How does cash back work on credit cards?

Cash back on credit cards rewards cardholders for making purchases by returning a percentage of the money spent. The accumulated cash back rewards can then be used in a variety of ways, such as paying your credit card bill, getting a check, or making a direct deposit to a bank account.

Exactly how cash back rewards work varies by credit card company and even by individual card. But there are some aspects of the process that are pretty much the same no matter what, and it’s a good idea to understand how things work at a high level.

Here’s an overview of how cash back works on credit cards:

1. Earn a percentage of the amount paid every time you make a qualifying purchase with your cash back credit card.
2. Wait for the cash back rewards to post to your account. This usually takes 1-2 billing cycles.
3. Use the accumulated cash back for a statement credit, check or direct deposit. Some cash back credit cards also allow you to redeem cash back toward travel expenses, gift cards, and charitable donations, among other options.

As you can see, it’s pretty simple to earn and use the cash back on your credit card. You can find a more detailed explanation for each part of the process below.

How Earning Cash Back Works

Every time you use a cash back credit card to make a qualifying purchase, you earn a percentage of the amount paid. To maximize your cash back rewards, make sure to evaluate your spending habits and choose a card that suits you.

• Ongoing rewards: The average cash rewards card offers around 1% back on all purchases. Keep in mind that some cash back credit cards offer cardholders a flat percentage back on all purchases, while others offer higher cash back percentages for popular spending categories, like dining or travel. It is also worth noting that certain cards offer a higher earning rate on bonus categories that change every quarter and require activation.
• Initial bonus: Many cash back credit cards offer initial rewards bonuses for spending a certain amount within the first few months after opening an account. 
• Other ways to earn extra cash back: Some cards offer cash back bonuses for referring a friend or meeting an annual spending threshold.

How Redeeming Cash Back Works

You can redeem cash back rewards by logging in to your credit card issuer’s website and clicking the "Redeem Rewards" link (which will be worded slightly differently for each issuer). In some cases, you can also redeem cash back through the card issuer’s mobile app or by calling the number on the back of your card.

• Redemption options: Cash rewards can usually be redeemed for a statement credit, check or direct deposit. You may also be able to redeem for travel expenses, merchandise, gift cards and charity. Some cards may allow you to set up automatic redemption, too.
• Restrictions: Some credit card companies require you to earn a minimum amount of cash back before you can redeem.
• Cash back expiration: Usually, cash back rewards won’t expire as long as your account is open and in good standing. Sometimes, however, cash back will expire after a specific period of time. This happens either because your card has been inactive or because a certain period of time has passed since you earned the rewards.
• Rewards devaluation: Unlike points and miles, which have a value set by the card issuer, cash back can’t be devalued.

It is worth noting that the best cash back credit cards require good or excellent credit for approval, though there are options for people of all credit levels. Similarly, some cards charge annual fees in return for higher earning rates, but many cash rewards cards have no annual fee.

Popular Cash Back Credit Cards

For more options, check out our editors’ complete picks for the best cash back cards on the market right now.

Cash Back vs. Miles & Points

It is worth noting that cash back is not the only type of rewards that credit cards offer. The others are points and miles, which you’ll see more often with travel cards. While points and miles have different values depending on how they are redeemed, cash back rewards generally have a fixed cash value.

When you make a purchase using a cash back credit card you get a rebate of a percentage of that purchase.