Credit card cashback

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When accepting payment by credit card, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Many credit card issuers, particularly those in the United Kingdom and United States, share the commission with the card holder by giving the card holder points, airmiles or a monetary amount. This last benefit, a monetary amount, is usually known as cashback, although it is often separated into two words (cash back) in the United States. Where a card issuer operates such a cashback scheme, card holders typically receive between 0.5% and 2% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card account or paid to the card holder separately, for example by cheque.

Recently, major card issuers have raised the cash-back percentage up to 5%. The 5% cash back rate usually applies only to purchases made at grocery stores, pharmacies, and gas stations. This high rate of cash back was set to grab the attention of potential applicants for them to consider applying for the card. Typically the cash back rate for all other purchases is around 1%.

Rewards based credit card products like cash back are more beneficial to consumers who pay their credit card statement off every month. Rewards based products generally have higher APRs. If you don't pay your balance in full every month the extra interest you would be paying will eclipse any rewards you earned.