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How do Cash Back Credit Cards Work?

Last Updated: December 13, 2023
3 min read

Key points about: earning and redeeming cash back rewards

  1. You can earn a percentage of cash back rewards on eligible purchases made with certain credit cards.

  2. You may earn a lower percentage of unlimited rewards on every purchase and a higher rate on purchases from specific, sometimes rotating categories up to a limit.

  3. Redemption rules vary by issuer, including redeeming rewards anytime or once you earn a certain amount.

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

How are cash back rewards calculated?

Cash back credit cards let you earn a percentage of cash back rewards from each eligible purchase you make with your card. The rewards rates can vary by the credit card issuer and rewards program but often range between 1 and 5%.

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 typically have higher reward rates for specific bonus categories up to a certain limit and a lower rate for other purchases. For example, with the Discover it® Chrome Gas and Restaurant Credit Card, you can earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases—automatically.1
  • Rotating category 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 lets you earn 5% cash back on everyday purchases at different places each quarter like Amazon.com, grocery stores, restaurants, and gas stations, up to the quarterly maximum when you activate.2 Plus, earn 1% cash back on all other purchases—automatically.

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 Plus, earn 1% cash back on all other purchases—automatically.

Did you know?

Cash back credit cards may come with bonus cash back offers for new cardmembers. For example, with Discover Cashback Match®, you can get an unlimited dollar-for-dollar match of all the cash back you earn at the end of your first year, automatically. There is no limit to how much we’ll match.3

How do you redeem cash back rewards?

Cash back redemption options depend on the credit card company and its rewards programs. Some common ways to redeem your cash back rewards include:

  • Getting a statement credit
  • Depositing to a bank account
  • Redeeming for gift cards
  • Donating to a charity
  • Paying at checkout with select merchants

Some cash back rewards programs have restrictions and requirements. For example, you might need to earn a minimum number of rewards before redeeming them, or your accrued rewards could expire. At Discover®, you can redeem any amount, any time,and your rewards never expire.4

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 hotels, but you might not be able to redeem them for cash back. Still, points, miles, and cash back rewards all provide some form of cash savings. 

What cash back credit card is best?

Finding the right cash back rewards card for you means choosing one that fits your spending habits and preferences. It may help to determine where you’ll use your credit card most (such as at the grocery store or gas station) and whether you mind keeping track of rotating categories or simply want a fixed rate back on all your purchases—with no limits and no tracking when and where you spend.

Ultimately, there are a lot of cash back credit cards available, and you’ll want to consider multiple factors when comparing rewards to find the best credit card for you. You can make the most of your cash back rewards by understanding the earnings structure, redemption options, and restrictions associated with each cash rewards credit card you consider.

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  1. You earn a full 2% Cashback Bonus® on your first $1000 in combined purchases at Gas Stations (stand-alone), and Restaurants each calendar quarter. Calendar quarters begin January 1, April 1, July 1, and October 1. Purchases at Gas Stations and Restaurants over the quarterly cap, and all other purchases, earn 1% cash back. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station, and some public electric vehicle charging stations. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Purchases must be made with merchants in the U.S. To qualify for 2%, the purchase transaction date must be before or on the last day of the offer or promotion. For online purchases, the transaction date from the merchant may be the date when the item ships. Rewards are added to your account within two billing periods. Even if a purchase appears to fit in a 2% category, the merchant may not have a merchant category code (MCC) in that category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not earn 2% if the technology does not provide sufficient transaction details or a qualifying MCC. Learn more at Discover.com/digitalwallets. See Cashback Bonus Program Terms and Conditions for more information.

  2. Amazon: Amazon is not a sponsor of this promotion. Amazon, the Amazon.com logo and the smile logo are trademarks of Amazon or its affiliates.

  3. Cashback Match: We’ll match all the cash back rewards you’ve earned on your credit card from the day your new account is approved through your first 12 consecutive billing periods or 365 days, whichever is longer, and add it to your rewards account within two billing periods. You’ve earned cash back rewards only when they’re processed, which may be after the transaction date. We will not match: rewards that are processed after your match period ends; statement credits; rewards transfers from Discover checking or other deposit accounts; or rewards for accounts that are closed. This promotional offer may not be available in the future and is exclusively for new cardmembers. No purchase minimums.

  4. Redeem Miles: Starting at 1 Mile, you can redeem your Miles as a credit to your account to pay for all or part of your bill, for cash as an electronic deposit to your bank account, or for a credit for Travel Purchases made on your statement within the last 180 days. Travel Purchases include airline tickets, hotel rooms, car rentals, travel agents, online travel sites, commuter transportation, restaurants and gas stations. Restaurant purchases include those made at merchants classified as full-service restaurants, cafes, cafeterias, fast-food locations, and restaurant delivery services. Gas Station purchases include those made at merchants classified as places that sell automotive gasoline that can be bought at the pump or inside the station. Gas Stations affiliated with supermarkets, supercenters, and wholesale clubs may not be eligible.

    Even if a travel purchase on your statement appears to fit in a Travel Purchase category, the merchant may not have a merchant category code (MCC) in a Travel Purchase category. Merchants and payment processors are assigned an MCC based on their typical products and services. Discover Card does not assign MCCs to merchants. Certain third-party payment accounts and digital wallet transactions may not be eligible for credit redemption if the technology does not provide sufficient transaction details or a qualifying MCC. See Terms and Conditions for more information.

    Rewards Redemption: Rewards never expire. We reserve the right to determine the method to disburse your rewards balance. We will credit your Account or send you a check with your rewards balance if your Account is closed or if you have not used it within 18 months.

  • Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.