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How Do Cash Back Credit Cards Work?

Published March 1, 2022
4 min read

Cash back credit cards let you earn cash back rewards on your purchases. However, these rewards cards can work a little differently depending on the type of card and the credit card issuers’ rewards program.

What does cash back mean on a credit card?

When a credit card offers cash back, it means that the currency you earn when you make purchases is provided in the form of cash back rewards. However, there are many cash back credit cards available, and they have different earnings styles, redemption options, and restrictions.

How do you earn cash back from credit card spending?

Cash back credit cards generally offer one of three earning styles:

  • Fixed-rate rewards. When you use a fixed-rate cash back card, you get the same rewards rate no matter where you shop. For example, you might earn 1.5% cash back on all your eligible purchases.
  • Tiered rewards. Tiered-rewards cards have a higher rewards rates for specific bonus categories and a lower rate for other purchases. For example, the Discover it® Gas and Restaurants Credit Card gives you 2% cash back on up to $1,000 in combined purchases at gas stations and restaurants each quarter, and an unlimited 1% cash back on your other purchases.1
  • Rotating rewards. Rotating cash back cards are similar to tiered rewards cards, but the bonus categories rotate throughout the year. The Discover it® Cash Back Credit Card is a rotating rewards card that offers 5% cash back at different places each quarter up to the quarterly maximum each time you activate, and 1% cash back on all other purchases.

Cash back credit cards may also offer bonus cash back opportunities. For example, all Discover cash back cards automatically come with the Discover Cashback Match. At the end of their first year, new cardmembers will receive a dollar-for-dollar match of all the cash back rewards they earned at the end of their first year.2

How do you redeem credit card cash back rewards?

Your cash back redemptions options can depend on the credit card issuer and their rewards programs. Generally, you’ll be able to redeem your cash back rewards in several ways, such as:

  • Get a statement credit toward your credit card’s balance
  • Deposit the rewards into a linked to a bank account
  • Redeem the rewards for a gift card
  • Use the rewards to make a charitable donation
  • Pay with your rewards at select merchants

Some cash back rewards programs have restrictions and requirements. For example, you might need to have at least $25 worth of rewards if you want to request a statement credit. Or your accrued rewards could expire if your account is inactive for too long or you close your card.

Many Discover cash back rewards redemption options start at just a penny, and your rewards never expire.3 Discover will also credit your account or send you a check for your cash back rewards if your account is closed or you don’t use the cash back credit card for 18 months.

Do all credit cards offer cash back?

Some rewards cards offer points or miles instead of cash back rewards.

For example, hotel and airline credit cards are generally tiered-rewards cards that give you rewards in the company’s loyalty program. You can then use the points or miles to book flights or hotel nights, but you might not be able to redeem them for cash back.

There are also some cash back credit cards that actually give you points in the card issuer’s rewards program. You earn a certain number of points per dollar you spend, and there are cards with fixed, tiered, and rotating rewards styles. Your points accrue in your account, and you can then redeem them in various ways, including some cash back options.

When are cash back credit cards best?

A cash back credit card could be the best type of rewards card if you don’t want to redeem rewards for travel, or you don’t want to worry about the value of your rewards changing. But there are a lot of cash back credit cards available, and you’ll want to consider their earnings structure, redemption options, restrictions, and fees to determine which one is best for you.

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