How Do Cash Back Rewards Credit Cards Work?
Understand the history of Cash Back Rewards
Not all miles or travel rewards credit cards work the same way, or reward the same way. When looking for a no annual fee travel rewards credit card, the best card for you is one that gives you rewards at the places you spend the most, and lets you easily redeem miles rewards or points the way you want (cash, hotel or airline credit, account credit, merchandise, gift cards).
Credit cards haven't always offered cash back or cash rewards on purchases. In fact, many platinum credit cards once charged an annual fee and had no cash back or points reward programs for credit card holders.
Today, there are a host of no annual fee credit cards that reward you with cash back, points, travel miles, hotel deals, store discounts and even rebates on your next auto purchase.
About 85% of U.S. households participate in at least one credit card rewards program. Of the various rewards credit cards available, cash back rewards programs are the most popular.
The basics of cash back rewards
With cash back rewards programs, you get money back on your purchases. These cash back rewards are often in the form of a check or electronic deposit to your bank account, or a credit to your credit card account.
You might also be able to redeem your rewards for shopping discounts, gift cards, travel, hotel stays or charitable donations.
Some cash back rewards credit cards give you top rewards—often 3% to 5%—in set categories like gas or travel. Other cards may offer top credit card rewards in various categories throughout the year.
Unless a cash rewards card is affiliated with a specific merchant, airline or hotel, you usually earn incremental rewards—often .25% to 1%—on all other purchases outside the top category.
Top rewards on credit cards are also available when you take advantage of deals from merchant partners, special seasonal offers or bonus incentives for using your new card.
Here's how you can get the most from your cash back rewards credit card:
- Consider where you shop and choose a credit card that will earn rewards where you spend regularly.
- Know if there are expiration dates on rewards or points, and in what increments can you redeem.
- Understand the redemption levels—know how long you will have to accrue rewards before you can redeem them. What is the minimum redemption level? What rewards are offered at each level? How many rewards do you have to earn in order to get the best offers?
- Read the terms and conditions before applying for a cash back rewards card and understand how the rewards program works. Most rewards programs have some limitations on how you earn, such as earn categories, caps, time period (e.g. first six months get double cash rewards, etc.)
- Improve the value of your rewards credit card by looking for no annual fee cards with the lowest interest rates. Limit the number of rewards credit cards you have—and accrue rewards on one or two cards.
- Don't let fees cut into your rewards—check into no annual fee credit cards. And make sure you know what fees are involved with your card usage. You may also want to take advantage of tools such as e-mail reminders that help you avoid late or overlimit fees.
Take advantage of free card benefits and resources:
- Save even more money by avoiding overlimit and late fees—set up free account alerts that warn you when you are nearing your credit limit or when a payment is due.
- Check out the other free benefits your card offers—such as free travel insurance and travel assistance. One-third of all cardholders are unaware of additional benefits their credit card offers. Discover believes that consumers should be armed with the information they need to help them make informed credit decisions.
Discover believes that consumers should be armed with the information they need to help them make informed credit decisions.
Discover was founded on a commitment to helping cardmembers earn more meaningful rewards, quickly and easily, while giving them more choices and control over their credit.
Want top rewards for your everyday purchases? Find out how to get 5% Cashback Bonus in categories that change like travel, home improvement stores, department stores, gas, groceries, restaurants and many more.
Compare all Discover card cash reward programs. Our Cashback Bonus program was named America's #1 Cash Rewards program, according to TNS 2008 Consumer Card Strategies Research data that shows more U.S. households have a Discover card than any other cash rewards card.
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According to a J.D. Power 2008 Credit Card Satisfaction Study, "It's important for customers to learn about the benefits their card offers to gain the maximum value from their relationship with the card issuer. Taking this initiative can reap great rewards for customers as they help create a more satisfying cardholder experience for themselves."