What is Cashback

Clearly, we’re all familiar with the concept of spending money (maybe a bit more than we’d like to be), but did you know that there are a few ways to get some of your spent cash… back?

From credit cards to internet browser extensions, you can reclaim a percentage of your eligible purchases with a simple application or download.

To break down how cashback works, where it comes from, and its advantages, we created this helpful blog post.

How Does Cashback Work?

When you’re linked to a cashback program – whether it’s offered through your credit card’s rewards program or an internet extension – every eligible purchase you make entitles you to a certain percentage of cash back. 

While you’re technically still paying full-price for a product, you’re pocketing a portion of the purchase total to fund future expenses.

In simple terms: you’re getting paid to pay and thus, in a way, saving money in the process.

So, Where Does Cashback Come From?

Okay, so we’ve grasped the basics of cashback, but where exactly does this rewards system come from?

There are a couple of popular ways to earn cashback. For your convenience, we’ve expanded upon them below.

Cashback Credit Cards

Collecting cashback can be as simple as tapping your credit card. 

Still, credit card cashback is earned in several different ways.

Let’s explore those now:

Tiered Rates

Most applicants like to sift through cashback cards with tiered rates that complement their spending habits.

Tiered-rate cards come with multiple earn categories with different earn rates.

For example, a credit card might earn 4% cashback on groceries, 2% cashback on gas, and 1% cashback on everything else. This card would be best for cardholders who want to optimize their food expenses whilst still earning some solid cashback on fuel.

Flat Rates

Flat cashback rates remain the same for every type of purchase. Whether you’re swiping your card for groceries, gas, or entertainment – the rate of cashback you receive doesn’t change.

Say your credit card’s flat rate is 1%, then you’ll only earn 1% cashback on every eligible purchase.

If your credit card has tiered rates that come with cashback caps, you’ll revert to a base flat-rate after that cap is met.

Bonus Rates

To bring in more business, many credit card issuers will also provide cardholders with welcome bonuses.

For cashback credit cards, welcome bonuses often consist of extra cashback on all purchases in the first few months of membership.

Boosted Rates

These rates are rare, but certain credit cards offer boosted rates when you meet a certain criteria or spend money at partnered retailers.

The Neo World Elite Mastercard is a perfect example of a cashback credit card that features boosted cashback rates. While the initial rates in each earn category are already competitive, these rates can grow by up to 2% (depending on the category) when you keep a certain amount of money inside of a Neo everyday account.

On top of that, the Neo World Elite Mastercard can also earn you additional cashback on purchases made through Neo Partners. For more information on this incredible cashback option, check out the full review.

Customized Rates

For those who crave flexibility, some cards also let you customize which earn categories receive optimized rates.

The Tangerine World Mastercard is an example of this, offering decent cashback on your choice of two categories from the 10 offered by Tangerine. You can even pick an additional optimized earn category if you have a Tangerine savings account.

How to Find the Best Cashback Credit Card

Determining which cashback credit card is best depends on your financial habits and which expenses you need optimized.

To help you select the best cashback credit card based on several different factors, check out our best cashback credit cards post, or filter through with our Best Credit Card Finder tool.

Cashback Extension Tools

The second most common way to earn cashback is through cashback extension tools. These tools allow you to earn cashback while you shop online at partnered retailers.

At Finly, we’ve recently developed our own cashback extension called FinlyBoost. You can download this extension on either Google Chrome or Firefox and start browsing our partnered merchants for products you already love.

The process is simple:

1. Download the extension and sign in to your Finly account.
2. Pick a partnered store and visit their official website, a pop-up should appear in the top right-hand corner, asking you to activate cashback.
3. Once activated, start adding items to your cart and proceed to checkout.
4. Within days of your transaction, you’ll receive your reward.

How Much Cashback Do You Get?

Whether you’re accumulating cashback through your credit card or our cashback extension, the amount you receive depends on the following factors:

• The cashback rate associated with the eligible earn category or partnered retailer.
• The amount you spend on your purchase (the cashback percentage rate you receive is taken off of the purchase total).

To help you understand how much your rates are worth, think of it this way: if the cashback rate is 2%, then you'll earn back $2 for every $100 spend on/at the corresponding category or merchant.

How Do You Collect Your Cashback?

How you receive your cashback rewards really depends on where your cashback is coming from.

If you’re collecting cashback from your credit card, you can access your cashback rewards through your online credit card or banking account. From there, depending on the institution, you can request to receive your cashback either through a statement credit, direct depost, by check, or put it towards investments.

Alternatively, if you’re looking to collect cashback from FinlyBoost, make sure your e-transfer information is linked to your Finly account. That way, when your cashback rewards roll in, they can be sent directly to your preferred bank account.

Other cashback extension tools will have their own policies for implementing cashback rewards.

What Should You Do With Your Cashback?

The beauty of cashback is in its flexibility, once you select how you want to receive your cashback, there are few limitations on how you can spend it.

There are, however, ways to optimize your cashback, especially if your goal is to save money. 

Here are some suggestions on how to spend (or rather not spend) your cashback:

• Stash your earnings inside a savings account: while each earning may be small, overtime, those collections can grow into some substantial savings.
• Invest your earnings: as briefly mentioned, some institutions will allow you to send your cashback earnings directly to your investments. Otherwise, you can manually transfer savings towards investment accounts.
• Send your earnings right back to your statement: to keep a cycle going of spending money and saving money, you can simply opt to redeem your credit card cashback as a statement credit – contributing to the very expenses that earned you the rewards in the first place.
  
  

The Pros and Cons of Cashback

There are pros and cons to nearly everything, and cashback is no exception.

Let’s start on a positive note, here are some of the pros of earning cashback:

• Earning cashback is often convenient and uncomplicated (for credit cards, cashback rewards are often more straight-forward than point systems).
• There are plenty of cashback credit cards with different types of rates to complement any type of cardholder.
• Once set up, cashback extension tools are seamless – they follow you on your online shopping sprees and follow-up with hassle-free rewards.
• Spending money is inevitable, but earning while you spend is strategic, savvy, and a long-term money saver.

Next, let’s take a look at some of the drawbacks of cashback:

• Sometimes, when receiving cashback, you need to be patient. Both cashback credit cards and cashback extension tools can take some time to deliver your rewards – earning isn't instantaneous. 
• Some cashback credit cards can also put minimum withdrawal requirements, preventing you from collecting your cashback until it reaches a certain amount.
• Cashback credit cards can also come with earning caps on their cashback allowance, so always check for those limitations.
• Spending money should incentivize cashback, cashback shouldn’t incentivize spending. When cashback makes you spend more than you should because you’re using the reward as a justification, it might not be working in your favour.

Conclusion

Cashback is a financial rewards system that allows you to earn money back on every eligible transaction.

Two popular ways to earn cashback include applying for a cashback credit card that optimizes your spending patterns, or downloading a cashback extension tool that earns you a percentage back on purchases made at partnered retailers.

The amount of cashback you’ll receive depends on the rates associated with your cashback credit card, the partners associated with your cashback extension tool, and the total cost of your purchase. 

Participating in a cashback program allows you to save money as you spend it by putting it towards your savings account, your investments, or pending expenses.

Frequently Asked Questions

Is cashback free money?

Cashback operates as a cash-for-cash system not a cash-for-fun system. You’ll only receive cashback when you spend money in the first place, making it far from free.

Still, if you're spending money in eligible cashback categories or at eligible cashback retailers and you’re not using a cashback credit card or a cashback extension tool, you’re missing out on some sweet savings and spending more than you need to be.

Do cashback rewards expire?

Your credit card cashback rewards won’t be going anywhere as long as your credit card account remains active and in good standing.

Likewise, as long as the cashback extension tool you’re using is still in business and your account is still active, you’ll also keep receiving cashback rewards.