How Do Cash Back Credit Cards Work?

With over 17% of credit cards in South Africa falling under the category of “cash back credit cards,” you may be wondering what all the hype is about.

How do cash back credit cards work? Can you really get cash back from making purchases on your credit card? Are there risks associated with cash back credit cards?

Keep reading for an answer to these questions and to learn whether a cash back credit card is right for you.

What are Cash Back Credit Cards?

These credit cards work the same as normal credit cards but carry a great perk.

When you use these credit cards, you receive 1, 2, or even 5% cash back on every purchase you make.

In contrast to cash back, some credit cards offer airline miles, hotel perks, etc.

What Are Different Categories of Cash Back Credit Cards?

There are three categories of cash back credit cards:

  • Simple credit cards: You receive a flat 1, 1.5, or 2% cash back on all purchases, regardless of category.
  • Category bonus credit cards: you receive a bonus on certain categories through the year. For example, you may receive 5% cash back on all gasoline purchases on your credit card between January and March.
  • Tiered rewards credit cards: the amount of cash back you receive depends on the purchase category. For example, 5% cash back on groceries, 2% cash back on dining, and 1% cash back on gasoline.

Be sure to research some of the most popular cash back credit cards to find the one that works for you. If you’re unable to pay off your credit cards, you will find that the cash back perk will not outweigh late fees and interest on missed payments. Sometimes, it’s easier to stick with cash to avoid interest and additional fees.

How do Cash Back Credit Cards Work?

For every amount you spend, you receive a certain percentage as cash back. For example, if you are earning 1% cash back on every purchase, you will have $10 of every $1,000 spent as cash back. You can usually redeem that as a statement credit, directly to your bank account, as a check, or even to spend on donations or on websites such as Amazon.

How often you receive the cash back depends on the card. Some allow you to redeem immediately, whereas others wait for you to reach a certain number, such as $20 in cash back rewards.

Usually, there are also limits on the amount of cash back you can earn in a quarter or a year.

Is a Cash Back Credit Card Right for Me?

You should consider a cash back credit card if:

  • You can pay off your balance each month. As mentioned previously, you will not earn enough cash back to afford the risk of late fees and interest. Cards with the greatest cash back perks will often carry high-interest rates if you fail to pay on time, so be sure to always make payments.
  • You have good credit. With good credit, you’ll be more likely to be accepted by a credit card offering good perks and low-interest rates.

Final Thoughts

Now that you know how cash back credit cards work, you’re ready to find the best one that suits your needs.

For more information on finances, credit cards, and all things budgeting, visit our blog today.

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