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How Cash Back Credit Cards Work
Cash back credit card programs have been around for about 15 years and are as popular as ever. While three out of four credit card users are more interested in low or 0% APR, cash back reward programs offer a very solid value to those who pay off their balances every month and don't require a super-low interest rate.
Cash back reward programs started out rather simply, offering a flat percentage rate (typically 1% of purchases) rebated back to the customer in the form of a check at the end of the year or a statement credit. The economics of these offers forced many banks to dilute the real value with tiered earning structures which paid a fraction of 1% for purchases below a very high dollar threshold (such as $2,500) per month. This structure is quite common among many of the issuers cash back reward programs but there continue to be some notable standouts that shine in terms of generous earning opportunities and simplicity. For example the Citi Dividend Rewards MasterCard program pays a flat 5% on all grocery, gasoline and drug store purchases and a full 1% on all other purchases, regardless of spending amount.
With the case of the simpler programs the bank merely calculates the flat rate against all spending (or different rates for certain category purchases, as with the Citi Dividend Rewards MasterCard) and prints the earned amount on each month's billing statement. Once the amount reaches $100 the cardmember can call to order a check.
The more complex programs can be confusing since the banks rarely show which purchase amounts earned cash back at which tiered rates. A single earned amount is generally reported on statements or is available upon request to their customer service department. The more common theme seems to be the requirement for the cardmember to order their reward check rather than it being automatically mailed, as was the case in previous years. This requirement generates what is know as "breakage" in industry parlance and means increased profits when consumers fail to collect their earned rewards.
Bottom line is that cash back credit programs involve three basic components - a percentage earned on purchases, spending in certain categories sometimes being rewarded at higher rates and the method by which rewards are delivered to the customer.
I can tell you that the 1% and 2% Discover card deals are
legit. Discover pays me to use their card. Excellent deal
for "slow-pay transactors" - people who pay the full
balance at the last day every month, and plow as many
purchases as possible thru the card.
However, the merchant apparently pays it, which is why
many take VISA/MC and don't take Discover.
The higher % deals usually have strings attached for the
card-holder and/or only work with certain (overcharging)
merchants.
5% casg back credit cards
----What's "casg" ? (just kiddin)