How Does Cash Back Work On Credit Cards?

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I’m researching to open my first proper card and still confused about how cash back works.

Say you buy a burger and get 2% cash back. Does it apply a 2% discount to the burger? Or do I earn 2% of the burger’s price?

Where does the money for the cash back come from? Does the cash back affect credit score?

In: Economics

13 Answers

Anonymous 0 Comments

They give you the money periodically. (In practice, it’s usually not automatic. You can spend it at some stores through their website, have it applied to your balance, or have them send you a cheque.) It comes from transaction fees. It doesn’t affect your credit score.

Anonymous 0 Comments

Say you have a card that gives 2% cashback. It means you will get 2% of your purchases back (usually lump sum, once a year). So your $10 burger yielded you…$0.20. So obviously the more you spend the more you get back (but never justify overspending for this reason). In a year’s time, you spent $15,000. That means you would get back a grand total of $300 “back”. By this, your next statement will be $300 cheaper than whatever it would have been.

Many cards have different rates. Some are flat rate cards. Some have different rates for different categories. For example, Card 1 gives 4% on restaurants, 1.5% on gas, groceries, and 0.5% on everything else. Card 2 gives 2% on everything. Its wise tio pair up cards to maximize your cashback. Basically, card 1 for food, card 2 for everything else.

Anonymous 0 Comments

There are transaction fees seller pays. So for example you pay with a card, seller gets 95%, bank gets 5%, then gives you 2% and keeps 3%.
Cashback incentivizes you using the card more, so the bank gets more transaction fees. And while it seems like a loss for the seller, he’ll just raise the price a bit to make up, and don’t have to deal with masses of cash he’d have to deposit at the bank/keep in safe/risk robbery.

Anonymous 0 Comments

The credit card I use gives me back 1.5% on all purchases.

They offer to credit my account monthly or send me a check.

Another option they offer is to link this program to my Amazon account (which is what I do).

I can then choose to apply some or all of the cashback at checkout.

Anonymous 0 Comments

In Germany, that is pretty much non-existent. Then again, in Germany, Stripe charges merchants 1.4% and in the US it’s 2.9%. I’m sure in other EU countries it’s similar.

The cash back is basically baked into the price of what you purchased and it’s the people who pay without a cashback card that get screwed.

Anonymous 0 Comments

Hmmm my bank does about 50 back for every 1000 spent but it’s accumulated in points traded for moneys

Anonymous 0 Comments

Nobodys quite answered your first question yet, so here ya go.

The cash back is given back to you separately instead of immediately applied to your purchase. In your account, it should have your cash back balance listed somewhere with the amount available to use.

So if you spend $100, it’ll say $2 available cash back. It will then either let you apply that $2 as a statement credit, taking your balance down to $98, or let you redeem it directly with any of their partner sites, or add it to a gift card you can then go spend. The specifics here will vary by card.

Anonymous 0 Comments

It’s a ridiculous rent seeking game that should be made illegal. Credit card processing companies charge merchants fees on ever purchase, part of theat fee fund cash back, milage, or other reward systems. The issue is merchants have fixed costs so in order to make the same margin they would on a cash sale they need to increase their protein resulting in more expensive goods for everyone. I would argue it would be better for card processors to simply convert thie costs and charge overall lower fees, it is far more advantageous for consumers to just pay 1.5% less than tp get that in cash back. Unfortunately, our government is to busy doing nothing but blaming one another to actually fix society for anyone with a net worth below 8 or 9 figures.

Anonymous 0 Comments

In my experience you usually get a better return by opting for points because the cash back rate is usually so low.

For instance, my card has points and cash back. If I want to buy a $100 plane ticket, I’d have to spend about $10,000 on the card to buy that with cash back, but only about $5,000 to buy it with points.

Some cards have different incentives. Mine gives extra points for food purchases. Others will give extra points for travel purchases. Some will have higher cash back payouts. It’s usually best to shop around some to find a card that has the right mix of rewards and interest rate for you.

Anonymous 0 Comments

It’s paid as a reward on your credit card account/statement. You make a qualifying purchase, and then once it posts you see an increase in your Rewards balance on the rewards section of your credit card’s website/app. Different programs have different ways you can redeem your rewards… some can be applied to travel, some can be applied directly to balance, some can be used on sites like Amazon, some can be paid out as gift cards, etc.

the cash comes from the transaction fee charged to merchants. When you buy a pair of shoes, the retailer pays credit card processing fees of about 3%, then they pay 2% of that to you.

Why/in what way would you think cash back affects credit score? It does not.