Understanding What Cashback Is & How It Works — what shoppers should know

What is Cashback?

Cashback is a promotion strategy that allows shoppers to get a small amount of cash back every time they make a purchase at a particular store, or with a particular credit card. Spending less is especially nice if you can do so without having to change all of your habits or spend hours coupon clipping!

You may have heard of cashback, perhaps as a perk to a credit card offered by your bank. It’s an incredibly common feature in the modern day.

But what exactly is cashback? Is it worth it? Most importantly: can it help you spend less?

If you’re here because you want to learn whether cashback could be useful in your own life, you’ve come to the right place!

• What cashback is, and how it works
• 4 of the most common ways to get cashback
• What stores offer cashback independently
• How you can redeem cashback
• Ways to pick the best cashback choice for you.

Let’s get started!

How Does Cashback Work?

The Basics

Cashback was first introduced by the Discover Card in the 80’s and was a revolutionary practice at the time. Now, it’s a standard feature of pretty much every bank.

When you have cashback on your card, you’ll get a certain percentage of each purchase you make back as credit. Generally, the percentage you receive will be between 1% and 5%.

This will change depending on the specific card you use, how often you use it, what orders you make, and what special deals are active at the time.

Often, your bank will be partnered with specific stores that give your return percentage a boost whenever you shop there.

Sometimes, cashback could also refer to a store charging an extra amount when you make a credit card purchase and giving you this excess in cash. This means you don’t have to go to an ATM or bank to retrieve cash from your account.

Stores may also offer their own cashback programs in the form of reward points, often given to you whenever you make a purchase.

Whatever kind of cashback you use, it will always mean getting some sort of small kickback each time you spend money!

In this way, it’s a great way of saving a little money when you shop – especially when you can use it for things you need to buy anyway.

Types of Cashback Reward Percentages

There are three main types of reward systems in any cashback scheme.

The first is called a flat rate. This means you’ll get a set percentage of your spending back, no matter what you buy or where. For instance, you might get 2% of your purchase back in credit each month.

The second is called a tiered rate. In this system, you’ll get different percentages of your purchase returned to you depending on your annual spending. Generally, if you hit a certain “goal” of spending, your percentage will rise.

For instance, if you spend $5,000 in a year, your percentage may rise from 2% to 3%.

The third main type of cashback is called a different rate system. Applying this, you’ll get different percentages of your purchase back depending on what you buy.

This is often drawn from which stores are partnered with your credit card bank, along with other special deals or conditions set by the card. Often, this will be drawn from the type of spending you’re doing.

For instance, you might get a 1% return on restaurant spending, but 3% on any fuel orders.

The exact rules of a different rate rewards program will change drastically between different cards, and depending on the specific deals they have in place at any given time.

This is a major reason to first do research into any program you plan to sign up for!

4 Ways to Get Cashback

If you think cashback could be a handy tool in your day-to-day life, you might be wondering how you can actually join a rewards program.

There are a few common ways of doing this:

1. Credit Cards

This is the most popular method of redeeming cash-back rewards.

Pretty much every bank in America offers a cashback program on at least one of their credit cards. These have wildly differing rules and systems, and so they should be researched thoroughly.

Some banks will only apply cashback rewards to orders done at specific stores. This is normally drawn from who they’re partnered with since this will motivate you to shop at their store more.

In other cases, cashback may only apply to certain types of orders like fuel or groceries.

Do All Credit Cards Offer Cashback?

No – many don’t. Most often, a bank will have a mix of cashback and non-cashback cards offered so you can choose your preference when you select your credit card.

However, almost all banks in the US will offer at least one cashback card in their selection.

2. Apps

Cashback apps have become a more popular solution to saving in the present day, growing in popularity greatly over the last decade.

Often, they partner with as many stores as possible. These can be physical stores like Walmart, or exclusively online retailers like Amazon or eBay. This is called an affiliate partnership.

You join for free, and then whenever you want to shop at a specific store, you log into the cashback app and follow the link to it.

Now, whatever orders you make are tracked. When you buy something, the cashback business will get a small kickback from their partner business and pass some of this money back to you.

This way, the cashback business earns money, while also benefiting the consumer. Meanwhile, retailers are happy because they get more shoppers through the app’s traffic.

Ibotta

This app can be used in a mix of stores – more than 1,500, per their site! Though their specialty is groceries, they also cover stores like Costco, Walmart, Target, Aldi, Albertsons, and even convenience stores like 7-Eleven.

Their portfolio includes a mix of items, including health and wellness, kids and babies, groceries, pet supplies, sports, home, and auto items.

They’ve also expanded to cover certain subscription services, restaurants, and food delivery services.

It should be noted that they don’t list any percentages on their site. However, they claim to have released over $980 million to more than 35 million users since 2012, when their business was founded.

Rakuten

Originally known as Ebates, this app was rebranded to Rakuten in 2019.

They earn money through an affiliate system and are partnered with more than 2,500 stores. This includes Lowes, Kohl, Walmart, and Macy’s. You can also use Rakuten with services like rideshares and restaurants.

Earnings are sent straight to a PayPal account, and their site claims they refund up to 40% of your orders.

They claim to have paid out more than $2 billion in cash back and have a community of 15 million+ members. Per their site, their average cashback is $63.50 per member since 2020.

Swagbucks

Unlike the others on this list, Swagbucks offers a few extra services alongside their cashback program.

Their reward points can also be earned by browsing the web, watching videos, online shopping, and buying gift cards. The notable part here is that you can earn points from completely free activities!

These SB points can then be converted into cash or gift cards. They claim to have paid out over $930 million to their users since their inception and to give out more than 7,000 free gift cards every day.

3. Chrome Extensions

Chrome extensions are an easy way to seamlessly integrate a cashback program into your daily spending.

They are free to use and can be downloaded and added to your web browser with a few clicks.

This list is specifically for Chrome extensions, which obviously only work on the Chrome browser! However, most of them also have versions for Firefox and Edge.

Normally, these extensions will run quietly in the background and let you know if they can offer cashback when you go to make a purchase.

This can be more convenient than apps or websites, which require you to go through their system before you can shop.

It should be noted that by monitoring your internet activity, these extensions do raise some privacy concerns.

You should read any privacy policy before you sign it and be sure you’re comfortable with this risk before applying a cashback Chrome extension. If you aren’t, then an app or site might be a better choice for you.

Cently by Sacodes

Originally, they focused on finding coupons for any store you shopped at. This is still a great feature and can save plenty of money over a long period. However, they’ve also introduced a cashback program at their affiliate stores.

These stores include Macy’s, Walmart, Groupon, J.Crew, Nike, Nordstrom, Sephora, and Amazon.

They boast up to 30% cashback on select orders, with different percentages drawn from the type of purchase you make.

Plus, they have a handy Amazon Best Price feature, which lets you know if you can get an item on Amazon for less costly from a different seller.

BeFrugal

Founded in 2009, BeFrugal is another cashback program that’s fully integrated with your browser. It works on Chrome, Firefox, and Edge.

They’re completely free and provide their payouts through check, PayPal, direct deposit, Venmo, Zelle, or gift card. This great level of flexibility is one of their major appeals.

They boast up to 40% cashback, with over 5,000 stores including Walmart, Booking.com, Home Depot, Walgreens, Best Buy, Sephora, and Amazon. They also offer an app and site version, if that’s what you prefer!

Honey

You may have heard of Honey thanks to their frequent partnerships with YouTubers. They’ve made a name for themselves on the internet, and their 17 million member count shows it.

Their extension can be added to your browser for free. It will scan the web for deals and cashback opportunities for any purchase you make.

Coupons will be applied automatically, and you’ll be notified once you’ve earned any rewards from your shopping.

Honey has partnered with over 30,000 stores – a huge number compared to the others on this list.

A few examples include Lenovo, JCPenney, J.Crew, Sephora, Forever 21, and Ulta.

A unique feature of Honey is its Droplist, which allows you to mark an item you want that will then be kept track of by the program. If the item drops in price or goes on sale, you’ll be notified automatically.

4. 3rd Party Websites

Alongside these apps and extensions, there are many websites that offer the same service. Generally, these will work the same as an app, with a list of participating retailers that you can access through a link.

Subsequently, this link will track your orders and give you a refund of a certain percentage.

Most of the apps and extensions mentioned above have a site version that works in this way. This is ideal if you’re concerned about your privacy while applying a browser extension.

What Stores Offer Cashback Independently?

Alongside all of these choices, many stores offer some form of cashback on their own.

Confusingly, this can mean two different things.

The first is when you ask for an extra amount to be added to your final bill when paying with a credit card. Then, you’ll get that amount given to you in cash.

This means you don’t have to go to an ATM or bank to retrieve money from your credit card account.

The other common choice is a rewards program, where you have a store loyalty card that gives you points for each purchase. Eventually, these points can be used to purchase items or to get a discount on your bill.

Aldi

This popular, international chain of grocery stores actively shuns loyalty programs. Because of that, they don’t have any kind of reward points or card system.

Instead, Aldi says that they spend less for their consumers by spending it carefully, avoiding things like costly store decor and unnecessary extras.

They see rewards programs as yet another example of unneeded expenses, which would only raise the price of their items.

However, Aldi does offer cashback from credit card orders on request.

You can redeem as much as $100 from your card in the US without any extra charge. However, this is limited to specific amounts in valuations of $10, $20, $40, or $100 to avoid holding up the checkout line for too long!

Home Depot

Home Depot is the largest home improvement store in the US. It sells items like tools, garden equipment, construction materials, appliances, and assorted services, including van rentals.

They run the Pro Xtra loyalty program which is free to sign up to. Mostly aimed at contractors and builders, the program gives you many benefits as you spend money in-store.

Some of these include specialized perks, business tools, and exclusive sales and events in stores and online.

By earning points, you unlock new “tiers” of the Pro Xtra program – giving you access to more and more perks.

Home Depot also offers a $50 cash-back choice for any shopper paying with a credit card in their store, without any added fee.

CVS

CVS is the largest pharmacy chain in the US, with thousands of locations across the country and millions of shoppers each day.

Their loyalty program is the ExtraCare program, offered for free to any shopper who wants it. They also have CarePass, which is a paid loyalty program that offers even more savings to shoppers.

ExtraCare gives you a red card that comes with an ID number. This number lets you unlock discounts as you spend money at any CVS store. Members also get exclusive access to certain sales.

Their CarePass costs $5 a month and provides you with all the ExtraCare benefits, plus a few more. The most significant is a free $10 worth of ExtraBucks each month which you can spend in-store.

You’ll also get free same-day delivery of qualifying prescriptions, 20% off CVS brand items, and free 1-2 day shipping on eligible items.

If you’re hoping to get cashback on your credit card orders at CVS, this is also a choice. However, they only have a measly $35 limit.

Lowes

The retail business Lowe’s specializes in home improvement items, with over 2,000 locations across the country.

Their clothing branch offers a fairly basic loyalty card program, giving you 2.5% of your orders back as reward points which get sent to you twice a year. You’ll also get extra shopping offers and promotions.

Meanwhile, Lowe’s hardware branch has the MVPs Pro Rewards Program, aimed at professional builders and business owners.

You can join for free and immediately get access to their bonus points offers. However, to actually earn any cashback, you have to reach at least the Silver tier in their program. To do this, you need to spend over $2,500 within a year.

From Silver upwards, you’ll get 1% to 1.5% cashback for any purchase at Lowe’s.

The more you spend each year, the higher your tier in the program will get – and the greater your cashback percentage will be!

If you’re hoping to get cashback on your credit card orders at Lowe’s, you’re in luck. They’ll give you up to $40 back without charging any extra fees.

How is Cashback Redeemed?

Once you’ve earned a cashback reward, there are a few ways to retrieve it.

You’ll either be able to trigger this retrieval yourself (often on a site or app linked to your card or the cashback business), or you’ll get an automatic payout. Automatic payments are normally made monthly, quarterly, or yearly.

Often, if you can withdraw funds whenever you want, you’ll have to earn a certain amount of cashback rewards before this is allowed.

For instance, you might have to build up $50 worth of rewards before you can deposit them in your bank account.

Store Credit

This is the most common way that individual retailers will provide cashback to their shoppers.

When you become a member of their loyalty program, you’ll get a card or ID that you can use when making orders.

This will add points to your account – often a set number of points per dollar spent (for instance, 1 point per $5 you spend in-store).

Once you reach a certain amount, these points can be spent as credit at their locations – effectively being a cashback program that can only be spent in one place.

Stores love this method because it brings you back to them as often as possible.

Money Off

This method of cashback refers to taking “money off” your credit card bill each month.

Basically, your bank will give you a credit card. When you spend on this card, your balance builds as normal and must be paid off at the end of each month. However, you also build “points” with each dollar spent.

These points will lower your credit card’s balance, effectively paying off part of your debt for free.

For instance, if you have a total credit balance of $100 but have $5 in cashback money off credit, your final bill will be just $95.

Bank Deposit

This method is a little more unusual and normally only seen with bank credit cards. However, some cashback websites and apps may offer it as well.

Once you’ve built up some cashback credit, you’ll get the choice to deposit it in your bank account.

Often, you’ll have to build a certain amount before you can do this. For instance, you might have to reach $100 worth of credits; otherwise, no money can be transferred.

Sometimes, this transfer will happen automatically at the end of each month or year – meaning you don’t have to think about it at all!

Gift Card

Similar to the store credit method, these programs reward you with coupons rather than raw cash.

This means that while your accrued rewards are still monetarily valuable, they can only be spent at specific, participating stores. Often, these will be places like Amazon, Walmart, or other all-purpose retailers.

Checks

Much like the bank deposit choice, this will give you real cash as a reward for your spending.

In some cases, you’ll have to withdraw your balance from the rewards program – at which point a check will be sent to you in the mail. In other cases, you’ll be sent a check each month automatically.

The main inconvenience in applying checks is that you have to deposit them to use them, which can be rather annoying.

You also have to wait for them to arrive in the post, rather than getting an instant transfer.

Automatic Redemption

This simply refers to any of the above methods that make use of automatic payouts.

For instance: you might automatically get a bank transfer or check each month, quarter, or year. Alternatively, you may receive coupons or gift cards.

Basically, anytime you don’t have to initiate retrieving your rewards, it’s an automatic redemption program.

Ways to Pick Out the Best Cashback Choice For You

This can be a complicated question. Really, it depends on your personal habits, needs, and finances.

Ultimately, the reason businesses offer cashback is because it’s profitable. Largely, this is because people are encouraged to spend more when they get a reward for spending.

This means they wind up spending more money than they’ve saved overall, providing the business with a net profit.

To really benefit from cashback systems, you have to fight this urge. Your best use of cashback will be in buying things you would normally purchase anyway, like gas or groceries. Avoid buying things just because you’ll get a cashback reward from it.

You should also think about what you buy most often, and what programs are offered to you.

Many will reward certain types of spending, like fuel, groceries, or travel differently and will prefer one or the other.

If you travel a lot, look for a cashback program that has high rewards for buying plane tickets.

If you don’t, but you have a big family, look for one that rewards grocery orders.

Basically: consider what you spend the most on most often, and then examine which cards or programs will reward you most for this.

Most of all, beat back the urge to spend for the sake of the rewards. If you can do this, you’ll effectively be getting free money.

You should also know that if you fail to pay off your minimum each month, your rewards will likely be lost. Additionally, cashback cards often have a high APR (Annual Percentage Rate), meaning the debt will build quickly.

If you generally struggle to pay off your monthly credit card bill, it might be best to avoid cash-back cards and go for one with a low (or 0%) APR instead.

FAQs

Why do stores offer cashback?

When you get a reward for spending, you’ll want to spend more. Stores rely on you spending more than you save from the program, creating a net profit for their business. Be sure to avoid buying things just because you want the reward points.

What are the benefits of cashback for consumers?

If you can avoid spending just for the reward points, you’ll effectively be getting free money from cashback programs. Spending them on things you buy anyway will net you a small reward for each dollar spent.

Does cashback expire?

It depends on the card or program. In some cases, it may expire after a set number of months or years without being withdrawn. Check the details of your cashback agreement to learn the specifics!

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