What Is Cash Back?

Cash Back Explained in Less Than 5 Minutes

A woman makes a credit card purchase.

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Cash back is a bonus paid to credit cardholders who make qualifying credit card purchases.

Definition and Examples of Cash Back

Cash back is a type of bonus paid by credit card issuers to cardholders for purchases made on the credit card. Cash back may be awarded as a statement credit that reduces the cardholder's outstanding credit card balance; or cardholders may opt to receive cash back as a deposit to their bank account, a check, or a prepaid card. In some cases, your cash back is given in the form of points that are usually worth 1 cent per point.

  • Alternate name: Cash rewards

Let's say you make a $200 purchase on a credit card that offers 2% cash back on all purchases. You would earn $4 in cash back.

How Cash Back Works

Credit card issuers offer cash-back rewards credit cards paying between 1% and 5% per transaction. Cash-back rewards incentivize consumers to sign up for credit cards and encourage loyalty.

Each time you make a qualifying purchase, you earn a certain amount of cash back as defined by your credit card rewards program. If you have a credit card that pays 1% cash back, for example, you'll earn $1 in cash back on a $100 purchase. The cash back you've earned accumulates until you redeem it.

Redemption options vary by credit card issuer but may include a statement credit, deposit into your checking or savings account, gift card, or even a charitable donation.

When a credit card offers cash back in specific categories, the card issuer uses the merchant category code—a four-digit code that identifies the type of business receiving your payment—to determine whether your purchase qualifies for cash back.

There are some caveats to earning cash back. For one, the card issuer may limit the amount of cash back you can earn or have a minimum redemption amount. Not all transactions qualify for cash back. Balance transfers, cash advances, and cash-equivalent transactions (cryptocurrency, casino chips, gambling balances, etc.) typically will not earn cash back.

You may not earn cash back if you're late on credit card payments. If your account is closed or canceled, you may not be able to redeem your cash balance.


While there aren't laws covering cash back, credit card issuers are required to follow a few different laws. The Truth in Lending Act, for example, requires credit card issuers to disclose pricing so you can easily compare credit card offers. The Equal Credit Opportunity Act bans credit card issuers from discrimination and requires them to let you know why an application has been denied. If there's an error on your credit card statement, you're allowed to dispute it under the Fair Credit Billing Act.

If a transaction that previously earned cash back is refunded or reversed, the amount of cash back will be deducted from your rewards balance.

Types of Cash Back

Credit card cash-back programs generally fall into one of three categories.

Flat Rate

Flat-rate cash back allows you to earn the same amount of cash back on all purchases, regardless of the category or merchant. For example, the FNBO Evergreen Rewards Visa Card offers 2% on all purchases.


Tiered cash back offers a higher percentage of cash back on purchases in specific categories and a flat rate of purchases on all other categories. A tied cash-back credit card may offer 3% cash back on groceries, 2% on gas, and 1% cash back on everything else.

Bonus Categories

Similar to tiered cash back, credit cards with bonus categories offer a higher amount of cash back in specific categories that rotate periodically and a flat rate on all other purchases. You may be required to activate your rewards before you can start earning in the higher tier. Discover it Cash Rewards and Chase Freedom Flex are examples of cards with bonus categories.


Credit card issuers may limit the amount of cash back you can earn in the higher tiers. For example, the Discover it Cash Back caps rewards after $1,500 of spending in bonus categories each quarter.

How To Get Cash Back

Earning cash back starts with opening a cash-back credit card. There are dozens to choose from, with some offering a sign-up bonus for new cardholders who meet initial spending requirements.

Understand which purchases qualify for cash-back rewards and focus on using your credit card for those purchases. If you have a credit card that requires activation for bonus categories, complete your activation before the start of the bonus period to increase the amount of time you have to earn rewards.

Your credit card may allow you to redeem your cash back at any time for any amount, or you may only be able to redeem in certain increments. Choose the cash-back option that's most convenient for you. For example, a bank deposit gives you more flexibility to spend your earnings but a statement credit reduces your credit card balance.

Key Takeaways

  • Cash back is offered as a reward on purchases for certain credit cards.
  • The amount of cash back earned on each purchase varies by credit card and rewards program.
  • Cardholders accumulate cash back, then redeem for a statement credit or other options made available by the credit card issuer.
  • Balance transfers and cash advances typically do not earn cash back.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. FNBO. "Evergreen Rewards Visa Card." Accessed July 21, 2021.

  2. Discover. "Discover it Cash Back Credit Card With No Annual Fee." Accessed July 21, 2021.

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