Eli5 What is meant by cashback on credit cards?
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Credit card companies make their money by charging merchants a fee every time someone uses a card with them so they want to encourage people to use their credit cards. One of the ways they do that is with a “cash back reward”. It means that they take a percentage of the money you’re spending and return it to you. Since you’re getting money back, you’re encouraged to use your card more so you can get more money.
For example, say you’re buying a $100 video game (round numbers) and you’re using your credit card that has a 1% cash back program. That means that you spend $100 but at some point in the future, the credit card company will give you back $1 since $1 is 1% of $100.
When you get the money back depends on the rules for the program. Some give you a credit on your monthly statement. Some send you a check every month. Some only give you a check at the end of the year and only if you still have the card at that time. You have to make sure you read the rules to understand what percentage back you can get, what they give cash back for (i.e. some won’t give cash back for alcohol purchases), and when they give it back.
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