What is Cash Back and How Does it Work?

Cash back is a rewards program that allows you to earn a percentage of your spending back on everyday purchases. Whether you’re buying groceries, filling up at gas stations, or making online retail purchases, cash back programs can help you save money. These programs are offered by credit cards, apps, and websites, each providing a unique way to earn rewards.

When you make a purchase through a cash back program, a portion of the amount you spend is returned to you as a reward. This reward can be redeemed in various forms, such as cash, a statement credit, or other perks. For instance, if you spend $100 on groceries with a 2% cash back credit card, you’ll earn $2 back. Over time, these small amounts can add up, providing significant savings on your everyday expenses.

Choosing the Right Cash Back Program

Selecting the right cash back program is crucial to maximizing your rewards. Your choice should align with your spending habits and financial goals. Here are some key factors to consider:

Evaluating Your Spending Habits

Understanding your spending habits is the first step in choosing the best cash back program. Take a close look at where you spend the most money. Do you frequently buy groceries, fill up on gas, or make online purchases? Identifying these patterns will help you find a program that offers the highest rewards for your specific spending categories. Additionally, consider your budget and how much you can afford to spend on a credit card or other cash back program without incurring debt.

Types of Cash Back Programs

There are several types of cash back programs to choose from, each with its own benefits:

• Cash Back Credit Cards: These cards offer a percentage of your purchase back as a reward on certain types of purchases. They are ideal for those who use credit cards regularly and can pay off their balance each month.
• Cash Back Apps: These apps offer rewards on purchases made through the app, such as groceries or gas. They are perfect for those who prefer using their smartphones for shopping.
• Cash Back Websites: These websites provide rewards on online purchases made through their platform. They are great for avid online shoppers looking to save money on their purchases.

Cash Back Credit Cards

With a rewards credit card, every time you use the card to make qualifying purchases, you earn a percentage of the amount back.

For example, if you spend $500 on a card that earns 1.5 percent cash back, you’ll earn $7.50 in rewards. These rewards add up. This is especially true if you use your credit card for all your purchases and pay it off monthly.

There are different forms of cash back credit cards. Some cards reward you with a flat rate on all purchases. At the same time, others have elevated rewards depending on the spending category.

How to Choose the Best Cash Back Credit Card

When selecting a cash back credit card, consider the following factors to ensure you get the most out of your rewards:

• Rewards Rate: Look for a card that offers a high rewards rate in the categories where you spend the most. For example, if you spend a lot on groceries, find a card that offers elevated rewards for grocery purchases.
• Fees: Pay attention to the annual fee, interest rate, and other fees associated with the card. A card with high fees may negate the benefits of the rewards.
• Introductory Offer: Some cards come with generous introductory offers, such as a sign-up bonus or 0% APR for a certain period. These can provide additional value when you first get the card.
• Credit Score: Your credit score will determine which cards are available to you. Make sure to choose a card that matches your credit profile.
• Rewards Redemption: Look for a card that offers flexible rewards redemption options, such as cash back, statement credits, or travel rewards. This flexibility allows you to use your rewards in a way that best suits your needs.

By carefully evaluating these factors, you can choose the best cash back program for your needs and start earning rewards on your everyday purchases.

How Credit Card Cash Back Works

With cash back credit cards, you earn pennies for each purchase. But these pennies can add up to dollars very quickly, depending on your usage. If your account is open and in good standing, you’ll earn cash back on all eligible purchases.

You can choose to receive your cash back earnings via bank cash, which allows you to transfer the money directly to your bank account.

But there are some purchases that you can’t earn cash back. These include:

• gambling-related purchases
• balance transfers
• cash advances
• purchasing foreign currency or money orders
• purchasing cryptocurrency

Depending on the type of credit card, the cash back may be easy or difficult to earn. But for everyday purchases, it’s usually pretty straight forward.

Flat Rate Purchases

A flat-rate cash back credit card offers a fixed rate, like 1.5 percent or more, on all purchases. It’s the simplest way to earn cash back.

If the flat rate is on all purchases, you can earn cash back on:

• groceries
• gas
• restaurant
• travel

If you are spending on these categories, you’ll want to look for a flat-rate credit card that has a high cash back reward for them. Each individual credit card company has a different flat rate for cash back.

Elevated Rewards in Everyday Categories

Some cash back credit cards may offer higher rewards in specific categories. For example, they may offer lower base rates, like one percent, for everyday categories like groceries or gas.

But they offer higher cash back rates on travel and restaurants.

Some cards also require a set limit on the amount of spending eligible for bonus rewards.

An elevated reward card may not be the best choice for those who only want to use their card for everyday spending.

How to Redeem Cash Back Credit Cards

Some credit cards let you redeem your rewards once you’ve reached a certain threshold. Others don't impose this restriction. It's important when you sign up for a card to read the terms and conditions to know what the redemption policies are.

Redemption options vary based on the credit card issuer. Ways to redeem may include:

• statement credit
• merchandise
• purchases covered upon checking out at PayPal or Amazon
• gift card
• deposit in an eligible bank account
• check

You may note for the statement credit you can’t apply cash back to the minimum amount due.

Keep an eye on expiration dates. If you have an inactive account over a certain number of months, you may lose your rewards. You’ll also lose your rewards if you close the account. But under normal usage, rewards rarely expire.

Cash Back Apps Pay You to Shop

Besides using a credit card, there’s another way to receive cash back when doing your everyday shopping. That’s using a cash back app. There are several best cash back apps available that offer various features and benefits to help you earn rewards on your everyday purchases.

A cash back app gives you a rebate on a purchase. Sometimes, they’ll give you a coupon for an additional discount. Rewards apps are a straightforward method to earn money and receive cash back on everyday purchases, with most being free to download.

Some apps offer points. These can be redeemed as a price break on subsequent purchases, or they can be redeemed for cash.

There are several types of cash back apps available.

RetailMeNot

Although RetailMeNot is primarily a coupon finder, it also allows you to activate offers for cash back. They offer anywhere from five percent to 60 percent cash back, depending on the retailer. The average appears to be between 15 and 20 percent cash back. RetailMeNot is available on both iOS and Android

Upside

Upside specializes in offering cash back for groceries and gas.

You merely open the free app and claim a cash back offer at a location near you. You then make the purchase with a credit or debit card. Your cash back earnings will go directly to your bank account or PayPal, making it easy to access your bank cash. You also have the option of claiming a gift card. Upside is available on iOS and Android.

Ibotta

Ibotta gives you numerous shopping options. You can shop:

• in person
• online
• in restaurants
• while traveling

You search the app for offers. When you make a purchase, upload a photo of your receipt. You can receive your rewards through PayPal or a bank account.

To bypass the receipt uploads there are other ways to make purchases. These can be through a lined loyalty card in-store or through online Ibotta partners.

Ibotta is available on iOS and Android.

Dosh

Dosh lets you earn cash on purchase categories without scanning receipts. Besides everyday purchases, Dosh gives you cash back for hotels and restaurants.

You link a credit or debit card to the app, and then cash back offers are deposited into your Dosh wallet. You can transfer cash into:

• PayPal
• bank account
• Venmo

Rewards can also be donated to charity. Dosh is available on iOS and Android.

Rakuten

Rakuten is a cash back app that provides direct payments to you.

You’ll be able to shop at over 3,500 retailers to claim cash back. It also provides savings on:

• airfare
• hotels
• car rentals

You’ll receive your rewards via PayPal or check. Rakuten is available on iOS and Android.

CoinOut

CoinOut lets you earn cash rewards online or in-store. Scan your receipt from your in-store purchase and automatically receive cash back.

Shopping online is also easy. Connect your email address through CoinOut’s Email Connect service, and you'll automatically be rewarded.

You can receive your cash via PayPal or an Amazon gift card. There is a $20 minimum to cash out with PayPal.

CoinOut is available on iOS and Android.