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What is Cash Back and How Does Cash Back Work?

Last Updated: February 19, 2024
5 min read

Key points about: cash back credit card rewards

  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 cash back rewards in different ways, such as a statement credit.

Cash back credit cards give you a percentage of your credit card spending back in cash back rewards.

Some cash back credit cards give a flat rate of cash back, and others give more cash back for any eligible purchase in select categories.

What does cash back mean?

Cash back is a type of credit card reward that lets you earn cash rewards for the money you spend on your credit card. So, you’ll receive a percentage of your credit card purchases back as cash.

Some cash back credit cards offer a standard percentage of cash back on all purchases. Others provide different ranges of cash back for purchases like gas, restaurant, and travel. The rewards rates can vary by the credit card issuer and rewards program but often range between 1% and 5%.

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With no harm to your credit score 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 can all provide some form of cash savings.

How does cash back work on credit cards?

There are a few ways that users can earn cash back on credit card purchases and redeem the accumulated cash value.

Look at a few considerations for earning and redeeming cash back:

Earning cash back

Each cash back credit card has its own rules, but most offer a standard percentage of cash back on all purchases (fixed-rate rewards), and some may offer a higher level of cash back in specified categories (tiered rewards).

Aside from standard bonus cash back categories, there may be rotating categories or a bonus category that earns a higher percentage of cash back at certain times of the year, like grocery store purchases, drug store purchases, or select streaming services.

Remember, there may be a cap on how much cash back you can earn. Check the policies on your cash back credit cards or verify with the credit card company at account opening or before making a purchase.

Redeeming cash back

Each cash rewards credit card may have different rules for cash back redemption. Some standard cash back redemption options include:

Cash back may be deposited directly into any online banking account. With Discover, you can redeem your Cashback Bonus® – any amount, any time1, which is unlike other credit card issuers that may require a minimum cash back rewards balance before you can cash out your cash rewards.

You may be able to apply your cash back to pay all or part of your credit card balance.

Some credit card companies allow you to redeem your cash back in the form of a gift card.

If your cash back credit card allows, you can donate some or all of your cash back to a charitable partner organization.

With some cash back credit cards, you may be able to apply your rewards at checkout with select online merchants.

Does cash back expire?

Your rewards never expire1 with Discover, but other credit card issuers may have expiration dates for their cash back rewards. If your cash back rewards have an expiration date, it’s best to redeem those cash rewards as soon as you can; otherwise, you may lose the bonus cash accumulated through each eligible purchase. If you don’t want to forfeit your active cash rewards, consider applying them as a statement credit if the card issuer allows.

What is Cashback Bonus®?

Cashback Bonus® refers to the cash back rewards you earn on your Discover Card. Every Discover Card earns Cashback Bonus® or Miles, but the cash back details are different for each card.

Did you know?

The Discover it® Cash Back Credit Card allows cardmembers to earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, and gas stations, up to the quarterly maximum when you activate.

With the Discover it® Chrome Credit Card, cardmembers earn 2% Cashback Bonus® at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically.2

How does Cashback Match® work?

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.3

Cash back shouldn’t mean 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 could cancel out the value of your cash back and negatively impact your credit score. You may also want to double-check the policy on your cash back cards to see if you still earn rewards if you request a balance transfer.

What’s the best credit card with cash back rewards for you?

Finding the right cash back rewards card for you means choosing one that fits your spending habits and preferences. This way almost every purchase you make is an eligible purchase and helps you collect a cash reward.

Review whether the cash back applies to all purchases, select categories, or a combination. For example, some cards may return a higher percentage for groceries than gas. Also, be sure you understand the maximum amounts of cash back you can earn, when and where you can redeem your bonuses, and if your cash back card rewards expire.

And remember to look beyond just the cash back rewards. While the cash back perks are enticing, don’t forget to compare the non-cash back features of the card. If you want the maximum benefit from a cash back rewards card, it can be a good idea to pay off your monthly balance to avoid paying interest. If you expect to carry a balance, compare the APRs, or annual percentage rates, of the cards you’re considering to see if interest costs will be higher than the cash back you can expect to earn. You should also check the annual fee for the credit card. If the annual fee is higher than the cash reward you expect to earn, you may want to opt for a different cash back credit card.

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  1. 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.
  2. 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.
  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. There is no hard inquiry to your credit report to check if you’re pre-approved. If you’re pre-approved, and you move forward with submitting an application for the credit card, it will result in a hard inquiry which may impact your credit score. Receiving a pre-approval offer does not guarantee approval. Applicants applying without a social security number are not eligible to receive pre-approval offers. Card applicants cannot be pre-approved for the NHL Discover Card.

  • 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.