How Do Cash Back Rewards Work on a Credit Card?

Man wearing red shirt paying for order at cafe using credit card and POS machine

It’s hard to say no to getting money back. When it comes as an added perk to your credit card, you figure there might be a catch — right? Cash back rewards do come with certain conditions but as a rule, those conditions aren’t onerous. If you’re a responsible spender and manage your debt well, this type of card can be a valuable addition to your wallet. In general, cash back cards prioritize reward value and the flexibility of cash in lieu of points over other common credit card benefits like perks or low interest rates.

How Do You Earn Cash Back?

Most cash back cards have a simple plan; you earn a percentage of your purchases back as cash. Therefore, if you have a 2% cash back card and spend $100, you have earned $2. Typically, cards don’t offer cash back on cash advances or balance transfers. Many will prioritize certain types of purchases, giving you bigger rewards for groceries and pharmacy purchases, for example.

How Is Cash Back Distributed?

Some cards may give you the option of how to receive your cash back. Some will let you deposit the reward to your linked bank account; you may receive a cheque in the mail, or you can have it applied to your credit card statement.  Often there is a minimum threshold to meet before your reward is paid out.

How Much Do You Earn?

Most cards have modest cash back rates of 0.5% to 3%. There may also be a signup bonus for new cardholders, which means a higher rate for the first three months or longer.

The new Tangerine World Mastercard®, for example, is a no-fee card that has some good additional benefits, including a promotional offer of 4% Money-Back Rewards in up to three categories for three months. This card is an enhanced version of its popular Money-Back credit card with features like free supplementary cards, Mastercard® Airport Experiences by LoungeKey, rental car insurance, and mobile device insurance.

Generally, you must use the card frequently to earn significant rewards. However, if you use your card for most purchases, especially those prioritized by the card company, you can end up with a decent reward.

How Do the Card Companies Make Money?

You might be wondering why credit card companies would give you money back for using their card. What’s in it for them? Some cash back cards come with no annual fee; others charge an annual fee. The cards with an annual fee usually have better cash back rates.

Credit card companies make money from merchants. Every time you make a credit card purchase, the store or service pays a fee to the card company. Finally, card companies also earn revenue if you carry a balance and pay interest on your purchases. However, if you manage your payments in full and on time, this won’t apply to you.

Search Online for the Best Cash Back Credit Cards

Cash back rewards are generally easy to understand, but some may be better for you than others. If you want to learn more about your best options for credit cards, compare online at

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