Where does the cashback money come from?

The money comes from the transaction fees that merchants pay to banks to accept credit cards.

Why do users prefer cashback over points?

Users prefer cashback for its simplicity and because point values can be devalued or rug pulled by the issuer.

What is a good first cashback card to get?

A flat 2% cashback card is a good start because it requires no category tracking and provides a solid return.

Understanding Cashback Rates Terms and Categories

Q: Does earning cashback hurt your credit score?

No, earning or redeeming cashback does not affect your credit score.

Cashback cards return a percentage of your spending, usually between 1% and 5%, as a statement credit or direct deposit. The money comes from merchant transaction fees, and earning or redeeming it does not affect your credit score.

A flat 2% card is an easy starting point, while category specific cards offer higher rates up to 5% or 6% on groceries, dining, or gas. Some premium cards offer even higher returns, like a Bank of America card that gives up to 8.25% in selectable categories for users with high bank balances.

You should always pay your balance in full, because interest charges will wipe out any rewards. Card terms can change over time, and users generally recommend direct cashback over points, since point values can decrease unexpectedly.

Understanding Cashback Rates Terms and Categories — infographic

Cashback credit cards earn you a percentage of your spending back, typically as a statement credit or direct deposit, with common rates ranging from 1-5% depending on the card and spending category.

How Cashback Works

Earned, not discounted: Cashback is generally earned as a percentage of your purchase and is credited to you separately, rather than being an immediate discount at the point of sale. "The cash back is given back to you separately instead of immediately applied to your purchase."

Funding source: The money for cashback primarily comes from the transaction fees merchants pay to credit card companies. "Merchants pay fees to the banks to accept credit cards."

No credit score impact: Earning or redeeming cashback does not affect your credit score. "It doesn't affect your credit score."

Cashback Rates and Categories

Flat rate cards: Many Users recommend starting with a flat 2% cashback card for all purchases, as it's straightforward and offers a decent return without needing to track categories. "You can start with a flat 2% cash back card. It's easy, there is nothing to think about, and you get a decent return."

Category-specific cards: Higher cashback rates, often 5% or 6%, are available for specific spending categories like groceries, dining, or gas, though these often have spending caps or rotating categories. "There are good 5% Cashback cards for almost every core category, but usually not that many of them."

Premium tiers: Some cards offer enhanced cashback rates, such as the Bank of America Customized Cash Rewards Credit Card offering up to 8.25% in selectable categories for those with Platinum Honors status and large deposits. "BoA Customized Cash Rewards Credit Card - No Annual Fee - Chose one from(Can change a month): gas and EV charging stations; online shopping, including cable, internet, phone plans and streaming; dining; travel; drug stores and pharmacies; or home improvement and furnishings."

Important Considerations

Avoid interest: Cashback is only "free money" if you pay your balance in full each month, as interest charges can quickly outweigh any rewards earned. "There is no catch if you are responsible with it and pay it off monthly."

Changing terms: Card issuers may change cashback terms and qualification criteria, sometimes requiring minimum balances or a certain number of transactions. "Starting from 1 July 2026, you’ll be able to earn 2% cashback – up to £20 a month – on eligible GBP sterling debit card and credit card payments made in the UK and the Channel Islands (Bailiwicks of Jersey and Guernsey)."

Points vs. cashback: While some cards offer points that can be converted to cashback, Users generally suggest direct cashback for simplicity, noting that points can sometimes be "rug pulled" or offer less value than direct cashback. "Never get a card that operates on points, I've had points cards rug pull me before."

Do you want to know if there are specific cards mentioned that offer high cashback for groceries or dining?

Best for: People who pay their balance in full each month and want a simple return on their everyday spending.