What is cashback? How to get money back on your purchases

Cashback is essentially getting paid to shop for things you'd buy anyway. Whether you're a seasoned rewards hunter or just curious about making your money work harder, this guide explores how savvy consumers are earning while spending, without changing their shopping habits. Ready to turn your everyday purchases into extra cash? Let's dive in.

What is cashback? 

Cashback is a rewards program that gives you a percentage of your money back when you make purchases using eligible credit cards, debit cards, or shopping platforms. Think of it as a small rebate on what you spend, typically ranging from 1% to 5% of your purchase amount. 

In recent years, cashback has increased in popularity across financial services and retail, becoming one of the most straightforward and appealing customer incentives (no guesses why).

Unlike complicated points systems or airline miles, cashback offers a simple proposition: spend money and get some of it back. Cashback transforms everyday spending into an opportunity to save, whether through your credit card statement, a bank transfer, or an app balance.

How does cashback work?

At its core, cashback operates on a simple principle: when you spend money, you earn a percentage back. This percentage - known as the cashback rate - determines how much you'll receive. For example, a 2% cashback rate means you'll get $2 back for every $100 you spend.

Here's what happens behind the scenes:

1. You make a purchase with your cashback-enabled card or through a cashback platform.
2. The transaction is processed and qualified against the program's terms.
3. Cashback is calculated based on the purchase amount and applicable rate.
4. The reward is credited to your account (either immediately or after a designated period).

Cashback rewards are typically issued as:

• Statement credits (reducing what you owe on your credit card)
• Direct deposits to your bank account
• Digital wallet credits within an app
• Gift cards or vouchers for specific retailers

Most cashback programs are funded through transaction fees that merchants pay to credit card companies (typically 2-3% of each purchase). The card issuer then shares a portion of these fees with you as cashback. For retailer programs and cashback apps, the incentive is funded through marketing budgets as they benefit from increased customer spending and loyalty.

Different types of cashback programs

Credit card cashback

Credit cards are a common way to earn cashback, generally structured in three main formats:

1. Flat-rate cashback cards 

These cards offer the same cashback rate on all purchases, regardless of category. For example, the Citi® Double Cash Card offers up to 2% on all purchases (1% when you buy, 1% when you pay). Note that rewards are earned as ThankYou® Points, which can be redeemed for cash back or other options.

2. Tiered/category cashback cards 

These offer higher cashback rates in specific categories and lower rates elsewhere. For instance, the Blue Cash Preferred® Card from American Express offers 6% back at U.S. supermarkets (up to $6,000 per year), 6% on select U.S. streaming services, 3% on transit and U.S. gas stations, and 1% on everything else.

3. Rotating category cards

These cards offer higher cashback (often 5%) in categories that change each quarter,  such as restaurants, gas stations, or online shopping.
For example, The Chase Freedom Flex℠  and Discover it® cash back programs require users to activate these categories each quarter, from where they can earn up to 5% cashback on purchases. 

Debit card cashback

Differing from the credit card structure above, debit card cashback typically comes in two forms:

1. Bank-offered cashback programs 

Rewards for using your debit card for purchases. These are often tied to premium or business accounts and offer lower rates than credit cards (typically 0.5%-1%) since banks don't earn the same merchant fees that credit card companies do.

Examples include: Discover Cashback Debit offering 1% on up to $3,000 in monthly purchases; while some neobanks or fintechs offer promotional cashback for debit use, but these are often time-limited (Not at Tap).

2. Cash back at checkout 

This feature allows you to withdraw cash alongside your purchase at certain retailers (e.g., Walmart, Walgreens, or pharmacies), essentially getting "cash back" at the point of sale. This isn't a reward but a convenience service.

Retailer-specific programs

Many stores offer their own cashback programs:

1. Store loyalty programs 

These provide rebates on purchases, often tracked through a membership account. Examples include Target Circle, which offers 1% in rewards on qualifying purchases, or Kohl's Cash, which gives you $10 in store credit for every $50 spent during promotional periods.

2. Receipt scanning programs 

Apps like Ibotta and Checkout 51 offer cashback when users upload receipts or link loyalty cards. Offers vary by retailer and product.

Cashback websites and apps

These third-party platforms connect shoppers with retailers and share the commission they receive:

1. Cashback websites 

Websites like Rakuten, TopCashback, and BeFrugal offer rebates when you shop at partner retailers through their portal. These sites earn commissions from retailers for referring customers and share a portion with you.

2. Browser extensions 

Honey (owned by PayPal) and Capital One Shopping apply coupons and may offer cashback (called “Honey Gold” or Capital One Shopping Credits), though amounts and eligibility vary.

However, these platforms often come with caveats:

• Cashback typically pays out quarterly rather than immediately
• Minimum payout thresholds may apply (often $5-$25)
• Some offers are region-specific or limited-time

How much cashback can you earn?

Cashback earnings vary widely across programs:

Typical credit card rates range from 1% to 2% as a baseline, with category bonuses reaching 3% to 6%. Premium cards may offer higher rates but often carry annual fees.

Sign-up bonuses can significantly boost initial earnings, sometimes offering $150-$300 back after spending a certain amount in the first few months.

Cashback apps and websites typically offer higher percentages (often 2%-10%) but on a more limited selection of retailers.

Most programs include some limitations:

• Spending caps that limit cashback on certain categories (e.g., 6% on groceries up to $6,000 yearly)
• Minimum spend requirements before cashback activates
• Redemption thresholds requiring you to accumulate a minimum amount (often $20-$25) before cashing out
• Quarterly or annual payment schedules rather than immediate rewards

How much cashback can you earn with Tap?

Looking for a cashback program that gives you Cashback rewards on your your spendings and not just at specific brands or places? Tap makes it easy. By using your Tap card, you earn Cashback rewards on your spending, from groceries to fuel and even holidays.

How much can you earn? With Tap’s flexible premium tiers, cashback rewards are tailored to fit your lifestyle: earn from 0.5% up to 8% on every eligible purchase made with your Tap card. The more you spend, the more you earn—simple as that.

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Pros and cons of cashback programs

Pros

• Simplicity: Cash rewards are straightforward to understand and use
• Flexibility: Unlike points or miles, cash can be used for anything
• Automatic earnings: Most programs require minimal effort beyond using the right card
• No devaluation: Unlike travel points, a dollar of cashback remains a dollar
• Immediate value: No need to save up for specific redemptions

Cons

• Potential for overspending: The promise of cashback can encourage unnecessary purchases
• Hidden costs: Cards with generous cashback may have higher annual fees or interest rates
• Category restrictions: Many programs limit higher cashback to specific merchant types
• Reward caps: Many programs limit how much you can earn in bonus categories
• Redemption delays: Some programs only pay out quarterly or when you reach certain thresholds

Is Cashback really free money?

Cashback isn't exactly "free", it's better understood as a discount on your spending. The funding comes from several sources:

Debit and Credit card cashback is funded by interchange fees paid by merchants (typically 1.5%-3.5% of each transaction). Card issuers share a portion of these fees with cardholders to encourage more spending.

Retail cashback programs are essentially marketing expenses designed to drive sales and customer loyalty.

Cashback apps and websites earn affiliate commissions from retailers and share a portion with users.

The most important caveat: cashback on credit cards only makes financial sense if you pay your balance in full each month. If you carry a balance, the interest charges (often 15%-25% APR) will quickly exceed any cashback earned.

How to choose the right cashback option

Finding the best cashback program depends on your spending patterns and preferences:

Analyse your spending habits: Review your monthly expenses to identify where you spend the most. If groceries and gas dominate your budget, a card with bonus rewards in those categories makes sense. If your spending is diverse, a flat-rate card might be better.

Consider fees vs rewards: Some cards with higher cashback rates charge annual fees. Calculate whether your typical spending will earn enough extra cashback to offset any fees.

Evaluate redemption options: Consider how and when you can access your cashback. Some programs offer automatic redemption, while others require manual redemption or have minimum thresholds.

For businesses: Business-specific cashback cards often offer higher rewards on categories like office supplies, internet services, and travel. If you're a business owner, these specialised options may provide better value than consumer cards.

Tips to maximise cashback

Strategically use multiple cards: You can use different cards for different categories based on which offers the highest rate for each spending type.

Stack rewards programs: Combine a cashback credit card with a cashback app or website for double dipping. For example, make a purchase through Rakuten using a cashback credit card.

Activate bonus categories: Many cards require quarterly activation of rotating bonus categories - set calendar reminders so you don't miss out.

Pay bills with cashback cards: Set up utilities, subscriptions, and other regular payments on your best cashback card (if there's no processing fee).

Watch for promotional offers: Many programs offer limited-time enhanced cashback rates or bonus categories.

Avoid carrying balances: Always pay your credit card bill in full to avoid interest charges that negate cashback benefits.

In conclusion

Cashback rewards offer a practical way to earn while you spend on everyday purchases. Unlike complicated reward systems, cashback provides straightforward value that anyone can understand and use.

Choose cards and apps that reward your existing spending patterns rather than changing your habits to chase rewards. Also, try maximising cashback benefits by matching the right programs to your spending habits and being disciplined about your purchasing behaviour.

Remember: the best cashback strategy is one that fits naturally into your financial life, providing rewards without encouraging overspending or complicating your finances.

Tired of complicated cashback programs tied to specific brands? Discover our simple Cashback program that rewards you when you spend with your Tap card, learn more here.

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