How Does Cashback Work? – Full Guide to Cashback

Our in-depth guide to the world of cashback will help you get started with saving money using various cashback services.

If you’ve ever wondered how cashback works, you’re not alone. Many people don’t know how this popular shopping perk works, but it’s actually quite simple. In this article, we’ll break down everything you need to know about cashback.

We will be explaining what exactly cashback is, how it works, and how you can use it for saving money. Of course, we will also be taking a quick look at some of the best services that one can use for getting cashback on their purchases.

I must admit that I was a skeptic at first – cashback seemed like a massive waste of time.
However, having now tested more than dozens of various cashback services, I can safely say that cashback is legitimate and can save you hundreds of dollars a year. That is if you know which services to choose and how to use them.

So, without further ado, let’s dive right in.

Here is our full guide to cashback in 2022:

  1. What is Cashback?
  2. How to Get Started With Cashback?
  3. Tips for Maximizing Your Earnings With Cashback
  4. Our Favorite Cashback Credit Cards
  5. Our Favorite Cashback Platforms
  6. Finishing Words

What is Cashback?

Cashback is a rebate or discount that you receive when you purchase an item or a service.

In some cases, it’s a percentage of the total purchase amount that is refunded to you. In others, it’s a set dollar (or other currency) amount that you get back for every purchase you make.

There are 2 main types of cashback: cashback platforms, and credit or debit card cashback. Let’s take a quick look at both of these types of cashback.

Cashback Platforms

Cashback platforms are types of service where you receive a percentage of your purchase back from the retailer.

This type of cashback is usually offered through a third-party cashback platform, such as Rakuten Rewards or Swagbucks.

When you make a purchase directly through one of these services, the retailer will give a percentage of your purchase back to the service provider, which in turn will give you a small cashback rebate.

For example, let’s say you make a $100 purchase at Macy’s through an official Rakuten Rewards website or app. Macy’s may have a campaign that offers 4% cashback on all purchases. In that example, $4 will be paid back to you.

One notable exception to this system is TopCashback. This service gives 100% of their commissions back to their customers. Instead of taking their cut from the commission, TopCashback makes money through placed ads and sponsorships.

Credit Card or Debit Card Cashback

Credit card cashback is a type of cashback where you receive a percentage of your purchase back as a statement credit or rebate from the credit card issuer. This type of cashback is usually offered through the credit card’s rewards program.

The percentage of cashback could either be the same for all purchases or be subject to change depending on the category of the items or services you purchase.

For example, let’s say you have the Chase Freedom card and you purchase flight tickets from an affiliated airline. If you purchase these tickets, you can be rewarded with extra points, miles, and other similar perks from that airline.

Please also note that I used the term “credit card” just as an example. Debit cards can and do offer similar cashback perks as well.

How to Get Started With Cashback?

Now that we know what cashback is, let’s take a look at exactly how it works and how you can get started with earning cash-back rewards from the items and services you use.

There are three basic steps to receiving cashback:

1. Sign up for a cashback service online or start using a cashback credit or debit card

This step is pretty self-explanatory – you need to use a form of cashback service in order to start receiving rebates. That said, there are tons of companies offering these services, so you need to invest some time into choosing which ones will save you the most money.

Note that if you go the route of using a cashback credit card, it is crucial that your monthly balance is always paid in full and that you do not go over your limit.

If you are not careful with your money, the small gains from cashback will not be worth it in the big picture.

2. Make a purchase through the cashback service or pay using a cashback debit or credit card

Step 2 is where you make your purchase. This can be done in two ways: either through the cashback service’s website or app or by using a credit or debit card that offers cashback rewards.

This is the step where many people get addicted to cashback services (yes, cashback addiction is real) and start buying things they do not actually need. Yet again, I want to emphasize that being smart with your money is crucial if you want to reap the benefits of cashback.

Please also note that not all purchases are eligible for cashback rewards. For example, you typically cannot get cashback on gift card purchases, taxes, or charitable donations.

Carefully read the terms and conditions of each cashback service in order to understand what is and isn’t eligible for cashback.

3. Receive the rebate or discount from the cashback service or the card provider

Step 3 is where you receive your rebate or discount from the cashback service. If you use a cashback card, this will usually show up as a statement credit or a rebate check.

In some examples, you can even use your cashback earnings for paying a part of a student loan or mortgage. Provided that the card is from the same bank that offers the loan or the mortgage.

If you use a cashback website or an app, your cashback will usually first appear on your personal account on the cashback website.

Depending on the site, these earnings can then be redeemed for cash (usually paid to a PayPal or a bank account) or for various gift cards from retailers affiliated with the cashback platform.

The timing of when you will receive the award will vary depending on the service, but it typically takes anywhere from a few days to a few weeks.

Tips for Maximizing Your Earnings With Cashback

Now that you know how to get started with cashback, there are a few tips I want to share with you in order to help you maximize your earnings.

1. Use a cashback credit card as often as possible

As mentioned earlier, using a cashback credit card is one of the best ways to earn rewards from the items and services you use every day. Over time, your cashback earnings will accumulate quite quickly. Even if you only spend on everyday items that you need anyway.

That said, you need to make sure to always pay your monthly balance in full and do not go over your limit, or else you will negate the benefits of using a cashback card.

2. Use cashback websites and apps when making online purchases

Another great way to maximize your earnings is by using cashback websites and apps when making online purchases. Many of these platforms have partnerships with major retailers like Amazon and eBay, meaning that you can get cashback from a huge variety of items.

3. Look for the best cashback rate before making a major purchase

When you are planning on a major online purchase – like a TV or a laptop – use a cashback service to get extra savings. Why? Simply because cashback services typically offer higher rebates for bigger purchases.

This is also where I would advise you to take your time before making the purchase.

The rates vary between different cashback platforms anyway, but the differences between rates tend to be especially big. Check the cashback rates offered by all the big platforms to find the best deal.

4. Use a cashback service when making travel arrangements

Another great way to save money with cashback is by using a cashback service when booking travel arrangements. Lots of popular platforms offer great cashback rates on things like flights, hotels, and rental cars. If you plan wisely, you can save a lot of money while traveling just by using cashback services.

5. Pay attention to the terms and conditions of each cashback service

As I mentioned earlier, it is important to carefully read the terms and conditions of each cashback service in order to understand what is and isn’t eligible for cashback. By doing this, you will be avoiding unwelcome surprises down the road.

6. Keep track of your earnings

Finally, one of the most important tips I can give is to keep track of your earnings. This way, you will know exactly how much money you are saving with cashback and can plan accordingly.

Keeping track of your earnings is not only good for calculating your cashback earnings. It will also do the world of good for your overall financial health.

Our Favorite Cashback Credit Cards

For those of you interested in some concrete suggestions for getting started, let’s take a look at some of the best cashback credit cards currently available.

Citi Double Cash Card

The Citi Double Cash Card is one of our favorite cashback cards for a few reasons. Firstly, it offers an impressive 2% cashback on all purchases – no matter what.

This makes it a great pick for someone who wants to shop without worrying about whether the item or service offers cashback or not. Another plus is that the card comes without an annual fee.

Apply here for a Citi Double Cash Card.

American Express Blue Cash Preferred Card

The American Express Blue Cash Preferred Card is another great option if you are looking for a cashback credit card. Among other benefits, this card offers 6% cashback on groceries at U.S. supermarkets, 6% cashback on select American streaming platforms, and 3% cashback on transportation.

Apply here for a American Express Blue Cash Preferred Card.

Discover It Cash Back Credit Card

The Discover it Cash Back is a great option for those who want to earn cashback on everyday purchases. This card offers 5% cashback in rotating quarterly categories (on up to $1,500 in spending per quarter) and 1% cashback on all other purchases.

Apply here for a Discover It Cash Back Credit Card

Capital One Quicksilver Cash Rewards Credit Card

The Capital One Quicksilver Cash Rewards Credit Card is a great option for those who want a simple and straightforward cashback credit card. This card offers 1.5% cashback on all purchases with no rotating categories or spending caps to worry about. Plus, there are no annual fees.

Apply here for a Capital One Quicksilver Cash Rewards Credit Card

Our Favorite Cashback Platforms

Now that we know about some of the best cashback credit cards on the market, let’s also take a quick look at some of our favorite cashback platforms.

Fetch Rewards

Fetch Rewards is a great cashback platform that offers rebates on a wide range of brands and products. One of the best things about Fetch Rewards is that you don’t need to worry about changing your shopping habits in order to start earning cashback – simply scan your receipts from any grocery store and you’re good to go.

Fetch also offers several additional perks like expense tracking and very fast reward processing times.

If you are interested in this platform, feel free to read our full Fetch Rewards review.

Flipp

Flipp is our top pick for everyday grocery shopping. Flipp is a unique cashback app in that it also allows you to compare prices across different stores in order to ensure you are getting the best deal possible.

In addition to cashback, Flipp also helps simplify your life with some additional useful features like the possibility of creating shopping lists and a digital wallet for all your loyalty cards.

If you are interested in this cashback platform, feel free to read our full Flipp review.

Ibotta

Ibotta is a cashback platform that offers rebates on a wide range of brands and products. The number of offers is especially huge for online shoppers.

It is one of the most well-known and reliable of all cashback platforms and it will probably continue to be one of the biggest cashback platforms for years to come.

If you are interested in learning more about Ibotta, feel free to read our full Ibotta review.

Drop

Drop is a unique cashback platform that allows you to earn points for every dollar you spend.

All you have to do is link an eligible credit or debit card and you are good to go. In addition to shopping, you can also earn Drop points by doing additional activities like playing mobile games.

If you are interested in this platform, feel free to read our full Drop review.

Finishing Words

Cashback does get a bad rep sometimes, but from my experience, it is one of the best long-term money-saving methods there is.

Sure, it takes some time to choose between the platforms and cards that would fit your lifestyle the best. However, the many perks of setting up a solid cashback system are well worth it in my opinion.

Plus, with so many great cashback platforms and cards available these days, there’s no excuse not to start saving right away!

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