Credit cards: what does cash back mean?

Written by antoinette alexander
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Credit cards: what does cash back mean?
Cash back credit cards "reward" shoppers for spending (credit card image by Christopher Hall from Fotolia.com)

Cash back credit cards mean that the credit card provider gives the cardholder a small percentage of the purchase amount back as "cash back." The cash back rates will vary depending on the credit card company but typically the cash back rate will be between 2 and 4 per cent. For example, if a cardholder charged £650, she would earn about £13 to £26 as "cash back."

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Forms of Cash Back

Depending on the credit card, the cash back could come in the form of a credit on the credit card statement, an actual check or some cards will offer gift cards for certain merchants.

Annual Fees

There are some things to consider when applying for and using a cash back credit card, including the annual fee. Some cards have an annual fee and if you do not use the credit card often then the cash bonus might not be enough to make up for the cost of the annual fee.

Spending Limits

Some cash back credit cards may come with a limit on the amount of purchases that qualify for cash back. For example, if a card offers 2 per cent cash back for gas purchases, it may come with a spending cap of about £162 per month.

Exceptions

Be aware that some cash back credit cards may not offer the rewards when shopping at certain retail stores. For example, some cash back credit cards may exclude purchases made at discount retailers like Costco or Sam's Club.

Over Spending

Knowing that a credit card offers cash back could entice some people to use the card more than they otherwise would. One suggestion is to pay off the credit card several times during the month and watch that money being withdrawn from your current account. This may help curb overspending.

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