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Cash back

Cash back is an easy way to earn high-value rewards.

What is cash back?

Cash back is a credit card benefit which offers you a certain percentage of each purchase back in the form of a check, direct deposit, a statement credit or your choice of gift cards. Cash back often varies from one to five percent, depending on the card and its rewards structure.

Deeper definition

Credit cards that offer cash back rewards are often a simple and valuable way to maximize the money you already spend. There are three main types of cash back rewards: flat, tiered and rotating cash back.

Flat cash back cards, like the Chase Freedom Unlimited or Citi® Double Cash, earn a standard cash back rate on all purchases, no matter what you buy. This rate is often between 1 and 2 percent. Cards that offer tiered cash back rewards, like the Bank of America® Cash Rewards credit card, offer different cash back rates on different categories which can range from grocery stores and travel to restaurants and gas, among others. Finally, rotating cash back rewards cards, like the Discover it® Cash Back card, often have higher-earning cash back percentages on certain categories that you can enroll in for specified periods and then a flat percentage rate after you hit the spend cap for the particular time period. Rotating categories take a bit more active planning to maximize.

For any type of cash back, rewards may be capped after you spend a maximum amount. For instance, the U.S. Bank Cash+™ Visa Signature® Card offers 5 percent cash back on two categories of your choice each quarter, but that rate is capped after $2,000 in eligible spending in the same period.

Cash back is typically redeemed in the form of a statement credit on your credit card account, but many cards offer other ways to redeem as well, including gift cards, check and direct deposit.

Cash back rewards may not always be as lucrative as rewards cards with points or miles programs, but they’re a simplified way to save on the things you buy most often. Evaluate your spending before choosing a cash back card to ensure that you’re getting the most value from the categories your card offers.

And don’t forget to actually redeem your cash back rewards regularly. Since their value doesn’t change, it makes sense to redeem as often as you’d like, especially if your card’s cash back expires after a period of time.

Cash back example

If your family spends $1,000 each month at U.S. supermarkets, $500 at U.S. gas stations and $1,000 on additional purchases each month, you could max out the 3 percent cash back on U.S. supermarket spending up to $6,000 annually (then 1%) and earn 2 percent on gas and 1 percent on your other purchases with Blue Cash Everyday® Card from American Express. In total, that would equal $480 in annual cash back.

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