Cashback on a credit card is a term that most people are familiar with. It’s credited to your account when you make purchases using your credit card. However, not many people understand how it works or what factors determine the amount of cashback you get as a result of making purchases.
What are cashbacks?
When you choose to purchase items with a credit card, you may be offered cashback. Cashback is essentially a discount for using the card in question. It works like this: if you use a certain credit card to make your purchase, then the bank that owns that particular credit card will give you some percentage of your total (usually between 2% and 10%) back as soon as your statement arrives in the mail.
So why would someone want to get cashback? Well, it’s pretty simple really – people who don’t just have enough money in their checking account can use their credit cards instead!
Cashback earned on different types of credit card spending
Cashback can be earned on all transactions made using your credit card. The cashback will be calculated based on the transaction amount if the purchase is made online or through an app.
This means that the cashback is still applied to your account even if you’re buying something online or through an app. Suppose a transaction is covered by more than one credit card, in that case, the cashback earned on that specific transaction will go towards whichever account holds it.
Cashback offered on a credit card
If you’re applying for a credit card, it’s essential to know that cashback rewards are offered as a percentage of the amount you spend. In other words, the cashback rewards may be fixed or variable. For example, 3% credit card offers a 3% discount on all purchases made using the card.
The rewards rate can be quite high compared to other credit cards. In addition, many cashback credit card offers have no annual fee.
According to Financial planners like SoFi, “Use your 3% cash back rewards credit card (with direct deposit) to invest, save, or pay.”
How to calculate cashback amount?
When you make a purchase using your credit card, there are three ways in which the cashback amount will be calculated. Firstly, there is a set percentage that will be given as cashback by the bank on every transaction made. This is usually between 0% to 3%.
Secondly, the amount of money spent by you on your credit card will also determine how much cashback you get for each purchase made with it. The third way by which this is calculated is when you earn points or miles through making purchases with your card – these can then be redeemed for other rewards such as gift cards or free tickets for flights.
How to calculate the amount you actually get?
Calculating the cashback amount is straightforward. You’ll need to know your monthly spending on each category of credit card spending and then add them together.
The breakdown of basic categories is as follows:
- Cashback on purchases at supermarkets, fuel stations and drugstores.
- Cashback on travel and entertainment (in this case, it includes flights and hotels).
- Other purchases.
This article must have answered all your questions and helped clear up any confusion regarding how cashback works.
