Cashback rewards are a small refund you receive when you make purchases with your credit card. Credit card issuers that offer cashback rewards typically return a certain percentage of the amount you spend. This reward encourages you to use their credit card for purchases. Other rewards cards may offer points or miles instead of cashback.

How Cashback Rewards Work

Cashback may seem straightforward, but these reward programs can be complex. To fully benefit from a cashback card, you need to understand how to earn rewards, how much you can earn, how to redeem cashback, and any limitations or restrictions on the rewards you can collect.

Earning Through Purchases

You can use your credit card to buy goods in stores, online, or over the phone. When shopping in person, you can swipe, insert, or tap your card on a reader to pay. You’ll receive a receipt, which can be paper or electronic.

You can also add your credit card to a mobile wallet (such as Apple Pay or Google Pay) for in-person shopping. Just bring your phone close to the reader, without needing to use a physical card. This method is quick and secure, using a unique code for each transaction and not sharing your actual credit card number with the store.

After completing a purchase, you’ll receive a confirmation message with order details. Keep this information to track your order (and the cashback earned) or in case you need to return an item.

If you return an item, online stores only need your order number, but physical stores may require your credit card. Returned items do not earn cashback – if you’ve already received rewards, the issuer will revoke them.

After you make qualifying purchases or pay bills with the card, the credit card company calculates the amount of cashback you’ve earned. This amount is based on your spending amount and the cashback rate applicable to the card. Then, the cashback is added to your rewards balance.

Types of Rewards Programs

You need to understand the types of cashback rewards you can earn and what you need to buy to earn those rewards. The simplest cashback cards offer a fixed percentage of cashback, usually 1% to 2% on qualifying purchases.

Tiered rewards cards offer cashback on specific items (such as gas, dining, and groceries) at rates typically between 2% to 5%. For other purchases, they usually pay a smaller percentage, typically 1%.

Some credit cards change reward categories every three months or allow you to choose a category to earn more cashback. You must activate the category to earn the higher cashback rate, usually activated quarterly. Activation can be done online or in the credit card app.

The Fine Print

Issuers also attach various terms and conditions to their cards. You should read the fine print in the cardmember agreement that must come with your card application online. Pay attention to any rules about cashback rewards, including:

• Caps: This is the limit on the amount of cashback you can earn. For example, a card may offer 5% cashback on the first $1,000 you spend in a month or quarter, with a lower percentage thereafter. Caps usually apply to rotating and tiered rewards categories but not to fixed-rate.
• Expiration Dates: Look for any deadlines when you can’t use rewards. Some cashback may expire after a certain period or if you (or the issuer) cancel the card.
• Eligible Purchases: Only some items you buy will earn rewards. The terms will list which items count and which do not. For example, credit cards won’t pay rewards for cash advances, gambling, or illegal items.
• Redemption Restrictions: Understand how to redeem cashback and any applicable minimum amounts.

Reading the fine print is crucial to understanding the real appeal of cashback offers and whether they fit your spending patterns.

Maximizing Your Cashback

While earning cashback is automatic, you can strategize to maximize your rewards.

Although maximizing rewards may take some extra effort, the additional money you earn could be worth it. Here are three ways to extract the most cashback from your credit card.

Redemption Strategies

Not every card distributes your rewards in the same way – and that can be a good thing.

Some credit cards only allow you to redeem rewards as a statement credit, meaning the cashback you accumulate goes towards paying off part of your balance. Some cards do not allow statement credits to be used towards the minimum monthly payment.

You can also receive cashback in other ways, including paper checks, deposits into a linked checking or savings account, and gift cards. Many cards allow you to use cashback to pay for selected purchases. Some cards also let you donate your rewards to eligible charities.

Leveraging Cashback Rewards for Financial Benefit

Choosing a cashback credit card that matches your usual spending can maximize savings on everyday shopping. Use cashback wisely to reduce your overall expenses.

You still want to be aware of the features of your card and competing cards. This way, you can make informed decisions that save money and improve your lifestyle.