CashBack Credit Cards – How do they Work?

Many credit cards these days have reward schemes in place that companies use to highlight themselves as the best credit card available. While most cards have frequent flyer points as the main reward there are some credit cards called cashback cards that work differently.

What is a cashback Credit Card?

Credit card companies are now starting to offer cashback credit cards to consumers. These cards work by offering a percentage
of your purchase back to you in the form of cash rather than reward points. You are then free to spend this cash on anything you wish. This
is often a much more attractive proposition for consumers because they are not limited to items only available from a point scheme.

The amount of cashback that the consumer receives can range from 0.5% up to a higher cashback of 5% which is usually set during a 6 month honeymoon period. These higher cashback rates are very attractive for consumers in the market for a new credit card.

While many people already have credit cards and are collecting points they may never use these points because they don’t travel or the points only allow them to buy certain items that they do not need. With a cashback card, you get cashback every time you make a purchase. This is very simple and there is no hassle with having to claim or redeem points.

Some cash cards will only be valid when you use them at certain places or when buy certain items. For example, some cash cards are only for use when buying gasoline because gas prices have risen so much in recent times. This has made these cards very popular. Other Cashback cards are only valid when used at grocery stores or pharmacies.

If you are applying for a cashback credit card you should be aware that
the higher rates of 5% will only be for a limited time and often fall back to around 0.5%-2% after this initial period.

When choosing a cashback credit card and you will not be paying the balance off every month you should try to choose one with a lower interest rate. The reason that credit card companies are offering these types of cashback cards is because of the interest they will make when you don’t pay your balance every month. The advantages of getting cash back will diminish if you are paying a high-interest rate every month on the purchases you have made.

There are a few different companies that offer cash back cards and they have different rates. You will need to decide if you want an Amex, Visa, or Mastercard, remembering that American Express is not always accepted at all places.

If you are going to apply for a new credit card and you are sure that you will be able to pay off your bill every month then it would be a good idea to apply for a cashback card. Unless you are traveling.