What is Cash Back on a Credit Card?

Imagine paying for your morning coffee, weekly groceries, or even that new pair of shoes you've been eyeing—and getting some money back each time. That's essentially what cash back on a credit card is all about.

When you use a cash back credit card, you're not just making purchases—you're actually earning a percentage of your spending back. It's like having a friend who slips a few dollars back into your wallet every time you spend.

Cash back credit cards have become increasingly popular for good reason. Instead of just swiping, tapping, or inserting your card and watching your money disappear, you're creating a small return on your everyday spending.

So if you're tired of simply paying bills without any perks in return, a KOHO cash back credit card might be the financial tool you've been looking for. Ready to learn how to make your credit card work harder for you in 2025? Let's explore how these cards actually work and how to maximize your rewards.

What is cash back on a credit card?

Think of cash back as your credit card's way of saying "thanks for choosing me" every time you make a purchase. With each swipe, tap, or click, you earn back a percentage of what you spend—it's like getting a small discount on everything you buy.

Here's the beauty of it: that $200 grocery haul? With a 2% cash back card, you'd get $4 back. Your $50 gas fill-up? That's another $1 in your pocket. These rewards might seem small individually, but they add up surprisingly fast over time.

Unlike complicated point systems where you need a spreadsheet to figure out what you've earned, cash back is refreshingly straightforward. It's real money that you can typically use however you want—whether that's applying it to your statement, depositing it to your account, or even spending it on something fun.

How does cash back on a credit card work?

Cash back isn't magical money appearing out of thin air. You're spending first, then getting a percentage back. But if you're already buying your weekly groceries or filling up your gas tank, why not earn something in return?

The basics of cash back

Think of cash back as a small rebate on your purchases. When you swipe your credit card, the issuer sets aside a percentage of your purchase amount—typically between 1-5%—and returns it to you later. This money accumulates over your billing cycle and usually appears on your monthly statement.

As of 2025, most credit card companies have made accessing your cash back rewards even simpler through their mobile apps, letting you track your earnings in real-time.

Types of cash back programs

Flat-Rate Rewards

Remember when 1% cash back was exciting? Now many cards offer 1.5% or even 2% on all purchases. The beauty of flat-rate cards is their simplicity—same percentage back on everything you buy, no categories to track.

For example, if your card offers 2% back on all purchases, and you spend $1,000 in a month, you'll earn $20 back. Simple math, predictable rewards.

Fixed-Category Rewards

Want to maximize returns on specific spending habits? Fixed-category cards might offer 3% back on groceries, 4% on dining, or 5% on travel, with a lower rate (usually 1%) on everything else.

These cards are perfect if your spending heavily aligns with their bonus categories.

Rotating-Category Rewards

For the strategic spenders among us, rotating-category cards offer higher cash back percentages (often 5%) in categories that change quarterly. One quarter might feature grocery stores, while the next focuses on home improvement retailers.

Picture this: you've been planning a kitchen renovation, and during April-June, your card offers 5% back at home improvement stores. Spend $2,000 on new appliances, and you're looking at $100 back—essentially a free coffee machine!

Important Things to Know

Most cash back programs come with limitations. Card issuers typically cap how much spending qualifies for the higher reward rates. For instance, you might earn 5% on groceries, but only on the first $1,500 spent each quarter.

And remember—while cash back is great, it only makes sense if you're paying your balance in full each month. Interest charges will quickly outweigh any rewards you earn.

How do you receive cash back rewards?

So you've been swiping your card, racking up those sweet cash back rewards, and now you're wondering: "How do I actually get my hands on that money?" Great question! Let's break down how those rewards make their way from the credit card company back to you.

Your Rewards Are Waiting in the Wings

First things first: your cash back rewards don't automatically appear in your wallet. They accumulate in your credit card account until you decide it's time to claim them.

Option 1: Cold, Hard Dollars (Well, Sort Of)

When it comes to getting actual dollars back, you've got several options:

Statement Credit: This is probably the most straightforward method. Your cash back gets applied directly to your credit card balance. Spent $1,000 last month and earned $20 in cash back? Apply it as a statement credit, and now you only owe $980. It's like giving yourself a small discount on everything you've purchased.

Direct Deposit: Many issuers now let you transfer your cash back directly to your checking or savings account. At KOHO, we're big fans of this option—it puts the money right back in your hands where you can use it for whatever you need, not just paying off your card.

Gift Cards: Some programs let you convert your cash back into gift cards, sometimes even offering a bonus when you do. For example, $25 in cash back might get you a $30 restaurant gift card.

Online Shopping: Several card issuers have their own shopping portals where you can use your cash back to make purchases directly.

Charitable Donations: Want to do some good? Many programs allow you to donate your cash back directly to selected charities—a simple way to give back.

Option 2: Points

Some cards don't technically give "cash" back but instead reward you with points:

Travel Points: These are popular with frequent travelers. You'll see offers like "earn 3X points on dining" or "5X points on flights." These points can be redeemed for airline tickets, hotel stays, car rentals, and other travel expenses.

Merchandise Points: Points can also be redeemed for products through the issuer's shopping portal, magazine subscriptions, or experiences.

But here's something to keep in mind: points and percentages aren't created equal. If a card offers "5X points," that's not the same as "5% cash back." On a $1,000 purchase, 5% cash back gives you a clean $50, while 5X points gives you 5,000 points—and the value of those points depends entirely on how you redeem them.

Double-dipping on cash back sites & apps

Think of cash back sites and apps as middlemen with benefits. When you shop through these platforms, they earn a commission from retailers for sending customers their way—and then share a portion of that commission with you. The best part? This works in addition to any rewards you're already earning with your credit card.

Let's say you're buying a $100 pair of shoes from a major retailer:

• Your credit card might give you 2% back ($2)

• A cash back app might offer 8% at that store ($8)

Just like that, you've earned $10 back on your purchase—effectively getting those shoes for $90 instead of $100.

How these cash back platforms work

The cash back landscape has evolved significantly by 2025, with most platforms offering seamless integration across devices. Generally, you'll find three types:

Browser Extensions: These automatically alert you to available cash back while you're shopping online. Just click to activate the offer before checking out.

Mobile Apps: Perfect for in-store shopping, these often use location services to notify you of nearby deals or let you scan receipts for rewards.

Websites: Traditional cash back portals where you begin your shopping journey by searching for your favourite retailer.

Most platforms require you to accumulate a minimum amount (typically $5-25) before cashing out to PayPal, your bank account, or even as gift cards.

Popular platforms worth checking out

Rakuten has remained a powerhouse, partnering with over 4,500 retailers by 2025. Their quarterly "Big Fat Check" system sends your accumulated cash back every three months when you reach the minimum threshold. Their browser extension automatically applies both cash back offers and any available coupon codes—saving you both money and time.

Dosh continues to stand out for its simplicity. Just link your cards once, then shop as normal. The app detects qualifying purchases automatically and adds cash back to your Dosh wallet. It's particularly strong for local restaurants and hotels, offering higher percentages than many competitors.

Ibotta has expanded beyond its grocery roots, though it still offers some of the best food-related cash back. Their "any brand" offers (like "10% back on any bread") provide flexibility that other apps don't match. In 2025, their receipt-scanning technology works almost instantly, crediting your account within seconds.

But wait... Is cash back really "free" money?

Credit card companies aren't just handing out cash from the goodness of their hearts. Cash back programs exist because they're good for business. Card issuers make money in several ways:

1. Interchange Fees: Every time you swipe your card, the merchant pays a small fee (usually 1-3% of the purchase) to the card issuer. Part of this fee funds your cash back rewards.

2. Interest Charges: If you carry a balance month-to-month, the interest you pay will far exceed any cash back you earn. In 2025, the average credit card APR hovers around 20%—much higher than the typical 1-5% cash back rate.

3. Annual Fees: Some premium cash back cards charge yearly fees to access higher reward rates.

4. Increased Spending: Research shows people tend to spend more when using credit cards versus cash, especially when earning rewards.