How Do Cash Back Credit Cards Work

by Violet WillettFebruary 28, 2024
How Do Cash Back Credit Cards Work

Cashback credit cards are a great way to earn extra cash on your next purchase, but only if you pay off the balance each month and never go over your limit. Otherwise, interest rates will outweigh any rewards points or percentage of what's spent!

What is cashback?

Cashback is great for getting money back on things you buy. It can be a discount or incentive, and credit cards typically offer it with an extra feature of cash deposited into your account when purchasing something that provides discounts at certain stores!

Cashback is now available on anything you buy. For example, some providers offer cashback for fuel or bills, but many also provide it as a reward when purchasing other items such as groceries at your favorite store!

How does cashback work?

With the growing number of financial services, it is important to think about maximizing your earning potential. A credit card that pays 1% cashback on all purchases could earn up to £50 per year for someone with an annual spending limit of £5k. However, this will only work if they pay off their balance every month and don't accumulate interest charges from using their card too often or late payments along the way - which statistically speaking, most people do!

For example, if you have a card that pays 2% cashback and spends £100 in the shop, you'll earn £2. This is generally paid annually, but some cards will send out monthly payments of your earnings (or back). Most reward points can be exchanged when enough qualify for "rewards."

Cashback cards come in various forms:

  • Some cards will pay a flat rate of cashback, no matter where or how much you spend.
  • Some companies have different rates of cashback depending on how much someone spends. For example, 0.5% if you spend less than £6k per year and 1%, but this might tempt people into spending more money they can't afford to repay comfortably.
  • Some cards offer different rates of cashback depending on where you spend your money. For example, 1% when using it at supermarkets and 2% for department stores while 3%, also called energy purchases, will earn users an additional percentage point up to 5%.

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