A newer version of your browser is available. Older versions may limit your ability to access some of this site's functionality. Citizens Bank recommends upgrading your browser.

Learn More

Download the newest version of Microsoft Internet Explorer

Clear Search

How Do Cash-Back Credit Cards Work?

Key Takeaways

  • Cash-back cards with a flat percentage will normally offer a lower percentage
  • Flat rate rewards are the easiest to maintain.
  • The credit issuer may offer a higher percentage of cash back for certain types of spending.

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 two types of cash-back rewards currently being offered. Some issuers may combine attributes together, and have additional enrollment requirements.

Category bonus: The credit issuer will usually offer a higher percentage — up to 5% cash back — for spending at certain stores, or purchases like gas or groceries. However, this kind of cash-back card is a little more high maintenance.

In order to take full advantage of the rewards, you’ll need to be aware of which categories are offering a bonus for each quarter. For example, in the third quarter, a card may only reward 5% for purchases made at Walmart, Lyft, and Amazon. Some issuers might also require you to register for the categories, or else you won’t get the cash-back bonus at all.

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

Flat percentage: Cash-back cards with a flat percentage will normally offer a lower percentage, usually between 1% and 2%*. The upside is you get cash back for all eligible purchases. There is little to no maintenance involved, so it’s a great option if you’re a “set-it and forget-it” type of person.

Note: 2% cash back cards may have additional requirements.*

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.

Tiered rewards: Tiered reward systems are not as popular as they once were. Most credit card companies are moving towards simple flat rate cash back programs. So you probably won’t see this type while you’re considering your options.

Tiered programs gave more rewards to cardholders who spent more. Once you charged a certain amount, you would be eligible to move up to the next tier, which offered a higher cash back rate. For example:

  • Bronze: Cardholders who spent more than $1,000 in a quarter receive 0.25% cash back
  • Silver: Cardholders who spent more than $2,000 in a quarter receive 1% cash back
  • Gold: Cardholders who spent more than $3,000 in a quarter receive 2%

When do you get the cash back?

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 do your holiday shopping.

Why would credit card companies give away money?

Card issuers can afford to pay you cash back because retailers already pay a fee 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 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:

  • Check or direct deposit
  • Redeem for a statement credit to your card account
  • Redeem for gift cards

What to remember

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 don’t risk letting your rewards expire. Some card issuers still charge an annual fee; others may have restrictions so it’s important to read the fine print.

Rewards programs are designed by card companies to retain 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 card can be a great addition to your wallet.

More information

To learn more about our Citizens Bank Cash Back Plus® World Mastercard® or other products please call 1-888-333-5145, or Ask a Citizen at your nearest Citizens Bank branch.

Not seeing what you're looking for?

#Json=Label_Lookup|Brand=citizensbank|ApplyToParentElement=|TargetElementType=|TargetElementId=|Key=Personalize your experience.#

May We Suggest

New to Citizens Bank? Here are some of our most requested products and most popular areas of interest.