What is cash back and how do cash back credit cards work?

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. 

Cash back generally works by rewarding a portion of your spending to redeem as cash or statement credits, among other options. 

What you’ll learn:

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

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

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

• Capital One cash back rewards cards include Quicksilver and SavorOne.

Cash back credit cards reward cardholders for using their card. Typically, rewards are based on a percentage of each purchase. It depends on the credit card issuer and the specific card what percentage is earned and how it can be redeemed.

There are some types of transactions, like balance transfers and cash advances, that generally don’t earn rewards.

There are three general categories of cash back cards: flat-rate, tiered and rotating category. How you get cash back rewards—and how much you earn—can depend on which type you’re using. Here’s a quick overview:

1. Flat-rate: With flat-rate cash back cards, the percentage you earn on purchases is generally the same on every transaction—whether you’re buying gas, groceries or something else. 

2. Tiered: Sometimes called bonus-category cards, rewards for tiered cards change based on the type of purchase. Higher-tier rewards percentages are usually on select bonus categories. Purchases outside those bonus categories generally earn rewards at a flat rate. 

3. Rotating category: Rotating cash back cards function much like tiered cards, but 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.

Card issuers rely on a four-digit number called a merchant category code for cards that earn cash back on different categories. These codes are assigned to each credit card transaction and help issuers identify which purchases qualify for earning rewards.

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. But there are elevated rewards offered to cardholders who book things like hotels on Capital One Travel.

The Savor card has tiered rewards, offering 3% cash back on dining, entertainment, popular streaming services and at grocery stores, plus 1% on all other purchases.¹ Savor also offers 5% cash back on hotels and rental cars booked through Capital One Travel.

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

• Online shopping: Some cards may let you put your rewards toward future purchases. For example, Capital One lets you use your rewards to shop online with PayPal® and at Amazon.com®.²

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

• 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 checks or direct deposits to your checking or savings account. 

• Other options: Some card issuers may offer 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 perk. But there are more advantages to using a cash back card than just rewards.

Some cash back cards may offer introductory perks, including:

• Early spend bonus: Sometimes referred to as a sign-up or welcome bonus, you’re generally required to spend a certain amount within the first few months of opening the card. Once you reach the specified amount, you can get the bonus on top of your regular cash back earnings.

• Low or 0% introductory APR: A low or 0% promotional interest rate could be helpful if you want to make a larger purchase. You’ll typically have more time to pay off your purchase while paying minimal or no interest.

Other cash back credit card benefits might include unauthorized charge protection and digital tools to help you keep an eye on your finances.

Here are five more 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 take a 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 if you revolve a balance and accrue interest. 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 to see if you’re pre-approved and find out what cards you might be eligible for before you apply.

If you decide to apply for a credit card, be sure you understand how that could affect your credit. If your credit application involves a hard inquiry, your credit scores could take a temporary hit. And according to the Consumer Financial Protection Bureau, applying for multiple credit cards during a short period could send negative signals about your finances.

Personal 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.

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 if you’re pre-approved. The process is quick and checking won’t hurt your credit scores.