How Do Cash Back Credit Cards Work?

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Cash back credit cards work on the principle that a percentage of what a user spends via the credit card is refunded as a cash reward.

They are a type of reward card, which means that if you use your credit card to buy stuff, as opposed to just sitting in and admiring it night after night, you will get something back relative to what you have spent.

But you said 'cash' back?

Right. There are various types of rewards schemes employed by credit card companies, and 'cash back' is the simplest one. And quite possibly the best.

Cash back credit cards are reward credit cards that give you straight cash, as opposed to points, or things like airline tickets, or vouchers.

How do I earn cash back from my credit card?

Simply by using the card to pay for purchases.

You don't have to register, fill out forms or ring anyone up, outside of your original credit card application. If your credit card has a cash back reward system, then a proportion of your spending will automatically be awarded back to you at regular intervals.

How much cash back will I make?

This depends on the cash back credit card deal you choose to sign up for.

Card issuers vary considerably in what percentage of your spending they offer back as a reward, so it is imperative that if you are interested in a cash back deal, that you shop around and find the best offer available - comparing cash back credit cards is fundamental to getting the best payouts.

Generally the amount you can earn is between 0.5% right up to 5% during bonus periods.

Sometimes the credit card issuer will stipulate favoured retailers - retailers that, if you shop with them, you actually earn a higher percentage of cash back.

Some other terms and conditions may apply, for example earning limits, and it will be worth your while checking the small print on any cash-back offers.

To get a real figure quick - use our cash back earnings calculator, which will let you know how much cash back your spending will make on each of the available cash back credit cards.

Are there any hidden drawbacks from cash back credit cards?

No, cash back credit cards are invariably as good as other varieties of credit cards. A great many credit cards have one incentive or another to attract customers, and cash back is just another example.

As per usual, you will have to examine each offer on its own merits, but a cash back credit card will not have any more unfavourable conditions attached than any other family of credit cards. And you can use it just as you would, and in the same places as, any other credit card.

How can I maximise my cash back earnings?

This is the wrong question to ask! The simple answer, of course, is that you maximise cash back by spending more on your credit card. But while you get back maybe one pound in a hundred, you will still have to pay off the other £99, potentially with interest.

But you can still use cash back to box clever.
Essential purchases are ideal for a cash back credit card, and viewed in this context such offers can be a genuine money saver.

The weekly grocery shop is a great example of this. Suppose you usually pay for your weekly jaunt around Tesco's with a debit card. Prudent and sensible, yes?

Not entirely - a cash back credit card would actually bring the bill down, used properly, because you get a proportion of what you spend back, in cash, at a future stage. So if you keep up to date with your balance and pay it off regularly, cash back credit card deals can be great for your supermarket shop.

The same applies to utility bills, petrol, and other essential buys. Look at it as a reverse VAT, where you actually make a cut out of your spending for a change.

Just make sure to pay off the balance whenever your statement is due, or you will defeat the whole purpose.

Cash back bonuses
Some cash back credit cards offer introductory bonuses, offering a higher percentage of cash back for new users for a short period of time.

Again, this gives you the opportunity to be clever and save a few quid. If you have a number of big bills coming up which you can pay by credit card, if you're getting married or are booking a holiday package, then now's the time to flash the plastic!

How and when will I get my cash back?

Sometimes the credit card company will pay you by cheque, sometimes they will simply pay it into your credit card account. Time periods for payment vary - some companies pay monthly, others give cash back quarterly or yearly.

What's the catch?

There is none! Cash back deals are fantastic for unavoidable, essential purchases.

Better than cash, in fact, if you use them correctly. And they are one of the very best credit card deals you can get. They won't cost you any more in charges than other credit cards, and can be used just the same as any other credit card.

But it's easy to forget that the interest rates charged on any card will always outweigh the potential money saving benefits. So you should be as wary of using cash back credit cards on profligate, unnecessary items, as you would be with other credit cards.

If you are a diligent credit re-payer and always stick within your credit limit – as well as your repayment budget – then a cash back credit card could be more than worth the 5 or 10 minutes it will take to apply for one.

If, on the other hand you have a tendency to comfort yourself with new shoes or gain stress relief from a new Black and Decker power tool - you may save yourself more money by opting for a low interest rate credit card or a 0% purchase credit card deal.

Compare cash back credit cards