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What Is Cashback?

Cashback is a rewards program created by credit card companies that pay cardholders a small percentage of the amount they spend on purchases using their card.

Deeper Definition

Cashback is a credit card benefit that refunds cardholders a small percentage of the amount they spend on purchases. It allows cardholders to earn cash from the money they spend using their credit card. While cashback cannot make anyone rich in a week, month, or even year, it can help offset a small portion of the interest paid on loans. The cashback may apply to the credit card bill or be sent as a check or bank account deposit, depending on the credit card company.

The concept dates back to 1986 when Sears and Roebuck, the biggest retailer in the United States, launched Discover card. Their cards carried no annual fees and offered “cashback bonuses” on purchases to attract customers. Since then, the concept has become a standard feature nearly every major card issuer offers on at least one of its products. It serves as an incentive to attract new customers or poach them from a competitor and entice existing customers to use the card often.

Typically, credit card companies offer cashback on specific purchases, and the percentage, usually between 0.5% to 3%, may vary depending on the item. For instance, a credit card company may offer up to 3% cashback on purchases made at grocery stores, pharmacies, and gas stations. Then offer 1% cashback on purchases related to electronics and appliances.

Some people often confuse traditional rewards points with cashback. While both are rewards programs created by credit card companies to reward customers for making purchases with their cards, they differ. Traditional rewards points are usually used to get specific goods or services. For instance, you can exchange reward points for free flights with an airline. On the other hand, cashback is a monetary reward that you may receive through direct deposit to a linked bank account or mail by check.

Cashback Example

Bryan’s credit card company is running a promotional offer in which it rewards customers with 3% cashback on all the purchases they make within a month. That month, Bryan makes a total purchase of $5,000, and his credit card issuer rewards him with $150, which they deposited in his bank account.

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