App
• They automatically deposit cashback to your account
• Processes cashback payments through PayPal or Venmo or a linked bank account(Minimum of $25)

ShopKick

• Earns gift cards in place of cash
• You can earn a point (Kick) for just physically visiting a store (Bluetooth enabled).
• Has exclusive discounts and points (Scavenger Hunts).

How to compare Cash Back Credit Cards

• Annual Fee

  Most cards don’t have an annual fee, but the most lucrative cash-back cards have an annual fee. The balance between the annual fee and the rewards needs to be accessed.

• Signup Bonus

  Be careful about the minimum amount you have to spend to earn this bonus versus your own spending habits.

• Flexibility

  It’s easy to redeem your rewards. Go for a card that has options for processing redemptions e.g Paypal, Venmo, etc.

 Advantages and Disadvantages of Cash Backs

Pros of Cash Backs

• A signup bonus is offered on enrollment of most cards
• They have cash rewards for each dollar spent and is easily redeemable
• They come with a lot of shopping perks which include price matches, extended warranties, etc.
• It’s instant in nature, direct, trustworthy and genuine

Cons of Cash Backs

• May trigger impulse buying just to earn the cashback
• Cashback Credit cards may have higher APR or annual fees.
• Cash backs are usually capped
• Foreign transaction fees are capped at around 3% (Exception of some Travelcards)
• Most credit cards have no travel rewards.

The bottom line

Cash back credit cards are an easy way to earn cash based on your spending.

Go for hybrid cash-back credit cards to maximize rewards.

Major Drawbacks of cashback are that it attracts higher APR and tends to encourage impulse buying (additional purchases to justify cash backs). Balance the rewards against interest charges.

You can easily redeem rewards for statement credits, shopping credits, or direct deposits into a linked account —decide on the best usage.