Dear Cashing In,
I’ve been working on my credit and just became eligible for a rewards card. I’m thinking of getting a cash back credit card but I’m not really sure how they work. Is the cash mailed to me or something?—Chris
Good job on building and establishing your credit score to become eligible for rewards cards. While there are many different types of rewards cards, you’re right—cash back credit cards are a great place to start.
As you begin exploring the options for what cash back cards are currently available, you’ll first want to understand how cash back works and how to redeem the cash back rewards, so you know which card is right for you.
Have a rewards question for Stephanie? Drop her a line at the Ask Bankrate Experts page!
How cash back works
How cash back works is pretty straightforward—you spend money on your credit card and the bank gives you a few cents back in credit for every dollar you spend.
Cash back credit cards typically earn cash rewards at a fixed or variable percentage rate. The Citi® Double Cash Card, for example, is a cash back card with a fixed cash back reward return of 2 percent (1 percent when you spend, and another 1 percent when you pay off your purchases). That means that for every $100 you spend on your card, Citibank will give you $2 back.
While this may not seem like a lot, over time and months of spending, cash back rewards can really add up.
Can you get cash back off a credit card? Cash back vs. cash advance
When we talk about how to get cash back off a credit card, it’s important to understand the difference between getting cash back rewards and getting cash as a cash advance. While cash back rewards are a return of a small percentage of money you’ve already spent, a cash advance is essentially a “loan” against the credit limit on your credit card.
When you take out a cash advance on your credit card—for example, by using your credit card to get cash out of an ATM—you will likely be charged a cash advance fee. You’ll also be subject to a high interest rate that begins to accrue immediately from the day of withdrawal. In short, a cash advance will likely cost you a lot of money, while cash back puts money back into your pocket….Read More>>