Cashback

What It Means

Cashback is a reward that returns a percentage of what you spend as money. On a cash backCredit card rewardsCash back, points or miles a credit card pays you on your spending, worth only what the program lets you redeem them for. See more credit card, each eligible purchase earns a set rate, for example 1.5%, and you redeem what builds up as a statement credit that lowers your balance, a deposit to your bank account or a check. Because it's paid in dollars, cash back is worth exactly what it says, unlike points or miles, whose value depends on how you redeem them.

How It Sounds at Home

• "I get three percent back on groceries."
• "Put it on the cash back card."
• "I used my cash back to knock down the balance."

The Breakdown

Worked example. Lena spends about $600 a month on groceries and $900 on everything else, and pays her card in full. She's choosing between two example cards:

The tiered card pays $54 more a year because groceries are a big share of her spending. If most of her money went to things outside the bonus category, the flat card would win. Change the numbers in the calculator to see where that line sits for you.

What the result means. Experian describes three kinds of cash back card. Flat-rate cards pay the same rate on everything, often 1% or 2%. Tiered cards pay more in set categories, such as groceries or gas, and usually 1% on the rest, sometimes with a cap on bonus earnings. Rotating-category cards pay a higher rate, usually 5%, in categories that change every three months, often only on the first $1,500 of purchases a quarter, and you may have to activate each new category.

Good to Know

Experian advises checkingChecking accountA bank or credit union account for everyday money going in and out, used by debit card, checks, transfers and direct deposit. See more whether a card's annual feeAnnual feeA yearly charge some credit cards bill simply for keeping the account open, listed in the card's Schumer box and charged again each anniversary. See more or other fees will offset the cash back you'd earn. Rewards are paid only on eligible purchases, so read the card's terms for what counts. If you usually carry a balance, the interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more will generally outweigh the cash back, as Buhata's credit card rewards page explains, so cash back pays off when the balance is cleared every month on spending you'd do anyway.

Related Terms and Categories

• Credit card rewards

  Cash back, points or miles a credit card pays you on your spending, worth only what the program lets you redeem them for.

• Annual fee

  A yearly charge some credit cards bill simply for keeping the account open, listed in the card's Schumer box and charged again each anniversary.

• Statement balance

  What you owed on a credit card when the billing cycle closed, as printed on that month's statement.

• Rebate

  Money paid back to you after you've paid full price, such as a mail-in rebate from a store or manufacturer; a return of part of a payment.

Household money and budgeting