Cash Back

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What is Cash Back?

Cash back is usually a rewards program providing consumers with a dollar percentage returned back for every dollar spent. Commonly in the form of credits, direct deposit, gift cards, and/or points that can be spent on private label store items provided by the lender. Reward rates vary, especially during promotional events.

What is the formula for Cash Back?

Cash Back is simple to calculate. It is simply: Purchase Price * (Cash Back Percentage / 100) = Cash Back.

The inner workings of Cash Back

Generally, cash back is a pretty standard process:

Purchase an item: When making a purchase, you use your credit card that has cash back awards attached it.
Earn cash back: Depending on how much you spend, cash back is awarded as a percentage of your original purchase amount for a given transaction. For example, if you use a card that has 3% cash back, when you make a $100 purchase using that card you would earn $3 cash back.
Redeem awards: After accruing enough cash via cash back rewards you will be able to spend your cash back rewards through the lender's shopping portal. In other cases, the cash back might be a statement credit or a direct deposit into a different account.

How to maximize Cash Back rewards

Select a card that works for you: Credit card companies and lenders provide many different options for cards with cash back reward options. Be mindful when signing up for a new credit card to select one that has reward features that fit your lifestyle, such as plenty of cash back opportunities with high yields.
Take advantage of promotions: Often times, credit cards may have promotional windows where cash back percentages are higher for certain items than all other purchases. Usually these promotions come with a limit, for example, there might be a higher cash back percentage when using your card to purchase groceries for a certain time period before it goes back to the normal cash back percentage.
Pay off your balance: If you don't pay off your credit card each month you run the risk of paying added interest. This interest may dip into and negate your accrued cash back rewards.