How do cashback credit cards work? Check out the best options for you

Cashback credit cards are a popular choice among consumers who want to receive tangible rewards for their everyday purchases. But how exactly do these cards work?

Let’s explore the concept of cashback, understand why banks and financial institutions offer this benefit, how you can redeem your rewards, and present some of the best cashback credit card options available in Canada.

If you want to understand our tips on how to maximize returns when using these cards, keep reading this content and use them to your advantage!

What is cashback on a credit card?

Cashback, or “money back,” is a form of reward offered by many credit cards. Essentially, each time you make a purchase with your card, a percentage of the amount spent is returned to you.

This percentage varies depending on the card and the purchase category. Some cards offer 1% cashback on all purchases, while others may offer 2% or more in specific categories like groceries, gas, or travel.

The main advantage of cashback is that it offers a direct and easy-to-understand return on your purchases. 

Unlike other rewards programs, such as points or miles, cashback is a tangible financial benefit.

It can be used to pay your bill, transferred to a bank account, or used for future purchases.

Why do credit cards often offer cashback?

Credit cards offer cashback for various reasons, primarily to attract and retain customers. In the competitive credit card market, offering cash rewards is a very effective way to differentiate a product and encourage customers to use it more frequently.

In summary, cashback incentivizes a higher volume of spending. As consumers know they will receive a percentage back on each purchase, they tend to use the credit card more than they would with a card that doesn’t offer this benefit.

This is advantageous both for financial institutions, which earn money through the transaction fees charged to merchants, and for customers.

Cashback programs are also a way for banks to obtain valuable data on their customers’ spending habits. With this information, they can tailor offers and adjust their products to better meet market needs.

How do I redeem the rewards?

Generally, the entire cashback rewards redemption process is straightforward, but it can vary depending on the credit card issuer. Here are the most common ways to redeem cashback:

• Credit on the bill: The most common way to redeem cashback is to apply it as a credit on your credit card bill. This means that the cashback amount will be deducted from the total you owe.
• Bank account deposit: In some cases, you can opt to transfer the cashback amount to a bank account linked to your credit card.
• Checks or vouchers: Some issuers offer the option to receive cashback in the form of a check or gift card.
• Donation to charity: Some cashback programs allow you to donate your rewards to a charity of your choice.

Remember that it’s very important to check the terms and conditions of your card to understand the redemption process, as well as any restrictions that may apply.

Top cashback credit cards in Canada

Now that you have a better understanding of the cashback concept and how to redeem rewards, let’s take a closer look at the best cashback credit cards available in Canada.

Each of them offers distinct benefits that may suit different consumer profiles.

Neo Credit

The Neo Credit is a popular option in Canada due to its simple and effective cashback structure.

With this card, you can earn an average of 5% cashback on purchases made at Neo partners, which include a wide range of retailers across the country.

With no annual fees, it becomes more accessible to most consumers. The Neo Credit also offers the convenience of being able to monitor your rewards directly through the app, making it easy to manage your cashback.

BMO Cashback World Elite Mastercard

The BMO Cashback World Elite Mastercard is ideal for those seeking a combination of high cashback returns and premium benefits.

This card offers 5% cashback on grocery purchases, 4% on public transportation, including ride-sharing apps, 3% on recurring bills, 2% on gas, and 1% on all other purchases.

It also offers a range of perks, such as travel insurance and airport lounge access.

Keep in mind that this card has an annual fee, but the cashback rewards may offset this cost, depending on your spending habits. It’s up to you!

Scotia Momentum Visa Infinite

The Scotia Momentum Visa Infinite is known for its great cashback returns for families and consumers who spend a lot on groceries and gas.

This card provides 4% cashback on grocery and gas purchases, 2% on restaurants and recurring bills, and 1% on all other purchases.

The Scotia Momentum Visa also includes benefits like travel insurance and purchase protection, making it an attractive choice for those looking to maximize daily rewards.

Neo Secured Credit

The Neo Secured Credit is an excellent option for those who are starting to build credit or need to improve their credit score.

As a secured credit card, it requires a security deposit but still offers up to 5% cashback on purchases with Neo partners.

The Neo Secured Credit does not charge an annual fee, making it an accessible and practical choice for consumers mindful of their income, spending, and budget.

RBC Cashback Mastercard

The RBC Cashback Mastercard is an option for those customers looking for a simple, no-fuss card. It offers 2% cashback on grocery purchases and 1% on all other purchases.

This card has no annual fee and includes benefits like purchase protection and extended warranty. It’s a good choice for consumers who prefer to keep things simple while still earning consistent rewards.

How to get more cashback when using the card?

If you’re wondering if it’s possible to get more cashback using your card and how to do it, yes, it is possible to increase the amount of cashback you earn by following some simple strategies.

We’ve gathered some tips to help you boost your cashback.

Know the areas where you spend the most

Before choosing a cashback credit card, analyze your spending habits. What do you spend most of your money on?

If you spend more on groceries, for example, opt for a card that offers high cashback rates in that category.

This strategy will ensure that you maximize the rewards of the credit card in areas where you already spend most of your money.

Look for bonus categories

Some cards offer extra cashback in rotating or bonus categories. Keep an eye out for these offers and adjust your spending as necessary to make the most of these opportunities.

If your card offers extra cashback in restaurants during a certain quarter, plan to dine out more frequently during that period.

Check the terms and fees

It’s essential to fully understand the terms and conditions of your credit card. Make sure you know if there is a maximum cashback limit you can earn in the categories or overall.

But most importantly, always be mindful of fees, such as annual fees and interest rates, that could even reduce the value of your rewards. Avoid carrying a balance on the card because the interest charges can easily negate the benefits that cashback provides.

 

Cashback credit cards are an excellent way to receive tangible financial rewards from your everyday purchases.

In Canada, there are several options available that cater to different consumer profiles, from those looking to increase cashback on groceries to those just starting to build credit.

By choosing the right card for your situation and using smart strategies, you can maximize your cashback earnings and make the most of the rewards these cards offer!

Learn more about types of credit card.