Credit card cash back rewards are a popular benefit, offering cardholders the opportunity to earn money back on their purchases.
However, many consumers find themselves unsure of how to accurately calculate their cash back rewards. Understanding this process is crucial, especially when evaluating which cash back credit card will provide the best benefits for your purchases.
Let’s look at the steps to calculate cash back rewards on your cash back credit card and help you make the most of your rewards.
What Is Cash Back?
Cash back is a credit card benefit that allows you to earn a percentage of the money spent on eligible purchases.
Unlike points or miles, cash back is typically given in the form of a statement credit, check or direct deposit into your bank account. It’s important to note that cash back rewards are not immediate — your rewards will appear in your account only after the transaction is fully processed, and they may not be available for redemption until the payment is made.
Cash back is not the same as receiving physical cash at the time of purchase. It is a reward redemption option that accumulates in your account and can be redeemed later according to your card issuer’s terms.
How Does Cash Back Work?
It’s important to understand which categories your card rewards cash back for and how these rewards are applied, as this will influence how much cash back you can earn from different types of purchases.
Generally, cash back cardholders earn a percentage of their purchase amount back as cash rewards. The percentage you earn depends on the specific cash back program of your card. Cards may offer different percentages of cash back for different spending categories, such as 1% for gas stations or 2% for restaurants, or offer a fixed percentage back on all your purchases like 2% back on all eligible purchases.
Additionally, at the end of each billing cycle, some card issuers may assess your spending in a range of eligible categories and offer you a higher percentage of cash back up to a certain amount (such as $500) for the category in which you’ve spent the most money.
For instance, if you spent the most money on grocery stores as opposed to restaurants and gas stations, an issuer may offer you 5% cash back on grocery stores for up to $500 spent and a further 1% on restaurants, gas stations, and on all other eligible purchases.
How to Calculate Cash Back
Calculating cash back is straightforward once you understand the cash back rate and purchase amount. The formula for calculating cash back is:
Purchase Price x Cash Back Percentage (as a decimal) = Cash Back Earned
To break it down further:
- Determine your cash back rate: For example, if your card offers 1% cash back on purchases, this means that for every $100 spent, you’ll earn $1 in cash back.
- Convert the percentage into a decimal: To use the percentage in a calculation, divide it by 100. For 1%, this becomes 0.01.
- Multiply by the total purchase amount: Multiply the cost of the item by the decimal equivalent of the cash back rate. For instance, if you spend $100 on groceries with a 1% cash back rate: $100 = $1 in cash back. If your card offers a higher cash back rate of 3% on certain categories, you would calculate: $100 x 0.03 = $3.00 in cash back
This simple calculation allows you to determine how much cash back you will earn on any eligible purchase.
How to Redeem Cash Back
Once you’ve earned cash back rewards, you’ll want to know how to redeem them. Each credit card issuer may offer different options for redeeming cash back, including:
- Statement Credit: Many cards allow you to apply your cash back as a credit toward your credit card balance.
- Direct Deposit or Check: Some cards offer the option to transfer your cash back directly to a bank account or issue a check.
- Gift Cards: In some cases, you may be able to redeem cash back for gift cards or rewards certificates with retailers, restaurants or online stores.
- Travel Redemption: Certain cards allow you to use cash back rewards to book travel through the card issuer’s online portal, sometimes with added value or special deals.
Each cash back credit card will have its own minimum thresholds and redemption process, so be sure to review your card's terms and conditions. Some issuers may require you to accumulate a certain amount of cash back before you can redeem it.
Additional Considerations
Be aware of other potential factors that could affect redeeming your cash back rewards, such as:
- Cash Back Categories: Be aware of any rotating or category-based cash back offers. Many cash back credit cards offer higher earning rates on specific categories but may limit the amount you can earn or require you to opt in each quarter.
- Expiration or Closed Accounts: Cash back rewards do not usually expire, but they can become inactive if your account is closed or if you fail to meet certain activity requirements.
Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
