Who doesn’t like to get money for spending money? That, in effect, is what cash back credit cards are all about! Among the various kinds of credit cards, cash back cards are perhaps one of the most popular. THe main feature of these cards is that customers get back a certain percentage of the amount they spend. The percentage and the spending categories differ, but the basic feature of all cash back cards is that you receive a percentage of your spending amount back as cash.

Let us take an example. Say, for instance, you have a monthly credit card bill of Rs. 20,000. If your bank offers a cash back of 5%, then you receive Rs. 1000 (5% of 20,000). If you spend Rs 30,000, then you will receive Rs. 1500 as your cash back award. This amount could be paid to you sepatarately as a cheque, or could be shown a credit on your next monthly bill. THe percentage can vary from bank to bank but ranges from 2-5%.

What are the restrictions on cashback offers?

There often are restrictions on how much you can earn and where. Many issuers require a minimum expenditure on your card to qualify for the offer. Similarly, there may be a cap on how much you can receive in a month, regardless of your monthly bill. Make sure you check these conditions when you 

The cash back scheme applies to spending at only certain establishments, it does not apply to every single purchase you make on your card.  You can look up the list of establishments on your bank’s website or ask the customer service department.

Why do banks offer cash back cards?

The logic behind issuing such cards is to encourage you to spend more on your credit card and use it more frequently. If you think you are ‘earning’ money while spending, then you might be motivated to spend more. This is exactly what credit card companies would like to encourage you to do and both sides win.

What are the disadvantages?

The only disadvantage is that in order to earn the cash reward, you might be tempted into overspending and racking up a large balance. If you do not pay your bill in full, the interest charges on your outstanding will negate any gains you earned on the cash reward.  

A cashback card is a simple way to earn a little extra cash for doing nothing. Just make sure that you read the terms and conditions carefully, spend within your limits, and make your monthly payments in full and on time. Not following these three practices might end up erasing whatever gains you make on the offer.