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“Cash Back” generally refers to cash rewards that cardholders can earn when they complete a transaction with a credit card. It should not be confused with cash back which you can withdraw from a bank account when paying using a debit card. This is also distinct from using a credit card to withdraw money from an ATM, which is called a cash advance and is not a recommended practice.
Many credit card issuers offer cash back programs that cardholders can take advantage of to see a small return on every purchase made. While earning rewards certainly shouldn’t be an incentive to overspend on a credit card, it’s worth knowing exactly how specific rewards can be earned and redeemed. Different rewards programs offer different reward rates, and some impose limits on which spend categories earn which rates, so it’s important to understand the terms and conditions of your credit card rewards before deciding which credit card. ask.
How does cashback work?
A cash back card will generally allow cardholders to earn rewards with every purchase made with the card. Some may earn a fixed percentage on every qualifying purchase, while others offer high earn rates on bonus categories such as groceries, gas, or restaurants. Accumulated rewards are redeemable for cash, often in the form of a check, credit statement, or deposit to a bank account.
How does cash back work with credit cards?
Some cash back credit cards reward all qualifying purchases with a flat percentage return, such as 1.5% or 2% back on all spend. Others offer tiered reward categories to reward spending, for example, on groceries and gas at higher rates than other purchases. Yet other cards offer rotating redemption categories every month or every quarter.
Some cards, such as the Wells Fargo Active Cash® Card (Rates and Fees), offer a flat rate reward on all qualifying purchases. The Wells Fargo Active Cash earns 2% cash rewards on purchases and remains the plastic standard for block rewards. For those looking for simple, easy-to-follow cashback, a card like this is likely to be one of your best options.
Earn multi-level rewards
Other cards, like the Blue Cash Preferred® card from American Express, offer a more complex structure for earning rewards. Blue Cash Preferred earns 6% cash back in US supermarkets on up to $6,000 per year in purchases (then 1%), 6% cash back on select US streaming subscriptions, 3 % cash back at US gas stations and on public transportation (including taxis/rideshare, parking, tolls, trains, buses and more) and 1% cash back on other qualifying purchases. Cash Back is received in the form of Reward Dollars which can be redeemed as statement credit. The card has an annual fee of $95 (conditions apply, see rates and fees).
While cards like this generally offer bonus categories that yield higher rewards, the lowest reward category or “catch-all” category for all out-of-bonus category purchases is usually only 1% back and will not match what you might earn. with the best flat rate cashback cards.
Reward Category Rotation
Some cards will split cash back rewards between spend categories that change on a quarterly (or other period) basis. For example, Discover it® Cash Back earns 5% cash back on everyday purchases at different locations each quarter up to a quarterly maximum of $1,500 in spend when activated. Plus, automatically earn unlimited 1% cash back on all other purchases.
Please note that some cards require a category to be activated every quarter or month before you can actually earn rewards on purchases in the category. And, as reward categories change, cards with rotating reward structures may require additional attention given to reward systems in order to realize the full potential of rewards in each bonus period.
The Chase Freedom Flex℠ is an example of a card that combines several approaches. The Freedom Flex earns 5% cash back on up to $1,500 in categories that rotate quarterly (requires activation), 5% on travel purchased through Chase Ultimate Rewards®, 3% on restaurants and pharmacies and 1% on all other purchases.
Still others, like the Citi Custom Cash℠ card, offer categories that change based on your spending habits: the card earns you 5% cash back on purchases in a higher eligible spending category each cycle of billing, up to the first $500 of spend each month and 1% cash back on all other purchases.
Cash Back vs. Cash Advance
Cash back should not be confused with a credit card cash advance. Although the term “cash back” is often applied to a withdrawal of funds from a checking account in the same transaction as a debit card purchase, for example, at a grocery store, this type of “cash back” is all something else with a credit card. Cash advances allow you to borrow money from your credit card‘s line of credit by withdrawing cash from an ATM using your credit card.
Cash advances typically involve a separate cash advance APR, often higher than your card’s regular APR, and start earning interest the same day you borrow the money, with no grace period. There will also usually be cash advance fees. Cash advances are not recommended because the cost of borrowing money in a cash advance is usually astronomical compared to other options to get the funds you need.
How can I withdraw money from a credit card?
Making a cash advance with a credit card often incurs fees and a high APR, and does not include a grace period to pay off the balance before interest accrues. We don’t recommend taking a cash advance, but if you must, you can use your credit card at an ATM just like you would a debit card. Be sure to read your card contract carefully to understand all the terms of a cash advance before initiating a transaction.
How do I redeem Cash Back?
While the specifics vary from issuer to issuer, you’ll typically redeem cash back earned with your credit card by applying through an issuer’s app or website. Log in to mobile or online banking and apply to redeem rewards.
With many cards, you’ll be able to choose your preferred redemption method for your cash back: you can receive your rewards as a statement credit, a deposit to an eligible bank account, or a check that the issuer sends you job. Some cash back cards also allow you to redeem cash back by applying it to purchases when checking out online with a partner.
Note that in some cases your cash back will be redeemed automatically and you will not have the option to select your preferred option. For example, with the American Express Blue Business Cash™ card, any cash back you’ve earned is automatically applied as a statement credit each billing cycle.
Below are details of commonly available redemption methods for your cash back.
Some issuers can pay out rewards by sending you a check. Depending on your card agreement, a check may be automatically sent from time to time or you may need to request one. A check can also be an optional redemption method alongside other choices. Checks can be one of the slowest methods of exchange, as you wait for a physical item to arrive in the mail.
Another redemption option offered by many issuers is cash back in the form of statement credit. Certainly one we often see in the credit card agreements we review, statement credit puts your money back directly into your credit card account by subtracting the amount of rewards you redeem from your balance. This type of buyout option usually takes the least amount of time.
Bank transfer or direct deposit
Some issuers, especially banks that also offer checking and savings accounts, will offer wire transfer or direct deposit as a way to complete your rewards redemption. You can redeem rewards as a deposit into a checking, savings, or other type of eligible cash account and many issuers make this a fee-free and fairly straightforward process.
Gift cards are often listed as a redemption option for cash back, but be aware that redeeming gift cards may offer less value per reward point or dollar than other redemption options. Gift cards can also limit your options when redeeming. As a general rule, we recommend redeeming rewards for the closest thing to cash.
Cash back credit cards earn rewards on qualifying purchases and can be a lucrative advantage to paying with a credit card. Earning and redeeming cash back involves nuanced terms that you need to understand before applying for a cash back credit card.
It should also be noted that “cash back” as it is used to refer to the withdrawal of money from a merchant’s point of sale with a debit card is not the same with a credit card. Using a credit card to withdraw money from your revolving line of credit is called a cash advance and is generally not the most affordable way to borrow money.
To view rates and fees for the Blue Cash Preferred® card from American Express, please visit this page.