What is cash back
These days, most credit cards offer some kind of perk or reward for your spending.The two most common types of credit card rewards: reward points and cash back.
Cash back is pretty much what it sounds like — money back to you, calculated as a percentage of your credit card purchases.
How is cash back earned?
There are tons of cash back credit cards out there, each offering different cash back percentages. No matter the percentage they pay, most let you earn in one of two common ways:
Flat-rate spending: You earn the same cash back percentage on all purchase types, whether it’s dining, gas, travel, or groceries.
Category spending: You get higher cash back rates on specific types of purchases. For example, you might earn 2% cash back on grocery and gas purchases, and 1% on everything else.
Cards that offer higher cash back rates for certain categories may have spending limits. For example, you might earn 3% back on all gas purchases up until you’ve spent $2,000, after which the cash back rate drops to 1%.
How to use cash back?
When and how you redeem your cash back depends on the card.
How to use the cash back you’ve earned
Not every cash back credit card pays you out in the same way. The most common ways to redeem your cash back include:
Statement credit: Apply your cash back to your bill to lower your balance.
Gift cards: Some cards let you trade cash back for gift cards to specific retailers.
Annual payout: A few cards send your cash back once a year, sometimes by cheque.
How often cash back can be redeemed
You can typically cash in your cash back at one of the following intervals — though it depends on your credit card issuer:
Monthly: An automatic payout each month.
Annually: One payout period per year, typically during a set month.
On demand: You choose when you want to redeem (but check to see whether there’s a minimum amount that applies).
How to choose the best cash back credit card?
Like with any other credit card, you’ll want to look at the details — eligibility requirements, annual fees, interest rates, extra benefits (like travel insurance), and more.
Beyond those basics, it’s the cash back earning potential that can really help you make the call about which cash back credit card is the best for you.
Spend a lot of time on the road? A card that offers the highest cash back percentage for gas purchases could help you rack up rewards the fastest.
Plan to use your card for everyday spending that spans most categories? Consider a card that offers a reasonable flat earning rate for all categories.
In any scenario, you’ll also want to consider whether or not there’s a cap on eligible cash back too, since that can impact how much you earn overall.
