Cashback rewards are bonuses paid to credit cardholders who make qualifying purchases using their credit card. Cashback can be granted in the form of a statement credit that reduces the outstanding balance on the credit card; or cardholders can choose to receive cashback as a deposit into their bank account, a check, or a prepaid card. In some cases, cashback is awarded in the form of points, typically valued at one cent per point.
How does cashback work?
Credit card issuers offer cashback rewards programs that pay between 1% and 5% for each purchase. Cashback rewards encourage consumers to sign up for credit cards and promote loyalty.
Every time you make a qualifying purchase, you earn a certain amount of cashback as specified in your credit card rewards program. For instance, if you have a credit card that offers 1% cashback, you will earn $1 cashback on a $100 purchase. The cashback you earn accumulates until you redeem it.
Redemption options vary by credit card issuer but may include a statement credit, a deposit into your checking or savings account, a gift card, or even a charitable donation.
When a credit card offers cashback in specific categories, the card issuer uses the merchant category code – a four-digit code that identifies the type of business that receives your payment – to determine whether your purchase qualifies for cashback.
There are some conditions for earning cashback. For example, the card issuer may set a cap on the cashback you can earn or a minimum amount that can be redeemed. Not all transactions are eligible for cashback. Balance transfers, cash advances, and rewards transactions equivalent to cash (cryptocurrency, casino chips, gambling credits, etc.) typically will not earn cashback.
You may not earn cashback if you are late on your credit card payments. If your account is closed or cancelled, you may not be able to redeem your cashback balance.
Knowing that there are no laws covering cashback, credit card issuers are required to follow some different laws. For example, the Truth in Lending Act requires credit card issuers to disclose pricing so that you can easily compare credit card offers. The Equal Credit Opportunity Act prohibits credit card issuers from discrimination and requires them to inform you of the reason for denying your application. If there is an error on your credit card statement, you are allowed to dispute it under the Fair Credit Billing Act.
If a transaction for which you previously earned cashback is refunded or reversed, the amount of cashback will be deducted from your rewards balance.
Types of cashback
Cashback credit card programs generally fall into one of the following three categories.
Flat Rate
Flat rate cashback allows you to earn the same amount of cashback on all purchases, regardless of category or merchant. For example, the FNBO Evergreen Rewards Visa offers 2% on all purchases.
Tiered
Tiered cashback offers a higher percentage of cashback on purchases in specific categories and a flat rate on all other categories. A tiered credit card might offer 3% cashback on grocery purchases, 2% on gas, and 1% cashback on everything else.
Categories
Rewards
Similar to cash back, credit cards with reward categories offer a higher percentage of cash back in specific categories that change periodically and a fixed rate on all other purchases. You may need to activate your rewards before you can start earning cash back in the higher category. Discover it Cash Rewards and Chase Freedom Flex are examples of cards that have reward categories.
Information
Credit card issuers may set a cap on the cash back you can earn in the higher categories. For example, the Discover it Cash Back card caps rewards after spending $1,500 in the reward categories each quarter.
How to Earn Cash Back
Starting to earn cash back begins with opening a credit card that offers cash back. There are many options to choose from, with some offering a bonus for new customers who meet initial spending requirements.
Understand which purchases qualify for cash back rewards and focus on using your credit card for those purchases. If you have a credit card that requires activation for reward categories, complete the activation before the reward period starts to maximize the duration in which you can earn rewards.
Your credit card may allow you to redeem your cash back at any time and for any amount, or you may be able to redeem it at specific intervals. Choose the option that works best for you for cash back. For example, bank deposit gives you more flexibility for spending your earnings, but statement credit reduces your credit card balance.
Take Note
- Cash back is offered as a reward on purchases for certain credit cards.
- The amount of cash back earned on each purchase varies by credit card and reward program.
- Cardholders accumulate cash back and then redeem it as a statement credit or other options provided by the credit card issuer.
- Balance transfers and cash withdrawals typically do not earn cash back.
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Source: https://www.thebalancemoney.com/what-is-cash-back-5193692
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