Understanding the difference between cash-back rewards and cash back at a store makes a big difference when you’re choosing which way to pay. Unless you need physical cash, using your rewards credit card is the best option for most purchases.
Cash-Back Rewards vs. Cash Back at the Register
Earning cash-back rewards is much different from getting cash back at the register with a debit card. Cash-back rewards are earned through the purchases you make on your credit card. You can redeem cash rewards as a deposit to your bank account, statement credit, or a few other options, depending on your credit card. The rewards don’t add to your outstanding credit card balance and don’t need to be repaid. Getting cash back at the register with your debit card, however, is like making a withdrawal from your bank account. The total transaction amount includes your purchase and the amount of cash back you’ve selected. For example, if your purchase is $5 and you opt to receive $20 cash back, the total transaction will be $25. Some banks and retailers may charge a fee when you get cash back at the register.
How Cash-Back Rewards Work
Start by choosing a cash-back rewards credit card, ideally one with a rewards structure that fits your spending habits. For example, if you spend heavily on groceries each month, a cash-back rewards card that offers higher rewards on groceries is an ideal option. Each time you make a qualifying purchase on a cash-back card, you’ll earn rewards. Let’s say your credit card pays 3% cash back on groceries. Spending $300 each month on groceries would earn you $9 in rewards each month. Rewards accumulate with each purchase and many card issuers don’t expire your rewards as long as your account is open and in good standing. In our scenario, you could earn $108 annually (assuming your grocery purchases total $300 each month for a year). Once you’re ready to take advantage of your cash back, check out your redemption options with your credit card issuer. Depending on your credit card, you may be able to redeem for a deposit into your checking or savings account, a statement credit to your credit card, a gift card to a restaurant or retailer, or have a check mailed to you. But note that unlike when you get cash back at checkout with a debit card, you won’t have most cash-back rewards in a usable form right away.
Using a Credit Card for a Cash Advance
Many credit cards can also be used for cash via a cash advance, but you’ll have to visit an ATM and make a withdrawal using your PIN to take advantage of the option. Credit card cash advances are charged a fee, either a flat rate or a percentage of the transaction, whichever is higher. Cash advance transactions are typically charged a higher interest rate than purchases, and the interest begins to accrue right away, making cash advances more expensive. Unlike purchases, you won’t get a grace period in which you can avoid paying interest, even if you paid your balance in full the previous month. If you need cash, you’re usually better off using your debit card to make withdrawals than getting a credit card cash advance.
The Bottom Line
Earning cash back from a rewards credit card is very different from getting cash back from your debit card at a grocery store checkout. Both have their purposes. If you need cash and don’t want to make an extra trip to a bank or ATM, you can get cash back from your debit card when you’re shopping. Otherwise, making the most of your purchases with a cash-back credit card is a good way to earn a little bit of extra money on purchases you’d make anyway, but usually, you won’t have that cash in hand immediately.
