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What is Cash Back and How Does Cash Back Work?

12 min read
Last Updated: June 5, 2025
Credit card rewards

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Key Takeaways

  1. With a cash back rewards credit card, you earn cash back from the credit card company for any eligible purchase.

  2. Cash back rewards typically give cash back for a certain percent of the purchase amount, based on the spending category.

  3. You can redeem your credit card cash back in different ways, such as a statement credit.

Your credit card may come with a cash back program that encourages you to use your card on everyday purchases. But what is cash back? Cash back is a type of reward that a participating credit card, debit card, or app may offer, which allows you to earn a percentage of each eligible purchase back as cash.

Some cash back credit cards offer a standard percentage of cash back across all eligible transactions. Others may provide a higher percentage of cash back for certain spending categories like gas, food and drinks from restaurants, and travel. If you want to earn some extra cash while you shop, consider a cash back program that aligns with your shopping habits.

How cash back works

Each cash back program may work a little differently, but the basic steps for earning and redeeming your rewards are usually similar.

Most cash back programs come with a specific rewards rate, which is the percentage of each eligible purchase you earn back as cash. A single rate may apply to all purchases, or some types of transactions may have a higher cash back rate.

Each cash back rewards program may offer unique options and restrictions for redeeming your cash back.

The cash back you earn builds over time. With some cash back providers, you have to reach a certain amount before you can redeem your rewards. With Discover® cash back credit cards, you can redeem any amount, any time.1

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What companies offer cash back rewards?

Rewards credit cards often offer cash back. However, credit card issuers aren’t the only institutions that offer cash back programs. Debit cards and retailers may also offer cash back. You may also enroll in cash back programs through certain mobile apps and websites.

  • Credit card cash back: Cash back often refers to credit card rewards programs that allow cardmembers to earn a percentage of qualifying purchases back as cash that they may redeem in different ways.
  • Debit card cash back: Some debit card accounts also offer cash back rewards. Typically, cash back debit cards work similarly to credit cards: cardmembers earn a certain percentage back on eligible purchases.
  • Retailer cash back programs: Some retailers, like grocery or department stores, offer cash back rewards programs that allow shoppers to earn as they shop in-store or online. Like credit card rewards programs, they may offer a flat rate across all purchases with bonus cash back for certain items or during sales. In most cases, you can only redeem these cash back rewards at the retailer that issues them.
  • Cash back apps and websites: Some mobile apps and websites, like Ibotta or Rakuten, partner with retailers to offer cash back on certain purchases. To begin earning rewards, you may have to download an app or an internet browser extension. From there, when you shop with partnered establishments, you may begin earning cash back. You may be able to redeem that cash back in-store or through your bank account.

Types of cash back programs

While certain apps and banking tools may offer cash back programs, cash back is most commonly a feature of rewards credit cards. Most cash back rewards fall into one of these categories.

  • Flat-rate rewards: With flat-rate cash back rewards cards, you earn the same percentage back on each eligible transaction, regardless of the item, retailer, or type of purchase.
  • Tiered rewards: Tiered cash back programs typically offer a flat rate on most purchases, plus higher cash back in specific categories. For example, you might earn 1% back on most purchases, 2% on gas, and 3% on restaurants. Credit card issuers may cap the bonus cash back you can earn in a set timeframe.
  • Rotating category rewards: Like tiered cash back programs, rotating category credit cards work by offering a higher rate on certain types of purchases and a flat rate everywhere else. However, those bonus cash back categories change on a regular basis, like quarterly or annually. You may have to enroll in each new rewards category through your card issuer’s online banking tool.

Cash back vs. miles

Some rewards credit cards earn miles on eligible purchases, not cash back. A travel credit card may offer a certain number of miles per dollar spent. Some cards may also offer additional miles for travel-related purchases, like flights or hotels. You may redeem your miles to buy flights or other travel-related purchases.

Globetrotters may find that a travel credit card brings them more value. But a cash back reward card may provide more flexibility and redemption options.

Discover cash back

Discover® Cardmembers can earn rewards on every purchase with a Discover cash back credit card. Certain cards may help you earn more on your most common purchases.

With the Discover it® Cash Back Credit Card or Student Cash Back Card, you can earn more by activating the 5% Cashback Bonus program. Earn 5% cash back on everyday purchases at different places you shop each quarter, like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, you earn unlimited rewards on all your other purchases–automatically.

How does Discover Cashback Match® work?

During your first year with Discover, you could earn even more cash back with Cashback Match. Discover Cashback Match® means that we’ll automatically match all the cash back you’ve earned at the end of your first year. There is no limit to how much we’ll match.2

More benefits from Discover

Discover rewards cards offer many standout features. Discover has no annual fee on any card, including cash back cards. That way, you don’t have to worry about the cost of using your card offsetting your cash back earnings. Plus, unlike some other credit card issuers, your rewards never expire1 with Discover.

Redeeming cash back

Once you’ve accumulated some cash back, you may want to redeem your rewards. Credit card issuers often offer a few options for redeeming cash back. The best choice for you depends on your priorities and financial situation.

  • Bank deposit: Cash back may be deposited directly into any bank account. With Discover, you can redeem your rewards for cash in any amount1 whenever you’d like. Other credit card issuers may require a minimum cash back rewards balance before you can cash out your rewards.
  • Statement credit: You may be able to apply your cash back to your credit card balance in the form of a statement credit. If your balance is higher than your cash back earnings, the statement credit could reduce what you owe. If your statement credit exceeds your balance, you may end up with a negative balance. In that case, you could continue to use your card normally until your balance is back in the positive or request a refund.
  • Gift card: Some credit card companies allow you to redeem your cash back in the form of a gift card for certain participating retailers.

Maximizing cash back rewards

You could can earn cash back just by using your rewards card normally. However, if you want to take your rewards even further, a few considerations could help.

  • Consider welcome offers. Some credit card issuers provide introductory offers that may increase your cash back (like Discover Cashback Match). Others may have introductory periods with low interest rates. During that time frame, you could accrue a balance without interest charges eating a significant percentage of your rewards. However, it’s crucial to repay your balance before the introductory period ends. Otherwise, you may get stuck with interest.
  • Avoid overspending. Cash back shouldn’t be an incentive to spend too much. Instead, it would be best if you looked at cash back as a bonus reward or bonus cash for the money you’d spend anyway. The last thing you should do is charge more than you can afford to get more cash back. If you overspend and fall into debt, you risk running up interest charges that may cancel out the value of your rewards and negatively impact your credit score. You may also want to double-check the policy on your cash rewards credit card to see if you still earn rewards if you request a balance transfer or cash advance.
  • Stay on top of your bills. If you pay your credit card bill late–or worse, don’t pay it at all–you may owe additional fees. Those fees can add up quickly, increasing your balance and, in turn, your interest charges. When the money you owe far exceeds your rewards, you don’t get to enjoy your cash back. If your credit score suffers, you may not qualify for the best credit card in the future.
  • Choose the best credit card. The best way to choose a cash back card is to compare rewards categories and see which card gives the most cash rewards for the categories you spend the most money in. For example, if you find yourself running to the store for your family each week, you may want a card with a groceries bonus category. On the other hand, if you frequently commute a long way for work, a card that rewards you extra for gas purchases may be the best fit for you.

You may also consider factors like fees (including annual fees) and interest rates. If you often carry a balance on your card, make sure the interest you’re paying won’t offset any cash back reward. If your credit score isn’t as high as you’d like it to be, you may also compare cards to find one you qualify for.

Did you know?

You don’t always need a high credit score to qualify for a cash back card. With a secured credit card from Discover, you could earn 2% Cashback Bonus ® at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus earn unlimited 1% cash back on all other purchases.3

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Advantages and disadvantages of cash back

If you’re considering a cash back credit card, it’s important to keep in mind not only the obvious advantage—earning rewards as you shop—but also other perks and disadvantages, too. The following are some pros and cons of cash back. While they may not all apply to every card, they could still provide you with guidance as you compare the best cash back cards for your needs.

Pros of cash back rewards

  • Introductory offers may help you earn extra cash back.
  • Cash back rewards offer flexibility–spend them however you’d like.
  • Earning rewards is easy. You automatically receive cash back as you use your card.
  • You may incorporate cash back into your monthly budgeting strategy by planning purchases around rewards categories.
  • Cash back may encourage responsible credit card use, since fees and interest eat into what you earn in rewards.

Cons of cash back rewards

  • Discover has no annual fee on any card, but other cash back credit cards might. It’s important to make sure you earn enough cash rewards to counterbalance annual fees.
  • If you have a low credit score, you may not qualify for certain cash back credit cards.
  • Rewards credit cards may come with higher interest rates than other cards, which makes it especially important to minimize your balance. You may avoid interest altogether by paying your balance in full and on time each month.
  • Some transactions, like a cash advance, may not earn rewards.

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Cash back terms and conditions

Even if you find what seems like the perfect cash back credit card for your financial situation, it’s important to understand the terms. Terms and conditions usually include information about interest rates, penalties, fees, credit limits, expiration dates, reward rates, and more. Of course, credit card agreements aren’t always easy to understand.

You should be able to access a card’s terms and conditions online before you complete an application. According to the Consumer Financial Protection Bureau (CFPB), your credit card issuer is required to provide you with a copy of your credit card agreement. You can also find some credit card terms in a Schumer box on your credit card statements.

Understanding some basic vocabulary may help you make sense of the fine print.

  • Annual Percentage Rate (APR): The rate at which your credit card balance will accrue interest over time. Many cards have a variable interest rate, meaning it may change based on the market.
  • Penalty APR: The rate at which your credit card balance will accrue interest if you miss a payment. Sometimes, your APR returns to normal after several on-time payments.
  • Reward category rules: If your card offers rewards in certain broad categories like “travel expenses,” this section defines those categories and lists the specific transactions that count towards them.
  • Reward exclusions: Some types of transactions may not qualify for cash back, depending on your credit card. For example, a balance transfer won’t earn cash back with Discover. Likewise, some types of purchases that seem like they’d fall within certain bonus categories may not, depending on your card issuer (like gas from a supermarket instead of a gas station).

Do cash back rewards expire?

With some credit card issuers, you lose your cash back rewards if you don’t use them. The CFPB explains that credit card rewards may expire if cardmembers don’t redeem them within a specific time frame. Similarly, if a credit card account remains inactive for a certain amount of time, you may also forfeit or lose all the cash back you’ve earned on that account. While these conditions aren’t exactly the same, it’s important to understand them both so you can avoid losing your hard-earned cash back.

The bottom line

Cash back is a popular credit card reward because it offers flexibility and lets you earn with ease. If you’re considering a cash back rewards card, paying attention to the rewards rate, annual fee, eligibility requirements, and restrictions could help you make the most informed choice.

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