How does cash back rewards work? - Credit Card Rewards FAQ
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Cash back rewards are the easiest to use and the most straightforward. You simply get a specific percentage back from purchases charged to a cash back credit card. Cash back rewards can be redeemed for statement credits, cash or gift cards. Cash is the most desirable redemption option, but not all issuers offer it. If they do, your cash will be deposited to your bank account or the issuer will send you a check. Redemptions are usually offered in increments like $25, $50, $100 and so on. Your cash back can be deposited to your account (or sent via check) automatically every time a certain amount is reached or you can accrue cash back as long as you wish, whichever option is available or suits you.
Cash back rewards are easy to understand and use, but you should know about possible catches. Your cash back card may have rotating categories that require enrolment, specific shopping categories may have tiered cash back or limits. Always read the rewards program terms to make sure you earn maximum rewards for all your expenses.
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Cashback credit cards: how they work and how much you can earn
A cashback credit card rewards you as you spend with hard cash. For example, if you have a cashback credit card that pays 1% cashback on your purchases, every time you spend £100, you get £1 back.
Most providers will pay any money you earned using your cashback card on an annual basis.
The more you spend on a card, the more cashback you’ll earn. However, different providers offer varying rates and others make you pay a fee for the privilege, so make sure you’re sure about what you’re getting before signing on the dotted line.
Some credit cards offer a special introductory rate of cashback for successful applicants, but this usually drops down after the first three months. So if you know you’re going to make big money purchases using your cashback credit card you should do it before the rate reduction.
While some cards offer a flat rate regardless of where you shop, others offer different rates depending on where you use your card. For example, the Asda credit card offers 1% cashback on your Asda shopping and fuel, but the cashback rate drops to 0.5% if the card is used elsewhere.
Other credit cards offer differing cashback rates based on how much you spend over time.
For example, the American Express Platinum Everyday card offers tiered spending rates once its introductory 5% cashback rate for the first three months ends. After that you’ll get 0.5% cashback if you spend between £0 and £5,000 per year, and 1% if you spend £5,001 or more.
The higher the cashback percentage rate, the more likely it is that the provider will charge for the service. Fees can range from a few quid to over £100 so make sure you factor that in before you take out a card as you don’t want to be paying more for the card than the cashback you’ll earn from purchases.
While earning cash as you spend is a great idea, don’t forget that you’re using a credit card and the interest on cashback cards can be upwards of 15% APR (the annual percentage rate of interest and charges if you don't pay off your balance in full each month). Cashback credit cards are best suited to people who spend a lot but can afford to pay their balance in full at the end of every month.
If you can’t pay off your balance in full, you may find that you’re paying more in interest than you earn in cashback. For example, while the Asda credit card offers 1% cashback on all purchases at Asda, its APR is 19.9%.
If you don’t want to be stung by high interest rates from your credit card provider set up direct debit with instructions to pay your credit card balance in full at the end of each month. That way you’ll avoid paying any hefty interest charges and the risk of missing a payment and getting a black mark on your credit report.
If you do have a credit card, whatever you do don’t use your card to withdraw cash. You’ll get charged an extortionate amount for the service and the withdrawal won’t earn you any cashback.
And don’t go over your credit limit as you’ll be charged a fee by your provider.