Reclaiming Your Money: What Is Cashback?
Ever wondered, how to spend money and get free money for it? Well, the good news is there is a way to do something similar. This article will uncover what is cashback and how can you earn it.
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What is cashback?
Generally, cashback, also known as cash-back or cash rewards, is a small percentage of the amount spent on each purchase that is refunded to the cardholder.
The concept dates back to the 19th century when retailers introduced rebate discounts. Then, consumers paid the full price and received a credit at a later time.
Contemporary cashback cards simplify this, enabling cardholders to earn money on various everyday purchases at each statement cycle.
Moreover, today, these cash-back programs extend beyond credit cards to include some debit card accounts, stores, and online retailers.
Cashback rewards can be utilised in various ways, such as applying them as a statement credit or depositing them into a bank account.
How does cashback work?
In contrast to traditional rewards points or gift cards, cashback rewards provide cardholders with actual cash. Some offer a flat rate, and others – tiered rates on eligible spending.
The operation of cashback rewards varies based on the program.
Cashback credit cards rely on agreements between credit card companies and partnered retailers. When you buy something, the retailer pays a percentage to the credit card company. Then, the credit card company gives back a part of it to you as cashback.
Debit card cashback is typically a direct payment from the bank to the customer.
Some websites function similarly to credit cards. They secure cashback deals with specific retailers for their customers.
While each cashback card has its earning structure, there is one fundamental rule: the more one spends, the more cashback can accumulate.
So, what can you get? A card offering 1% cashback on all purchases could yield £10 for a £1,000 annual spend.
These rewards are typically detailed in the monthly credit card statement and can be received through various methods, like a direct deposit or a mailed check.
Who can get cashback?
The first step is to get a specific credit or debit card that offers cashback rewards as a benefit. Usually, card providers highlight this feature. However, check it in the terms and conditions to be sure.
Furthermore, you need to have a good credit score and a qualifying card that can earn cashback on eligible everyday purchases. Checking the details of a specific card’s rewards program is advisable to understand the qualifications for cashback and the applicable conditions.
How much cashback can I receive?
So, how much cash back can you earn? Well, the amount of cashback one can receive depends on the chosen rewards program and spending.
However, cash-back rewards typically vary from 1% to 5% of transactions. Credit cards offer different cashback levels based on the type of purchase or transaction level.
Moreover, the cardholder must reach a specific transaction level to earn cash rewards. Typically, the amount is around $25, although it varies.
Extra rewards through merchant partnerships mean that certain purchases at specific merchants earn more than those made elsewhere.
Also, there can be special short-term promotions. In these cases, you get higher refunded percentages for spending in specific categories like restaurants or department stores.
It is crucial to consider whether the selected program aligns with everyday spending habits to earn benefits without exceeding the budget. Otherwise, find a program that better fits your lifestyle.
There are many cashback cards that you can choose from. Here are some of them:
Revolut Pro account holders can earn cashback on eligible transactions using physical or virtual cards. The cashback varies depending on the Revolut plan. It is transferred monthly and deposited into your Revolut account in your base currency.
Each Revolut plan has a different cashback rate. Ultra plan holders receive 1.2%, Metal plan holders receive 0.8%, Premium plan holders receive 0.6%. Plus plan and Standard plan holders earn a 0.4% cashback rate.
Curve offers 1% cashback at selected retailers. However, you need to pay an entry ticket cost of €9.99 and above to access this benefit, and you can get cashback only at up to 6 retailers.
The Binance Card is another card that has a cashback feature. The cashback percentage varies depending on your card level, determined by the amount of BNB holdings in your Binance wallets, ranging from 1% to 8%. Cashback is computed daily for each settled purchase from the preceding date.
For crypto enthusiasts, Wirex provides another solution for spending crypto and Stablecoins with the added benefit of cashback. You can earn up to 8% Cryptoback every time you spend.
Crypto.com offers a Visa Card providing 1-5% cashback. However, you need to have a premium plan to get a higher cashback. Moreover, you can only earn money back for amounts exceeding the maximum monthly purchase rebate.
How to maximise credit card cashback?
There are a few tactics how you can get the most out of your cashback credit cards:
Categories you are spending money in
When choosing a cashback credit card, consider which purchase categories you earn the most. Choose the card offering a higher reward rate for these specific purchases if you spend money mostly on groceries.
When registering for a cash-back card with a cash signing bonus, you can receive an amount ranging from €50 to €1,500 by fulfilling specific requirements, like achieving a minimum spending amount within a set time frame.
This cashback bonus, also known as a sign-up bonus, allows you to earn cash back by reaching a particular spending threshold in the initial months of card activation.
Note that not all credit cards provide bonus cash, so consider those that do to maximise your early cash back.
Also, refer to cashback comparison charts to pinpoint the best rewards and perks.
These charts assess factors such as no annual fees, the chance to earn extra points during the signup period, and additional benefits like 0% interest on balance transfers or special bonuses when shopping at partner retailers.
Do not carry a credit card balance
Avoid carrying a credit card balance whenever possible, as doing so can subject the cardholder to interest charges that may exceed the amount earned in cash-back rewards, accumulating quickly.
Instead, spend only an amount you feel comfortable repaying in full by the end of the month.
Credit card fees
Look for a cashback credit card without an annual fee. A €95 annual fee reduces your annual net cash-back rewards.
Additionally, using a card with foreign transaction fees incurs extra costs for international purchases. Despite earning 5% or 6% cash back, excessive credit card fees can offset your rewards.
Why do credit cards give cashback?
Cashback rewards programs on credit cards encourage cardholders to spend money on specific items. Consequently, card issuers generate revenue through fees and interest payments.
Therefore, they are interested in cardholders making regular monthly expenditures on their cards.
What credit score do you need for a cash-back credit card?
Cashback card usually requires a credit score of at least 700 or higher.
Enhance your credit by paying down existing debts, ensuring on-time payments, and regularly monitoring your score online for potential errors.
Is earning cash back basically like getting free money?
Cashback rewards are a credit card benefit. It may seem like free money, but there is more to it. Cashback comes with a cost – you only get it in exchange for making a purchase.
Cash-back rates usually range from 1% to 5%, meaning you still pay the majority of your purchase out of pocket.
For example, with a flat 1.5% cash-back rate on a $100 purchase, you earn $1.50 in cash back, leaving your total out-of-pocket expense at $98.50.
Moreover, most rewards cards have monthly or yearly fees, adding to the overall cost.
Can you get cashback with a debit card?
Cashback on a debit card operates similarly to a credit card. It offers a percentage of spending as money, travel rewards or rewards points monthly.
The distinction lies in spending directly from your bank account with a debit card instead of on credit.
Choosing a cash-back debit card can be lucrative, earning cash rewards on eligible purchases for self-reimbursement.
Consider rewards rates, spending categories, additional benefits, and associated fees before selecting one.
When is a cashback credit card worth it?
If you do not plan on using the card regularly, the reward program offers may not justify it.
For example, if you only use the card for emergency purchases, avoid spending more than you typically would only to get the cashback – saving your money is a better option.
A cashback credit card becomes a sensible idea for those disciplined enough to pay their card balance in full each month.
In this scenario, you essentially earn rewards for spending money you would have spent anyway. This way it becomes an effortless way to generate a small amount of passive income.
Consider a 5% cash-back card as a valuable asset if you aim to maximise rewards. These cards often come with standard interest rates and no annual fees.
However, it is crucial to note that these rotating category cards may not be for everyone. Many individuals prefer to avoid the hassle associated with optimising their usage.