What Is Cash Back? Hint: It's Not Free Money

What Is Cash Back?

Cash back, also known as “cashback,” refers to two types of financial transactions related to credit and debit cards that have grown increasingly popular in the last two decades. Most commonly, it’s a credit card benefit that refunds the cardholder a small percentage of the amount spent on each purchase above a certain dollar threshold.

Cash back also describes a debit card transaction in which cardholders receive cash when they make a purchase—generally, a small amount above the item cost.

Key Takeaways

  • Cash back refers to a credit card benefit that refunds the cardholder’s account a small percentage of the sum spent on purchases.
  • Cash back rewards are actual cash that can be applied to a credit card bill or received as a check or bank account deposit.
  • Cash back apps and websites can offer consumers a way to earn money back on purchases.
  • Some cash-back rewards programs come with annual fees or a high annual percentage rate (APR), but not all.
  • Cash back can also refer to the practice of charging an amount above the purchase price on a debit card and receiving the extra money in cash at the point of sale.

How Cash Back Works

An outgrowth of credit card issuers’ general rewards programs, cash-back programs date to 1986, when the Discover card was launched nationally, introducing the concept. Since then, they have become ubiquitous, and nearly every major card issuer now offers the feature on at least one of its products. It’s an incentive for existing customers to use the card early and often and for acquiring new clients or poaching them from a competitor.

Unlike traditional rewards points, which can only be used to buy goods or services, or gift cards offered by the card issuer, cash-back rewards are what their name implies: cash. They are usually presented to the cardholder on the monthly credit card statement.

Consumers may receive the cash back reward through direct deposit to a linked bank account, as a statement credit reducing that month’s bill, as a gift card, or through the mail by check.


The year of the national debut of the Discover card, which pioneered cash back rewards

Cash Back Amounts

The amount of a cash-back reward can range from 1% to 5% of a transaction. Some transactions also offer extra rewards through merchant partnerships: Purchases at that merchant earn you more than purchases elsewhere.

Credit cards often offer varying cash-back levels, depending on the type of purchase or transaction level. For example, a cardholder might earn 3% back on gas purchases, 2% on groceries, and 1% on all other purchases. A special promotion where you can get cash back often might be in effect for three months, during which spending in a specific category—restaurants or department stores—earns a higher refunded percentage for that period.

Typically, the cardholder must reach a particular transaction level to qualify for cash back or other benefits; it’s usually small, around $25, but it varies from card to card. Some card companies also let cash rewards be used toward specific purchases, including travel, electronics, or partnership incentive programs. In issuing a cash-back reward, the credit card company shares with the consumer a portion of the transaction fee that it charges merchants.

There is an actual retail event called Cash Back Day, which debuted in 2019 and continues annually each November. In 2020, RetailMeNot gave its customers up to 20% cash back if they enrolled in its programs and shopped at 100 featured stores with 1,153 available offers.

Cash Back Sites and Apps

Cash-back apps and websites can also help you earn money for shopping while using their tools. Many cash-back sites partner with retailers, such as Amazon and Target, to offer specific deals on items such as toys or holiday gear.

Cash-back sites usually operate like this: First, you download the app or extension and sign up for a free membership. Next, you sign into the cash-back site, use a link for the store that you want to shop in, and start shopping.

The cash-back site or app records your purchases, and you earn money after your transactions are approved and go through. The cash back (a percentage of your spending) usually lands in a PayPal or bank account. Cash-back apps can be used to find money-saving deals while earning cash in different categories, including restaurants and delivery services.

Three popular cash-back programs are Rakuten, Ibotta, and Shopkick, although there are others.


This cash-back website was Ebates in another life. Rebranded as Rakuten in 2019, the site earns its money by getting commissions from more than 2,500 stores, including Lowe’s, Kohl’s, Walmart, and Macy’s, for sending online bargain hunters its way. The commissions are shared with Rakuten customers, which is how you earn your cash back, up to 40%. If you have a PayPal account, then your earnings can go there, or the company mails you a check.

Rakuten has mixed reviews on the Better Business Bureau (BBB) website, which gave it a B rating due to product and service issues, including customers saying they never received their cash-back rewards. Still, the customer rating average is 4.25 out of five stars, based on 330 customer reviews.


This cash-back app can be used in stores and for online shopping via your mobile device. Its specialty is groceries. The app is enabled in hundreds of markets and large chain stores such as Trader Joe’s, Whole Foods, Wegmans, Costco, Hannaford, Walmart, Target, Aldi, and Albertsons, plus convenience stores such as 7-Eleven, Wawa, and Stewart’s Shops.

lbotta is in partnership with more than 1,500 retailers and brands in categories that include health and wellness, travel, home and auto, kids and baby, pet supply, sports, and outdoors.

It also offers cash back on subscriptions, restaurants, and food delivery services. Ibotta doesn’t list the percentage back that you’ll earn by using the app. Still, according to its website, lbotta has paid out over $980 million to more than 35 million users since 2012, when it was founded, and the company states that the redemption will show up in your account within 24 hours or less.

Like Rakuten, Ibotta earned a B rating from the BBB, and there are compliments and complaints from users—some of whom claim they haven’t received their cash back on time, while others say they are earning money quickly. Three hundred and thirty-two customer reviews average out to a 2.55 customer rating out of five stars.


This mobile app lets shoppers earn gift cards in place of cash, so while it is not exactly a cash-back tool, users can earn reward points, which the company calls “kicks,” for using the Shopkick app and scanning products in participating retailers. You then turn those points into gift cards for such varied companies as Starbucks, Amazon, Target, Sephora, Best Buy, Barnes & Noble, PayPal, Apple, AMC, and more.

When you download the app, it will show you participating retailers and products that can earn you kicks. You can even earn a kick for entering a store without making a purchase, through Bluetooth recognition. The app also may offer users exclusive incentives and discounts, along with rewards points.

Shopkick has an A+ rating from the BBB, but as of July 29, 2021, there were only 27 customer reviews, most of which involved complaints and averaged out to a 1.44 rating out of five stars.

Cash Back in Hand

With debit cards and some credit cards, a customer may also get the opportunity to receive cash back immediately at a supermarket or other location. The customer can ask the merchant to add an extra amount to the purchase price and receive this additional cash.

Providers of services often do this to let a customer leave a cash tip. However, unlike the cash-back process described above, the practice isn’t a refund—the customer is just charging more on the card.

Advantages and Disadvantages of Cash Back

The advantages of enrolling in cash-back programs are apparent. You get cash back for spending your money, whether using your credit or debit card or even shopping online.

On the downside, cash-back credit cards may have high annual percentage rates (APRs) or annual fees or put a cap on how much cash back you can earn, and you do have to spend money to earn the cash. Also, you can lose your earned rewards if you don’t pay your bills on time and your credit card is canceled.

  • Cash-back apps and websites may offer discounts on products along with cash-back rewards.

  • Some credit cards with cash back offer a sign-up bonus.

  • Cash-back apps and websites are an easy way to earn cash rewards while shopping.

  • Cash-back apps and websites don’t always issue your cash back in a timely manner.

  • Cash-back credit cards may have a higher annual percentage rate (APR) than cards without rewards.

  • There may be a cap on how much cash you can earn back.

What Does Cash Back Mean?

Cash back usually refers to a rewards program that returns a percentage of each purchase to the buyer. It can also refer to certain types of debit cards that allow cardholders to withdraw cash from their accounts at a merchant point of sale.

Is Cash Back Free Money?

Not exactly. When a credit card offers cash back rewards, they are betting that the cardholders' increased spending will exceed the money spent on cash rewards. Cardholders pay for cash back through higher APRs and merchant fees.

What Stores Give Free Cash Back?

Multiple stores offer cash-back rewards. How much depends on their rewards program. Kohl’s, Dick’s Sporting Goods, The Home Depot, and CVS, among others, offer their customers cash-back rewards programs.

Can I Get a Cash Back Signing Bonus?

If you sign up for a cash-back card with a cash signing bonus, it could be worth anywhere from $200 to $1,500 if you meet certain requirements, such as a minimum spending amount in a set amount of time.

What Are the Best Cash Back Credit Cards?

Credit card deals change frequently, so it is worth taking time to research the latest deals. You can also check out Investopedia's review of the best cash-back credit cards currently available.

The Bottom Line

Signing up with a cash-back rewards credit or debit card is a way to earn some extra cash based on your purchases. You can use a cash-back app or website to find potential deals on goods while also making a percentage of your money back. The more that you use your cash-back rewards programs, the more money that you stand to earn.

There are a few drawbacks to a cash-back rewards card, including a higher-than-usual APR, having to wait to access your cash-back funds, and a cap on how much you can earn each year. Also, when it comes to travel rewards such as airline miles, sometimes the miles are worth more than the cash.

Article Sources
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