Cash Back

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Definition

Cash back is a reward incentive program operated by credit card and debit card companies in which a percentage of the amount spent by the card holder is paid back to the card holder. The purpose of this program is to encourage use of the card; thereby the card holder is given benefits such as points, flyer miles or a monetary amount. The monetary benefit is usually known as the cash back. This benefit refunds a small percentage of the amount spent on each purchase or purchases above a certain dollar.

Various levels of cash back are offered by credit cards and debit cards from time to time depending on the type of purchase or transaction. Generally, the card holder must reach a certain transaction level to qualify for cash back or the other benefits such as points or flyer miles. This cash back is paid annually; however some cards pay on a monthly basis. Mostly, cash back cards credit the earned amount onto the statement, reducing the card holder’s credit card bill. Whereas some cards send the cash back to a bank account so that the card holder can spend it or let the holder convert it to points or vouchers.

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LAYMEN TERMS

Cash back is a bonus to get back some of the money you have spent on buying something. Suppose you have spent $2 to buy a pen and you receive $1 back.

HOW DOES THIS TERM APPLY TO YOU

When you own a cash back credit card, while making each purchase or transaction you can receive various types of cash backs. Sometimes a credit card may pay 1% cash back on all purchases you make, 2% on groceries, and 3% on gas purchases. Furthermore, you may earn points while booking a room at a hotel or earn flyer miles on online booking for a flight.

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