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How To Make the Most of Cash Back Rewards

Finance | 09/21/2023 12:43

Cash back rewards can feel like found money. By simply using your credit card you can earn money that you can use in any way you choose. Everyday purchases such as groceries and gas will earn you points that you can utilize in a number of different ways. But how can you ensure you are getting the most out of your cash back rewards?


Here’s how to make the most of your cash back rewards.

How do cash back credit cards work?

A cash back credit card will give you a certain percentage of qualifying purchases that you make back to you. Credit cards vary on what purchases qualify and what percentage back you will receive. Typically credit cards do not qualify the following transactions for cash back rewards:

  • Cash advances

  • Balance transfers

  • Purchase of crypto currency or money orders

  • Foreign currency exchanges

  • Gambling related purchases, including the lottery.


Flat rate cards offer a flat percentage rate on all transactions (except those that are excluded, like the list above). That means that you can earn 1.5% cash back on your gas, clothing purchases, groceries, Amazon orders–pretty much anything. 


Some credit cards have customized spending categories that offer different percentage rewards for different categories that you can choose from. For example Bank of America offers the Customized Cash Rewards card where you can get 3% back on all purchases in a category of your choice. 


Other credit cards offer rotating rewards categories. The Chase Freedom card for example gives you 5% back on a few categories of spending, and the categories change every three months. For three months you may get 5% back on groceries, and then for the next three months you may get 5% back on travel purchases.

Are there limits to how much cash back you can earn?

Some credit cards limit how much cash back you receive, but some cards have an unlimited cash back reward system. It is common for many credit cards to limit how much cash back can be earned in different categories. For example the Blue Cash Everyday Card from American Express offers 3% back on supermarket purchases per year, but only up to $6,000 spent. These limits vary widely from card to card so it’s important to read the fine print before opening a new card.


How do I redeem cash back?

How to redeem your cash back will also vary greatly from card to card. Here are some of the most common ways to redeem cash back:

  • A credit to your account

  • Direct deposit to your bank account or a check

  • A gift card

  • An online shopping portal


A credit to your account.

One of the most popular and most straightforward ways to redeem cash back is to have it applied to your credit card statement. If you have a balance on your credit card of $2,000 and cash back rewards that are worth $200, you can simply apply the $200 to your account and reduce your balance to $1,800. It’s important to remember that cash back is not considered a payment per se, so you will still be required to make the minimum payment for your monthly statement to avoid a penalty or fees. Some cards require you to meet a minimum cash back balance to redeem (such as $25 in rewards) while others have no limit.


Direct deposit or check.

Another easy way to redeem cash back is to have the rewards deposited directly into your bank account. This may be easier for you if you want to apply your rewards in a specific way that isn’t locked into your credit card. Requesting a check is usually pretty straightforward, although there may be a minimum amount of cash back rewards that you are required to have. Direct deposits may be more complicated than getting a check, but if you have a bank account with the same bank as your credit card it is usually pretty simple. 


A gift card.

Many credit card companies will allow you to use your points to purchase gift cards. While sometimes these redemptions are a one-for-one transaction (meaning $1 of your cash back is worth $1 in the form of a gift card), there are some deals out there that will get you more bang for your buck. Some cards will allow you to purchase a $25 gift card for only $20 in cash back. So while gift cards may not be practical ways to redeem all the time, there are certain times when it will get you the most value.


An online shopping portal.

Many credit card companies have online portals where you can make purchases directly with your cashback rewards. You can log on through your credit card’s website and purchase whatever you would like, without ever having to hand over your cash and wait to be reimbursed.

How can I make the most of my cash back rewards?

Cash back can be a great thing if it is utilized properly. After all, if you are spending all of your money to try to earn points and money, it’s not going to be beneficial to you. Here are our top tips for making the most of cash back.

Choose the right credit card.

There are a lot of credit cards on the market that offer different rewards. Be sure to do your research and select a card that will be beneficial for you and your spending habits. If you spend a lot of money on travel, be sure to get a card that rewards those purchases. If you tend to spend most of your money on groceries and gas, find a car that rewards those purchases most. 


Pay off your card in full every month.

If you do not pay off your card in full you will end up paying interest, and this will take away directly from the cash back you have earned.


Don’t overspend to get more rewards. 

If you are buying things you don’t need and are unable to keep up on payments simply because you are trying to earn more cash back, it is not going to work out. You will end up wasting more than you would gain in rewards.


Be sure to activate the reward categories.

Some credit cards with rotating reward categories require you to manually activate the cash back in order to earn rewards. Set a reminder for yourself to login to activate your rewards when it is required.

That’s what you need to know to make the most of your cash back rewards.

Every penny counts these days, so making the most of your cash back is a must. Looking for more ways to save? Contact Auto Approve to find out how much you could save by refinancing your car loan!



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