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What is cashback?

What is cashback, and how does it work? Learn more about getting rewards on every purchase you make.

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With inflation on the rise, it’s not uncommon for the average American household to search for deals and savings on everyday purchases where they can. And while coupons, seasonal sales, and other promotional rewards come and go, they often do not apply to items we buy regularly. 

Nonetheless, with consumerism on the rise, credit card companies have begun offering cardholders incentives in the form of cashback to encourage them to spend money on their cards. But what is cashback? And is having a card with a cashback feature worth obtaining? These are questions frequently asked by credit cardholders, which is why we are going to answer them. 

Therefore, to learn more about this offering, keep reading. 

What does getting cashback mean?

Simply put, cashback is a type of rewards program used by credit card companies. It provides cardholders with perks when they use their cards to make everyday purchases. Generally speaking, cardholders will receive a predetermined percentage of the money they spend on each financial transaction. However, there are other types of cashback cards available that we will discuss later on in this article.  

What is cashback on debit cards?

Furthermore, while cashback traditionally served as a rewards program offered by your credit card issuer, many banking institutions have begun offering these types of cash rewards incentives on debit cards as well. 

Therefore, rather than contributing to your accumulated debt on your credit card to obtain cash rewards, you can use your debit card instead. Thus, you are receiving rewards on money that is already in your checking account rather than money you borrow from a lender. 

What is cashback on credit cards?

On the other hand, cash back on credit cards offers similar rewards as debit cards. However, rather than gaining rewards on the money you have in your checking account, you receive perks when spending money that you borrow on credit. In addition, there are often caps on how much of a rebate you can obtain on your purchases through exclusive and quarterly promotions.  

Further, some credit card companies will offer new client’s sign-up bonuses when they sign a new credit card contract and meet specific criteria. For example, if you sign-up for a credit card with a higher credit limit and whether you have a responsible credit history. In addition, sing-up bonus cards or cards with higher rewards may come with higher interest rates that can increase your debt. 

Therefore, you will need to keep in mind your credit limit and your spending habits to ensure you do not significantly increase your debt to ensure you collect rewards. In contrast, these types of credit cards are a great way to improve your credit score. They may be more beneficial to you and your spending habits compared to a credit card without incentives.  

What is an example of cashback?

Moreover, to provide you with more clarification on how cashback rewards programs work, here is a closer look at some examples that you may find helpful. Let’s say you are the owner of a credit card that has a rebate of 3% on various spending categories, such as all online purchases. This means that on every $100 you spend while shopping online while using your credit card, you would then receive $3 in rewards. 

Now, let’s take a look at what a cashback would be on quarterly rewards credit cards. Hypothetically speaking, a credit card issuer may offer 5% back on gas up to $1,500 in combined purchases and 1% back on purchases made from Walmart or Target from January to March. In the next quarter, your company changes the percentage of cashback you receive, along with the location where you can obtain these rewards. 

Is cashback free money?

Technically speaking, cashback is not free money as you are required to spend money in order to receive money back. In addition, while some cards offer favorable rewards, they can also require cardholders to pay an annual card fee which can offset your savings depending on how much you use your card and spend money. 

Therefore, to provide you with further information on these cards, here are some more pros and cons associated with cashback cards so you can better determine whether this is right for you.

Pros

  • Many card issuers will offer you a cash bonus if you spend a certain amount of money within a specified time frame.

  • Most of your everyday purchases and purchase locations will qualify for cashback rewards. 

  • If you have a high credit score, you can be eligible to obtain cards with better rewards than others. 

Cons 

  • Some card issuers have limits to how much money you can spend and receive rewards per year. 

  • These types of cards can intensify your spending habits and cause you to collect even more debt which may put your financial health at risk. 

  • Low APRs may only help you save in the short term as part of a promotion deal to get you to sign up. Therefore, once this period ends, you may be stuck with a high APR which can cost you more money if you are inconsistent with paying your monthly credit bills. Additionally, this will offset your cash savings as well.

  • You may be subjected to a transaction fee if you use your card more than the allotted amount of times per month. 

While cashback rewards seem valuable and appealing upfront, it can also cause more problems if you are not responsible for the money you have and borrow. Therefore, to determine whether cashback programs can favor you and your spending behavior, don't be afraid to compare fees amongst credit lenders to find one with rewards that work for you. 

In addition, consumers should always pay attention to the details of what each offer is providing you. For example, do you receive a higher percentage back at specific stores or on particular items? Are their expiration dates on savings? Are there annual fees? And are there limits to how much you can spend?

On the other hand, it is always best to consult with your financial advisor before entering into a contractual agreement with a credit lender. This way, you can get a better snapshot of your finances and obtain advice on how to influence your current budget restraints and credit limits positively. 

How does cashback work?

Moreover, now that you understand the answer to our question, "what is cashback?" you probably also have questions such as "how does cashback work." Therefore, we put together a comprehensive list of how cashback works. However, it is essential to keep in mind that the types of cards available and how they work will vary depending on which company you choose to sign a contract with. 

Let’s take a look at some of the different cashback credit cards available for consumers, how they work, and the various ways you can redeem your rewards as soon as you have signed a contract and activated your card. 

  1. Flat-Rate Cashback Cards

Depending on which company you have your credit cards with, the percentage of the money you receive back on your purchases can range from a flat rate of 1% to 5%. Additionally, these percentages can vary depending on different spending categories. 

For example, cardholders may receive 2% in cash rewards at grocery stores, 1% back at all gas stations, 3% back at other retailers and online purchases, and other rewards when spending money using a PayPal account. 

  1. Rotating Cashback Cards

Further, you may also be entitled to quarterly promotions. Credit companies will often offer rotating categories throughout the year with high rewards rather than ones that last the full 12 months to provide consumers with more options on their savings. 

For example, you may be provided with 5% cashback on Amazon and streaming services. However, again, these will vary depending on which credit card company you have a card with. 

  1. Bonus Category Cashback Cards

Another type of cashback program offered by lenders is the bonus category. These cashback cards offer higher rewards when you spend money on specific categories such as travel, department stores, home improvement, and more. 

  1. Choose Your Own Cashback Cards 

The final type of cashback card is known as a choose your own category cashback card. This type of card provides the consumer with more freedom on what items they receive money on. 

For example, a rideshare employee may opt to receive more rewards on the money they spend purchasing gas rather than other general categories. Thus, providing you with options that truly benefit what kind of consumer you are and the lifestyle you live. 

How to Redeem Rewards 

Furthermore, although your reward programs will differ, most companies offer their cardholders perks in the form of: 

  1. A Bank Deposit: Money earned from purchases on your card will be directly deposited into your checking account. 
  2. Credit on Your Credit Card Balance: This type of system offsets your current credit card balance, which may be a good option for individuals who use their card option yet forget to pay off their card on a monthly basis. 
  3. Gift Cards:  Lastly, your company may offer gift cards to different retailers, both online and in-store. Additionally, many credit companies also offer travel card options where you can collect in the form of travel points, airline tickets, hotel vouchers, and more. 

What stores give the most cash back?

Moreover, once you have chosen which type of cashback card fits your needs, it’s only expected that you begin looking for the best stores that provide you with the best rewards. Therefore, we have put together a comprehensive list of online and in-store retailers that offer the most cash back on your debit and credit cards. 

  • Albertson’s: Up to $300 on debit cards and specific credit cards 
  • Ralphs: Up to $200 on debit cards and specific credit cards 
  • Walmart: Up to $100 on debit cards 
  • Fred Meyer: Up to $300 on debit cards 
  • Shoprite: Up to $200 on debit cards or $20 on specific credit cards 
  • Jewel-Osco: Up to $100 on debit cards and specific credit cards 
  • Vons: Up to $200 on debit cards 
  • Supervalu: Up to $200 on debit cards and $120 on specific credit cards 

Although these stores provide you with high savings at the register, consumers, especially those with small businesses who must shop at specific retailers, are restricted from where they can purchase their items. 

However, there is an option available for small business owners that can provide you with unlimited cashback savings on items purchased for your business with Nearside. Here are some of the benefits of opening a Nearside Business Checking account with a Nearside Debit Mastercard:

  • No monthly fees on any transactions you make using your Nearside Debit Mastercard

  • No monthly minimum requirements for spending 

  • No overdraft fees 

  • No debit card replacement fees in you misplace your card 

  • 2.2% cashback on business purchases 

  • Mastercard perks include rental car insurance, global airport concierge service, extended warranty, and more.

Finals thoughts

As you can see, cashback features offer many benefits to consumers who make purchases using their debit and credit cards. With options to customize your savings and how you receive your rewards, when used correctly and responsibly, can work in your favor. 

However, before signing a contract with any credit company, remember to look over the fine details and shop around for rewards that will positively influence your spending habits rather than exacerbate them. 

In addition, consumers should also make sure that they stay on top of their credit card payments to earn rewards and increase their credit score while remaining aware of any increases in APR interest rates. Therefore, if you're ready to learn more about how to begin betting cashback on your purchases, call or email a Nearside professional for financial advice and help sign up for your new account and card today. 

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