If you often use credit cards while shopping, it may be good idea to learn more about the cash back system. Cash back on a credit card allows you to enjoy added value from the purchases you make with your credit card. Not all credit card issuers provide this opportunity, but most of them offer cash back or points.
In this guide, we’ll discuss cash back on a credit card, provide in-depth information about its pros and cons, and much more! Just like all promotions, cash back also has some advantages and disadvantages. It is all up to you to decide whether it is a worthy promotion for your purchasing habits.
What Is Cash Back on Your Credit Card?
Cash back on a credit card is a system that offers you a small portion of the rebate on your purchases. This portion is usually limited to one or two percent. However, this also depends on the promotion or credit card issuer. While some issuers let you enjoy a flat rate for all your purchases, some of them offer this opportunity for certain product categories such as accommodation or tourism.
Most of the time, the tiered rewards include everyday shopping categories such as groceries, gas, cosmetics, and supermarket purchases.
Do You Have to Pay Tax for Cash Back on a Credit Card?
Usually, you don’t receive fiat currency when you redeem your cash back rewards. Most of the time, credit card issuers pay this cash back to you in your credit statement. Some credit card issuers may also provide this cash as a fund in your account or send you a check via mail.
However, in all cases, you will not be responsible for any tax, and you can directly enjoy your rewards without any deduction.
Pros and Cons of Cash Back Credit Cards
Cash back on a credit card is one of the simplest promotions you can enjoy with your credit card. They all offer straightforward rewards for cardholders, and you can easily learn all the details of the promotion. In addition to this, some credit card issuers automatically enjoy your rewards once you reach the predetermined milestones.
Another advantage of cash back credit cards is you will not have to worry about annual fees. Unlike points cards, most of these cards do not charge the holders annual fees.
If you are looking for appealing rewards such as a sign-up bonus, you may not be satisfied with cash back credit cards. Since you don’t have to worry about annual fees, you shouldn’t expect any appealing welcome bonuses. They are usually quite modest bonuses compared to other credit cards.
Another disadvantage of cash back credit cards is that they usually lack promotions. Usually, they don’t offer a wide range of promotions that credit cardholders can enjoy. Most of them just let their holders enjoy a rebate on their purchases.