How do cash back credit cards work?

Cash back credit cards, if used properly and responsibly, can offer you substantial rewards over time. If you want your credit card to pay you, learn more about how you may be able to get cash back from credit card purchases.

What types of cash back cards are available?

There are three common types of cash back credit card rewards: flat rate, fixed categories and rotating categories. Some credit card issuers may combine attributes together, as well as additional enrollment requirements.

1. Flat rate

Cash back credit cards with a flat rate offer cash back rewards for all eligible purchases. Purchases are rewarded with the same cash back percentage, usually between 1% and 2%. However, 2% cash back cards may have additional requirements or fees.

Eligible purchases normally exclude things like balance transfers, cash advances, account fees or charges, interest charges, money orders, wire transfers, lottery tickets, gambling charges, or unauthorized charges.

2. Fixed categories

The card issuer will usually offer a percentage — such as 3% cash back — for spending at certain stores, or on specific purchases like gas or groceries. The cash back rewards for these pre-defined categories may be higher than flat rate cash back credit cards, but card users would need to keep track of the categories to make the best use of these rewards.

3. Rotating categories

Another cash back rewards type comes in the form of rotating categories. In order to take full advantage of these credit card rewards, you’ll need to be aware of which categories are offering a bonus and for what period of time. For example, a card may offer 5% cash back on purchases made at Walmart, Lyft, and Amazon from July through September. Some credit card issuers might also require you to register for the categories, or else you won’t be able to participate in the rewards program. 

There also may be a bonus cap. For example, a card may offer 3% cash back on groceries until you spend $6,000 — after that, you earn 1%. 

When do you get cash back rewards?

Several cash back credit cards have a minimum redemption threshold, which means you only get cash back after you’ve charged over a certain amount. Other cards allow you to redeem your rewards on a rolling basis. A popular option is to save your rewards until the end of the year and use that money to do your holiday shopping.

Why do credit card companies provide cash back rewards?

Card issuers are able to provide cash back rewards because retailers pay a fee to the credit card company on each transaction. For example, if you bought a $700 TV with your credit card, then the retailer would automatically pay a transaction fee of around $21 to your credit card company. If you used a 2% cash back credit card to purchase the TV, then the credit card company would pass on $14 of that fee back to you. 

Nice, right?

How do you receive the cash back payment?

You can normally choose how you would like to receive your cash back. Typically, companies send your cash back in one of three ways:

1. Check or direct deposit
2. Redeem for a statement credit to your card account
3. Redeem for gift cards

What to remember about credit card rewards

You’ll want to be aware of the specific restrictions of your credit card’s rewards program. Take some time to review the terms and conditions so you have a full understanding of how the cash back rewards program works, as well as fees and restrictions.

Cash back programs are designed by credit card companies to reward loyal customers by adding an incentive for them to continue using the credit card. As long as you pay off your balance in full and on time each month to avoid interest charges, a cash back credit card can be a great addition to your wallet.

Ready for cash back rewards when you shop?

The Citizens Cash Back Plus™ World Mastercard® offers 1.8% cash back on everything you buy∗. Yes, everything!