Read These 5 Facts Before Choosing a Cash-Back Credit Card

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A majority of Americans — about 70 percent, according to — have at least one credit card. Most millennials, in fact, have two credit cards to their name.

If you’re also packing plastic, one of those cards might offer a cash-back rewards program. Cash-back cards, as the name suggests, give you money back in exchange for your purchases.

So, how does cash back work on a credit card, and how do you choose the right cash-back card for your wallet? Before you pick one, make sure you understand these five things about cash-back credit cards.

1. They give back a percentage of what you spend

Cash-back credit cards work like a rebate; they pay you back a certain percentage of what you spend.

“Cash back is the simplest type of rewards there is,” said personal finance expert Sarah Hollenbeck. “The math behind it is so easy, in contrast to the more complicated points and miles cards out there.”

Let’s say you sign up for a credit card with a 1.5 percent cash-back rate, like the Capital One Quicksilver Cash Rewards card. For every dollar you spend, you’ll get $0.015 back. If you spend $1,000 with the card, $15 will go back in your pocket.

Now, this arrangement is obviously beneficial to the consumer. But how does cash back work for the credit card companies that offer it?

Credit card companies aren’t losing any money by offering cash back — they’re just sharing a fraction of the interchange, or processing fee, they charge merchants. When you charge $100 to your credit card at a store, for example, the merchant only gets $98 or so. The credit card takes the remaining $2 in fees.

Credit card companies share a portion of that interchange fee to attract and keep customers. They still make a profit, and you earn a small percentage back on your purchases.

2. Some rewards programs have rotating cash-back categories

Some cash-back credit cards offer a flat rewards rate on all your purchases. The Citi Double Cash card and Blispay Visa, for example, both offer 2 percent cash back on your purchases.

But other cards make things more complicated by offering multiple rates for different spending categories. The American Express Blue Cash Preferred card, for example, gives you 6 percent cash back on groceries and 3 percent on gas and select department stores. All other purchases have a rewards rate of 1 percent.

The Chase Freedom card, meanwhile, rotates its categories every quarter. Every few months, you’ll get 5 percent back in a new category, whether it’s restaurants, grocery stores, or gas stations. If you forget to activate the category, you’ll still get 1 percent back on all purchases across the board.

Note that some credit cards will set limitations in some categories. “Some cards let you earn extra cash back (5 or 6 percent) in certain categories, like groceries, but will cap the amount of cash back you can earn in those categories per quarter or year,” said Hollenbeck.

If you enjoy maximizing your rewards, you might benefit from a card with variable cash-back rates. But if you’d rather not worry about where you’re spending your money, a flat-rate rewards card could be the better fit.

3. You might have different options for redeeming points

How does cash back work when you’re ready to redeem your points?

“That’s easy, too,” said Hollenbeck. “Log in to your account. You’ll see how much cash back you’ve earned. It will be shown as a dollar amount. You can generally redeem all or some of it at a time, and, depending on the card, you have various ways of redeeming.”

Most companies offer one or more of these ways to cash out:

  • Direct deposit into your bank account
  • Mailing you a check with your cash-back rewards
  • Applying the rewards to your current credit card balance
  • Putting your points on a gift card from a popular vendor, such as Amazon
  • Donating your rewards to a charity of your choice

Some cards require you to have a certain amount of points before you cash out. “Some cards will set minimum redemption amounts — you may have to wait until you have $20 in cash back accrued before you can redeem, for example,” warned Hollenbeck.

Before taking out a rewards credit card, do your research on how and when you’ll get cash back to make sure it’s useful to you.

4. Your APR might be high

Cash-back credit cards tend to be best for people who can pay their balance off in full each month. That way, you can reap the rewards without falling into high-interest credit card debt.

If you do carry credit card debt, a cash-back card might not be for you. Rewards cards typically come with high interest rates. The Citi Double Cash card, for instance, has a variable rate between 14.49% and 24.49%.

Cards with lower APRs typically don’t offer competitive rewards programs. When it comes to cash back or a low APR, you usually have to choose one or the other.

5. An annual fee might not be worth it

Getting money back on your purchases is a tempting offer, but it might not be enough to offset a high annual fee. The Amex Blue Cash Preferred card, for example, costs $95 per year. The Chase Sapphire Preferred costs $0 for the first year but $95 per year after that.

Although some cards lure you in with bonus offers in your first few months, the rewards might not be enough to justify the annual fee. When choosing a card, consider how much cash back you’ll get based on your spending habits.

If the rewards fall below the fee, a card with a lower annual fee — or no fee at all — might be a better match for your budget.

Make cash back work for you

If you’ve ever talked to friends and family about credit cards, you might have encountered a lot of strong opinions. Some people swear you need to avoid credit cards at all costs. Others rave about strategically using credit cards to earn lucrative rewards.

For most people, the best approach lies somewhere in the middle. Credit cards can be dangerous if you’re spending more than you can pay back each month. Cash-back cards tend to have high interest rates, so you should be wary of carrying a balance.

Plus, you don’t want to get tricked into spending more for the sake of earning points. A cash-back program should be a reward for your normal spending habits.

As long as you can exercise self-control in your spending, you could benefit from a cash-back credit card. That is, unless you’re more interested in earning travel points for your next vacation.

Interested in refinancing student loans?

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1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit We also have several resources available to help the borrower make a decision at, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.