What is cash back and how does it work on a credit card?

There are plenty of credit cards out there—and many that offer rewards. If you’re looking for a simple way to earn rewards on purchases you’re already making, a cash back credit card could be right for you.

Learn more about how cash back credit cards work, including how to earn and redeem rewards.

What you’ll learn:

• When you use a cash back credit card, you earn a percentage of what you spend in the form of rewards.

• Cash back rewards can often be redeemed for cash or a statement credit, among other options.

• There are generally 3 categories of cash back cards: flat rate, tiered and rotating.

• Capital One cash back rewards cards include the Quicksilver and Savor cards.

Cash back credit cards incentivize cardholders to use their cards by returning a percentage of what they spend in the form of rewards. 

In general, cash back cards work like this:

1. Use the card to make eligible purchases.

2. Earn cash back rewards for your purchases, typically as a percentage of what you spend.

3. View and manage your rewards on your credit card issuer’s mobile app or website. With Capital One cash back credit cards, your rewards won’t expire and are yours for the life of the account.

4. Redeem your rewards in a variety of ways based on the options offered by your credit card issuer.

There are three general types of cash back credit cards: flat rate, tiered and rotating. Here’s a quick overview.

With flat-rate cash back cards, the percentage you earn on purchases is generally the same on every transaction. For example, if your credit card lets you earn 1.5% cash back on all purchases, you could earn $15 in cash back for every $1,000 you spend on eligible purchases.

Sometimes called bonus-category cards, tiered cash back rewards change based on the type of purchase. Higher percentages are usually offered on select categories. Suppose your credit card earns 3% cash back at restaurants but unlimited 1% cash back on all other purchases. This means you could earn $30 for every $1,000 you spend dining out, and $10 for every $1,000 spent on everything else.

Rotating cash back cards function a lot like tiered cards, but their bonus categories can change periodically. Purchases in these rotating categories typically earn a higher rate than other purchases, while purchases that don’t fall into these bonus categories are typically rewarded with a flat cash back rate.

With this type of cash back credit card, you might earn 1% on travel purchases during one quarter but 5% the following quarter. You typically have to activate the bonus category before you can start earning rewards at the higher rate.

There are a variety of ways to redeem cash back rewards, including: 

• Statement credits: You might be able to apply your cash back rewards directly to your credit card’s balance as a statement credit.

• Checks or direct deposits: Some cards let you redeem your cash back rewards as a check or direct deposit. 

• Online shopping: With some cards, you may be able to use your rewards for future purchases. For example, Capital One lets you use your rewards to shop online with PayPal® and at Amazon.com.

• Gift cards: Some card issuers let you redeem your cash back rewards as gift cards for popular retailers, restaurants and more.

• Other options: You may have other cash back redemption options, such as donating your rewards to charity or using your rewards to cover all or part of a past purchase.

Earning cash back rewards can be a great benefit. But there are more advantages to using a cash back card than just rewards, including:

• Bonuses: In addition to regular rewards, new cardholders could earn extra bonuses for reaching spending thresholds after they open an account. 

• Low or 0% introductory APR: Some cash back cards may offer a low or 0% promotional interest rate, which could be helpful if you want to make a larger purchase or consolidate debt. You’ll typically have more time to pay off your purchase while paying minimal or no interest.

• Fraud protection: Some cash back credit cards come with features like $0 fraud liability for unauthorized purchases, virtual card numbers, card lock and security alerts to help keep your card protected.

• Digital tools: To help keep an eye on your account, some cash back credit cards give you access to digital tools like mobile apps and credit-monitoring services.

Here are some things to consider before you apply for a cash back card.

How you earn and redeem cash back rewards is important. But it’s also a good idea to look at things like interest rates and annual fees to decide whether a particular cash back card is right for you. Looking at rates, rewards and fees can give you a good starting point for comparing cards.

Make sure you understand how long rewards can be used. For example, Capital One rewards don’t expire for the life of the account and there’s no limit to how much you can earn. It also might help to remember that the value of the cash back you’ve earned could be outweighed by the interest you accrue if you carry over a balance. Paying off your balance every month is one way to avoid interest and get the most out of your rewards.

Credit card issuers consider many factors, including credit scores, when deciding whether to approve an applicant for a credit card. Monitoring your credit can help you see where you stand. You can also check whether you’ll be approved for a card before you apply.

If you decide to apply for a credit card, it could help to understand how that could affect your credit. If your credit application involves a hard credit inquiry, your credit scores could take a temporary hit. And according to the Consumer Financial Protection Bureau (CFPB), applying for multiple credit cards in a short period of time could send negative signals to potential lenders about your finances.

Financial responsibility and credit go hand in hand. So before you start making plans for your rewards, be sure you know things like when your bill will be due each month and where you can find the amount of your minimum payment.

Capital One offers two types of cash back credit cards: flat rate and tiered. They offer cash rewards for your purchases. Plus, they come with benefits such as fraud protection, account management features, digital tools and services, and elevated cash back on hotels, vacation rentals, rental cars and activities booked through Capital One Travel.

The Quicksilver and QuicksilverOne cards are examples of flat-rate cash back cards. They both offer unlimited 1.5% cash back on every purchase, every day.

The Savor and SavorOne cards are examples of tiered cash back cards. They offer unlimited 3% cash back on food and fun including on dining, entertainment and popular streaming services and at grocery stores. Plus, they offer unlimited 1% cash back on everything else.

Cash back is one way to earn rewards on your credit card purchases. With different ways to earn and redeem rewards, chances are there’s a cash back card that fits your needs.

Capital One offers several simple and rewarding cash back credit cards that allow you to earn unlimited cash back on all qualifying purchases. If you find one that fits, you can see whether you’ll be approved for a new card before you apply. The process is quick, and checking won’t hurt your credit scores.