Cash Back Credit Cards
A bonus of cash back rewards is the money that is considered a reward is nontaxable, meaning additional fees will not be taken outside of the original purchase amount. Another reward is that the rebate amount can also qualify for a cashback percentage, which is obviously smaller than the first rebate amount.
Also keep in mind that each transaction has an interchange fee, which is an issuer fee that covers the processing costs for all credit card payments. Issuers use interchange fees to pay customers their cash back rewards. Online transactions typically have higher interchange fees than in-store purchase because of the greater difficulty in inspecting the credit card during the transaction. Card issuers also have certain business affiliates that customers receive when they buy from that business.
There are three types of cashback reward programs. The cash back reward customers can earn depends on the type of program they choose. One program offers fixed percentages, meaning every transaction has the same rate of return. If a customer buys a slice of pizza for three dollars with a 2% cash back rate, the customer will earn six cents in comparison to that customer spending four hundred dollars and earning an $8 return. Some programs use four-digit merchant category codes to determine which businesses give the greatest transaction return.
If you are looking for flights on United Airlines, you would see if merchant code 3000 qualifies for a cashback reward.
If your card lender uses category cash back bonus, they will have you register for the categories each quarter. For greatest bonus, the merchant must max out the necessary categories each quarter. Purchases made for non-qualifying categories will sometimes offer a rebate, however the percentage will be a lot lower. Customers participating in the category cash back bonus also have access to which categories will qualify for the maximum rebate months before the quarter begins.
A similar cashback option is the tiered cash back reward, which helps the merchant “customize” their potential cash back rebate based on what they purchase the most.
When deciding which program to register for, pay attention to the purchases you make most. If you buy the same things consistently, consider the tiered or category cash back option to maximize your rebate earnings. If a fixed percentage is good enough, it is best to research credit card companies for the highest fixed rate and make money back on every purchase. Regardless of your rebate preference, be sure to register your credit card to start earning cashback.
Every option when purchasing items with your credit card comes with an interchange fee, so plan your purchases to get the highest return on every transaction you make.