What is a cash back credit card?

If you use a credit card, you’re likely familiar with the feeling of paying off your monthly credit card bill. But what if you had a card that paid you? 

That’s the beauty of a cash back credit card. 

These types of cards are a popular way to make the most of your credit card spending, because they let you earn cash that you can use to save, spend, or offset the cost of your purchases.

And since you’re a savvy consumer, you probably want to know more about cash back cards, how they work, and how you can make the most of them. So, let’s dive in.

What is a cash back credit card?

Let’s start at the beginning — what the heck is a cash back credit card? While the exact details vary from card to card, it’s basically exactly what it sounds like — a credit card that gives cash back to the cardholder. 

A cash back credit card is a type of rewards credit card. When you use your card, you’ll get paid back a percentage of what you spend. The cash back generally comes in the form of a statement credit. 

A main benefit of cash back cards is that they’re fairly straightforward. While points and miles have different values when you go to redeem them, you’ll always know the total value of your cash back when you go to spend it.

How do cash back credit cards work?

Time to get into the details. How do you actually earn cash back with a cash back card? 

Each cash back card has something called an “earn rate.” The earn rate is a set percentage that determines how much cash back you earn for every dollar you spend.

For instance, say your earn rate is 2%. That means you’ll get $2 back for $100 you spend with your card. Typically, earn rates vary from 0.5% to 5%.

Your earn rate can also vary depending on what you’re buying. There are two different systems that address this: flat rate and tiered. 

A flat rate card means you earn the same amount of cash back, no matter how or when you’re spending your money. If your rate is 2%, then you’re earning 2% of every dollar whether it’s for gas, food, travel, shopping, or anything else. The amount you earn stays consistent.

A tiered rate card offers different earn rates for different spending categories. So, while you might earn 2% when you fill up your car’s gas tank, you could get 5% back on your weekly grocery haul.

For example, the BMO CashBack^® Mastercard^®* features 3% cash back on groceries, 1% on recurring bill payments such as streaming services, subscriptions, or monthly utilities, and 0.5% cash back on everything else. Try our cash back calculator to get a sense of how much you could earn.

A few of the most common purchase categories include:

• Groceries and drugstores
• Gas and gas stations
• Utilities and recurring bills
• Streaming services
• Restaurants
• Travel 

 At this point, you might be wondering – is cash back just free money? Since you have to spend money to earn money, it’s not truly “free money.” But often, you’re getting cash back on things you’d be buying anyways, like groceries or your phone bill — so it feels like a truly rewarding bonus when you get to spend that extra cash. 

Another important thing to keep in mind is that banks typically do not offer cash back on balance transfers, cash advances, interest charges, and more similar transactions.

What are the advantages of having a cash back credit card?

If you’re looking for a new credit card, you might be wondering why you’d consider a cash back card over other types of cards.

One advantage of a cash back card is flexibility. While some rewards cards lock you into using your points at certain brands or stores, cash back cards let you spend your cash on anything you’d like. 

The beauty of cash back cards is that they are simple to understand. Points systems can feel much less straightforward.  

For example, some travel rewards cards set limits on how you can cash in your points or miles — what airlines you can use, what dates you can fly, etc. But using cash back rewards to pay for the trip gives you unlimited freedom and options, just like normal cash.  

Many cardholders also find it easier to understand and use cash back instead of a more complicated points or miles system.

How to maximize your cash back rewards

• Keep an eye out for welcome bonuses that help supercharge your cash back. For instance, the BMO CashBack^® World Elite^®* Mastercard^®* offers up to 10% cash back in your first three months.
• Consider cash back card offers with annual fees if you want to maximize your earning potential. While no-fee cards are great for your budget, those with an annual fee generally have higher earn rates that can generate more cash back for you if you spend enough, which can sometimes cover the fee itself. So, you’ll want to do the math to see which card is right for you.
• Find a card that matches your spending habits. Making the most of the ways that you already tend to spend money is one of the best ways to take advantage of a cash back card, without having to alter or augment your spending.  
• Know your card’s limits. Many cards allow you to earn cash back up to a set amount. For instance, your card might offer 3% back on dining out up to $500 spent during a given statement period. That means you’ll earn cash back until you spend over $500 on dining, at which point you may drop down to a lower earn rate (say 0.5%).  

How do you redeem cash back rewards?

Once you start accumulating some cash back, you’ll want to know how to actually put that money into your pocket. There are a few ways you can redeem your cash back:

• Deposit it into a chequing or savings account
• Transfer your cash back into an investment account
• Turn it into a statement credit on your cash back card

Some credit cards offer you an annual credit if you earn a certain amount by a specific date, while others don’t – this depends on the lender that your credit card is with. So, if don’t need need to wait by a certain date or reach a minimum amount, you can tap into your cash back whenever you want it. You can access it by withdrawing the cash back as a lump sum, or you set up recurring payments that will automatically move your cash into your chosen account once it accumulates to a certain amount.

You can keep track of your cash back balance with online and mobile banking.

What’s the difference between cash back and other rewards programs?

While there’s a lot to love about cash back cards, they aren’t the only type of credit cards out there.

With some rewards cards, you’ll earn points that can be redeemed for merchandise, travel, and more. They work in a similar way to cash back cards, except you’re accumulating points instead of cash with each purchase. Sometimes you can use your points like cash by redeeming them for a contribution to a savings or investment account.

Keep in mind that your points may have a different value depending on how you’re redeeming them. With certain cards, your points are worth more when purchasing within certain categories. With cash back, you have a set amount to use and the value does not change, no matter what you’re buying.

Travel credit cards and AIR MILES credit cards are great for the world explorers out there. These programs are specifically designed to reward and empower travel, which means you’re racking up points or miles when you use your card.

Typically, travel cards offer accelerated rewards on travel-related purchases — meaning you’ll rack up points or miles fast when you spend on flights, hotels, and rental cars with your card. They also offer benefits like travel insurance and airport lounge passes. The rewards you earn can be redeemed for flights, hotels, travel packages, experiences, and more.

While these programs are all different, they all have their own unique benefits. That’s why some savvy spenders have more than one card — it empowers them to rack up different types of perks and make the most of what each rewards program offers.

Along with cash back and rewards, you’ll also want to consider factors like an annual fee, insurance benefits, interest rate, and more.

The bottom line

A cash back card is a simple, straightforward way to earn rewards with every purchase. These popular cards allow you to earn cash based on your everyday spending habits, so you're rewarded each time you use your card.

When it comes to finding the right cash back card for you, there’s a lot to consider. Just like with any credit card, make sure to consider the annual fee, interest rate, and credit limit. You’ll also want to think about your spending habits, and which card will offer the most rewards for your current lifestyle.

That means you can select a card that matches how you spend – or how you want to spend. For instance, if you’re trying to curb your dining out habit, a card with a high rate of cash back on groceries can be great motivation.

You’ll also want to consider the details of the card’s rewards structure. What is the earn rate for each category? Do you earn the same amount all year? Paying attention to these details can help you make the most out of your new card.

Ready to start earning cash back? Explore our cash back credit card calculator to see how much you can earn based on your current spending habits. Or check out BMO’s popular  cash back cards,  to start finding the one that’s right for you.

Cash back card FAQs 

When do I get my cash back?

This depends on your bank. Sometimes, you can redeem your cash back whenever you want with no waiting for a certain date or until you accumulate a specific amount. Other banks award the cash back that you’ve earned once per billing cycle.

Can I redeem travel rewards for cash back? 

Certain cards will let you redeem your travel rewards for cash back or statement credits to cover travel expenses. Just keep in mind that your points might have a different value when redeemed for cash vs.Versus airline flights or hotels. 

Do you lose cash back after a refund?

If you refund a purchase, any cash back earned on that purchase will be deducted from your cash back balance. 

Does cash back expire?

Typically, your cash back rewards will never expire. For instance, you can use your BMO cash back as long as your account is open and in good standing.