It seems like a no-brainer. Every time you use a cash back credit card, you get a percentage of the purchase back into your account. It is, in fact, a rebate. The cash back credit card is great for daily purchases. Sometimes for each purchase, you earn points and you can redeem the points when you choose. This is a popular format for folks who buy gasoline using their card.

How do card issuers offer this and how do they benefit? When you use your card, the merchant has to pay a transaction fee. The card issuer offers a part of that fee back to the consumer. For instance, you buy a home appliance that costs $800. The merchant pays a credit card transaction fee of $16. If the card issuer is offering you a cashback of  1% or $8, the cash back comes from the transaction fee. Apart from this, the credit card companies make money by charging high interest rates on the credit and by charging late fees if a consumer misses a payment. The more the consumers use credit cards, the higher that chances that they will not pay on time and will owe interest and late fee to the credit card companies. In all, it makes sense for credit card companies to offer incentives in different forms to consumers in order to make them use their credit cards for purchases instead of using cash or debit cards.

As far as the consumer is concerned a cash back card offers a rebate each time they purchase and if the amount is coming out of the merchant’s pocket or the card company’s it hardly matters as long as it does not come out from their pocket! The added bonus is that in most cases, these cash backs are tax-free as they are treated as discounts and not income. This makes them a better earnings tool than if the same amount would have been put in a bank deposit.

There are three different types of cash back cards. You must take a look before you find which one suits you best.

Flat rate cash back cards

In the flat rate cash back cards you are assured a fixed percentage cash back no matter what the item or service purchased. These cards are preferred highly since they are quite straight forward and there is no waiting period to redeem the points till they accumulate and so on. These cards are akin to instant gratification on whatever is bought. For example, many top cash back cards offer 1.5% cash back on every purchase, every day.

While buying a flat-rate cash card check on the annual fee if any and any starter bonuses.

Tiered Cash Back Cards