What are cashback credit cards?

Using cashback credit cards can be a great way to earn a reward that anyone can use: money.

But not all rewards are created equal — each cashback card has its own benefits and drawbacks depending on the reward program and where you typically spend your money.

Browse our handy guide to figure out what type of cashback card may suit you best.

How does cash back work?

Cashback credit cards let you earn rewards in the form of cash back every time you make a purchase. Rewards can vary based on the card program.

For example, the PayPal Cashback Mastercard® gives you 3% cash back¹ on PayPal purchases. So, if someone uses that card to make a $100 purchase through PayPal, they’ll get $3 back.

There are many options and variations on cashback cards, however. Finding the right card — or the one that will get you the most cash back — will all depend on your specific spending habits and circumstances.

Now that you know the typical case of percentages of purchase as cashback, we’ll dive into the two main categories for cashback cards — flat-rate and bonus category cards — both of which typically offer percentage cashback. Here’s some information on both:

Flat-rate cashback cards

A flat-rate card gives you cash back as a fixed percentage of everything you purchase, regardless of what you buy. For example, if you have a card offering 2% cash back, then you could earn up to an extra $20 for every $1,000 you spend.

While you may earn less using a flat-rate card than a rewards card for some purchases, you don't have to worry about complex rewards programs or category restrictions.

Bonus category cards

A bonus category card may offer higher cashback rewards when you use it for purchases in certain categories. For instance, a rewards card that provides 5% back on all restaurant purchases may only offer 1% back for other purchases.

In addition, retailers may offer their own branded credit cards that can earn more rewards when you use it at their store. If you have a favorite retailer where you like to spend money often, getting their rewards credit card can be an easy way to earn rewards on your purchases.

Rewards cards sometimes rotate which categories earn extra rewards, too. For example, a card may offer 5% back on gas in January and 5% back on groceries in June.

Though it takes some work to remember which card provides the best rewards for which purchase, using the right card at the right time can be well worth it.

Redeeming cash back

If you’re approved for a cashback credit card, you'll start to earn rewards with every purchase you make. Once you've earned rewards from making qualified purchases, you'll be able to redeem your rewards.

Here are two common options on how cashback credit card rewards are redeemed:

Gift cards

Card issuers may offer the option to redeem your cash back in the form of a gift card. This can be a fun way to shop at major retailers without paying extra. A couple of things to keep in mind:

• You may need to accrue a specific amount of rewards before you can spend them on gift cards.
• The money you spend on the gift card doesn't earn a reward itself, costing you the opportunity to earn additional cash back.
• While some programs give you a gift card or code that you can use in-store or at a retailer's website, other programs require you to make a purchase through the credit card's online portal. These portals may not have the same prices or selection, which means you'll want to compare before making a final purchase.