What Is Cash Back? (Ultimate Guide)

Cash Back

What is Cash Back? Ultimate Guide on How It Works

Cash back is defined as a credit card or debit card transaction where cardholders receive cash when they make a purchase. Sounds great, right? But what’s the catch? Well, there are definite advantages and disadvantages to this type of incentive.

It’s important to know what cash back is, how it works and what you should be looking for if you want free money. This article explains what online retailers charge in fees and what they’re making off of customers (which usually cost more than what the retailer charges). What this means is that getting cashback isn’t as beneficial as many people think and what they’re actually doing is making it so that the retailer gets more money while what you’ll be getting back won’t cost them anything (and in some cases, what you get will even more than what the store’s charging).

How does cash back work?

Cash back works by offering a percentage of what you spend as cash. The amount varies depending on the retailer, but it is usually between one and five percent (but can be as high as 20%).

It’s important to note that there are two types of cash back: credit card-based and debit card-based. If your pay with your credit card, then the cash back will be credited into your checking account. If you use a debit card, it’ll go right onto your gift card balance on the retailer’s website (assuming that they have one).

When was cash back first used?

While many people think of new technologies as being inventions of our generation, cash back actually has quite a long history. The first use of what we would now call “cash back” was in the 1800s, when department stores used it as an incentive to attract new customers to their site.

Cash back with a credit card was first used in the 1980s, but it wasn’t until 1998 that cash back became available for debit cards. Retailers started offering cash back as an incentive for shopping at their store, but what they didn’t realize was that it would attract a new group of customers.

Cash back offers proved to be very popular with the millennial generation (those born between 1980 and 2000). Because many millennials are struggling financially, getting money back on every purchase is what makes cashback sites so appealing.

What are the advantages of getting cash back?

Getting money back for shopping is what makes cashback sites so appealing. There are several advantages to this type of incentive, including:

  • Convenience: Since the retailer pays you instead of having your bank do it, all you have to do is wait for them to deposit your funds right into your account.
  • Savings: Depending on what you’re shopping for, cashback sites can help you save a significant amount of money. For example, if you were to buy an item that cost $100 but earned five percent cash back (which isn’t uncommon), then in addition to your purchase price, the retailer would also give you another five dollars.
  • Rewards: Cashback sites offer rewards for shopping with them, including travel discounts and cash back bonuses on top of what you’re already earning.

What are the disadvantages of getting cash back?

There are also some disadvantages to getting your money this way:

  • Time: Depending on how you choose to receive the money (credit card vs debit card), it could take up to two weeks for them to deposit funds into your account.
  • Account management: If you have multiple cards, then managing your cash back balances can be a huge hassle. Plus, what if you lose the card that stores all this data?
  • Fraud or theft: It’s easy to become a target for fraudsters when they know how much money is in your account and where it comes from.
  • Inconvenience: Some retailers don’t have debit card options for getting your cash back, so if you want to use a different payment method (like personal check), then it’ll be much more inconvenient.

What is a cash back website?

A cash back website, also known as an online rewards site, offers consumers the opportunity to earn money when they shop. You can then redeem your earnings for things like gift cards (from retailers such as Amazon and Walmart), statement credits or even donations to charity. Plus, what makes them so appealing is that you can shop at your favorite retailers and still get paid!


You can choose from sites like Ebates (which allows you to earn money when shopping at 1800+ stores) or Big Crumbs (a smaller site that lets you redeem rewards for gift cards). Plus, what’s nice about both of these sites is that they offer you what’s called a “cash back portal” which gives you access to an extensive list of stores.

What is a cash back app?

A cash back app is what makes cashback sites so appealing. These apps are available for your smartphone or tablet, and what they do is give you access to all the same perks that a desktop version will.

The great thing about these apps is that shopping on them feels just like shopping online, but without having to put in any of your personal information. Plus, what’s nice is that you can use the app to shop anywhere (from retailers like Walmart and Amazon), not just on one site.

However, these apps encourage impulse buying since all it takes is a simple click of a button for you to buy something while still getting what you want.

Is cash back free money?

What you need to know is that this isn’t actually free money; rather, it’s a rebate on what you’re already purchasing with your credit card or debit card.

For example:

If you shop at an online retailer and earn two percent of your purchase as a rebate, what you’re actually getting is two percent of what you paid for. If the item was $100, then what you’d be receiving back would also cost $2 at most (and it could even be less depending on how much your card charges in fees).

So while this might seem like a great incentive to shop online, what you’re actually doing is spending more money.

How do stores profit from offering cash back on purchases?

The reason why some stores offer cash back is because they make their money by charging what’s called a “merchant discount rate.” This rate varies from one retailer to another, but what it basically means is that the store will only give you what’s left after they subtract what they charged for fees and other costs (including advertising).

So while what you might be getting back is what’s left of what the store charged for, what they’re actually making off your transaction is much more than that (and this is true even if it seems like you’re only making a fraction of what you paid).

To illustrate:

Let’s say an online retailer charges $20 in fees and costs. If you bought a $100 item and the cash back rate was two percent, what you’d be getting would only be $98 (and not only is this lower than what you paid for, but it’s also less than what the store charged).

The bottom line? Using cashback sites or apps isn’t as beneficial as what many people think. Instead, what you should be doing is shopping around for the best deals and coupons (as well as using a card with no fees).

If you do this, then what you’ll actually be getting back will more than make up for what it costs to get your cash back. Cashback websites give consumers rewards for making purchases. They allow consumers to collect what’s called “cash back” on the items they buy from their favorite retailers. Cashback websites give an incentive to shop online, but this is not really free money despite what many people think. In reality, cashback sites are a marketing strategy for retailers who make more profit by charging fees.

Is it worth getting cash back from my credit card?

What you need to know is that what you’re getting back from your credit card doesn’t actually cost the store anything. So while what you might be receiving may seem like a good deal, it’s only because of what retailers are charging in fees and costs (and this will vary depending on what company charges for these).

If you do your research about what your card company charges, you’ll likely discover that what it costs to get cash back is almost the same as what the store will be charging for fees and other things.

This means that if you’re getting two percent of what you spend each time then this is just what the retailer would have charged anyway (and in most cases, what you’d be getting back will actually cost more).

In other words, what’s going on is that the retailer is paying a fee to your credit card company for giving them this incentive and what they’re charging in return far exceeds what it costs to give customers cash back.

For example:

If an online store charges $20 in fees and what you’re getting back is two percent, what they’ve actually made off your transaction will be $40. This means the store has charged more than what it costs to give customers cashback in order to make a profit!

If you want real money for shopping online then here are some things that work better:

  • Look for coupons and discounts.
  • Get a card with no fees (or one where what you pay in fees is less than what the retailer’s charging).
  • Use cashback websites only if they’re offering high percentages like five percent or more.

While what you might be getting back may seem like free money, what you’re really doing is paying what the retailer would have charged anyway. This means cashback websites are not as beneficial as what many people think and what’s actually happening is that your credit card company (and even the retailers themselves) will be making money off of what they charge for fees and costs (which can often be more than what it cost them to give customers what they’re getting back). If you want free money then what works better is looking for coupons and discounts.

Many multi-level marketing companies operate as cash back websites

One of these websites is known as Dubli, an online shopping portal that advertises what is known as “cashback” with its partners.

Dubli has a marketing strategy for what are called “affiliate marketers.” It pays commission to people who refer customers (and what they’re really getting back isn’t free money at all). The interesting thing about this website and the way it operates is that what you might think of as cashback with these online stores is what’s actually being paid to affiliates for their referrals.

marketing strategy

Dubli has a marketing strategy for what are called “affiliate marketers.” It pays commission to people who refer customers (and what they’re really getting back isn’t free money at all). The interesting thing about this website and the way it operates is that what you might think of as cashback with these online stores is what’s actually being paid to affiliates for their referrals.

If you want to read more about what I Buy I Review thinks about the Dubli program, read our Dubli review here.