Cashback credit cards are among the most popular options for everyday spending. The promise is simple: spend using your card and earn a portion of your money back. But there’s more to it than meets the eye. Understanding how cashback works can help you choose the best credit cards for your needs and avoid common mistakes. Here’s what you need to know before you apply for a cashback credit card.
What is Cashback on Credit Cards?
Cashback is a reward you earn as a percentage of your purchases when you use your credit card. This reward is typically credited as a statement credit or reduced from your outstanding amount. Some cards may also allow you to redeem cashback for vouchers or direct bank deposits.
How Do Cashback Credit Cards Work?
Every time you swipe or tap your card for eligible transactions, your issuer tracks your spending. At the end of each statement period or upon reaching a specified threshold, you receive a percentage of your spending back as cashback. Different cards, however, have varying rates and rules.
- Flat-Rate Cashback: These cards offer the same cashback percentage on all eligible purchases. For example, the SBI Cashback Credit Card provides a flat 5% cashback on all online spends.
- Category-Based Cashback: Here, higher cashback rates apply for specific categories like groceries, fuel, or dining, while other spending earns a lower rate.
- Tiered Cashback: A tiered structure means you earn a higher percentage after crossing certain spending thresholds within a billing cycle.
- Limited Period Offers: Some cards run special promotions for higher cashback during festivals or on partner brands.
Why Do Banks Offer Cashback?
Banks encourage card usage for both the fees they collect from merchants and for customer retention. Cashback is an incentive that boosts card usage, leading to more revenue for the card issuer from transaction fees, interest, and associated products.
How is Cashback Credited?
Depending on the issuer and product, cashback is credited in one of these ways:
- Monthly Statement Credit: Directly reduces your bill for the next cycle.
- Quarterly Redemption: Accumulates over three months before getting credited.
- Threshold-Based: Only after you earn a minimum amount (say ₹500), cashback gets added to your account.
- Gift Vouchers/Points: Some cards offer redeemable points instead of cash, which you can convert to vouchers or merchandise.
What Counts as Cashback Eligible Spending?
Not every transaction qualifies for cashback. Credit card issuers typically exclude these:
- Wallet reloads (e.g., Paytm, PhonePe)
- Fuel purchases (unless specifically included like on the ICICI HPCL Super Saver Credit Card)
- EMIs, cash withdrawals, and government payments
- Utility bills (sometimes included, check card T&Cs carefully)
Always review the “exclusions” section of the card’s benefits page, as these can be surprising. For a comparison of different options, explore our Find My Card tool.
Cashback Limits and Caps
Many cards have monthly or annual cashback limits. For example, you might get 5% cashback, but only up to ₹1,000 each month. Anything above that spends threshold earns no cashback for the period. This helps card issuers manage costs and reward frequent users fairly.
Effective Cashback Rate: What Really Matters
Advertised rates can differ from what you actually get after considering caps, exclusions, and minimum transaction values. The real rate might be lower than stated, especially if your spending doesn’t align with the bonus categories.
Comparing Top Cashback Credit Cards
Here’s a quick comparison of three popular cashback cards to give a sense of how rates and terms differ:
| Card Name | Cashback Rate | Annual Fee | Best For |
|---|---|---|---|
| SBI Cashback Credit Card | 5% on online | ₹999 | Online shopping |
| Axis Bank Ace Credit Card | 5% on bill payments, 2% others | ₹499 | Utility bills with Google Pay |
| ICICI HPCL Super Saver Credit Card | 5% on fuel, utility, grocery | ₹500 | Fuel and groceries |
Pros and Cons of Cashback Credit Cards
- PROS
- Simple to use—no points calculations or complex redemptions.
- Great for people who want straightforward savings.
- Works well for common daily spending.
- CONS
- Many exclusions and spending caps.
- Some cards carry annual fees that eat into savings.
- Less valuable for premium travel redemptions or large purchases compared to reward points cards.
Tips to Maximize Cashback Benefits
- Align your card choice with your biggest spending categories.
- Time major expenses when special cashback offers are active.
- Always pay the statement balance in full to avoid interest, as interest payments wipe out cashback gains.
- Review caps and expiry dates on cashback crediting.
- Consider using a blend of cards—one for groceries/fuel, another for online shopping.
Frequently Asked Questions (FAQ)
1. Do I get cashback if I pay my bill through a credit card?
You only get cashback on eligible purchases, not on bill payments unless your card specifically offers it, like the Axis Bank Ace Credit Card for utilities via Google Pay.
2. Can cashback be withdrawn as cash?
No, cashback is usually credited as a statement adjustment or can be used for future spends, not cash withdrawal.
3. Is there a minimum spend required for cashback?
Most cards require the eligible transaction to be above a certain threshold (like ₹100), and there may be monthly or annual minimum spends for the best rates.
4. How do I choose between a cashback card and a rewards card?
If you prefer effortless savings, choose cashback. For travel perks or exclusive redemptions, rewards cards could be more valuable. Compare credit cards based on your needs using the Find My Card tool.
5. Do zero annual fee cards offer good cashback?
There are some no annual fee cards with reasonable cashback, though the rates and caps are often lower compared to premium offerings. If you want to avoid fees, visit our HSBC Platinum Credit Card review for a strong zero annual fee option.
Ready to Choose the Right Cashback Credit Card?
Cashback credit cards make everyday spending more rewarding when you know the fine print. Before you apply, compare features, fees, caps, and exclusions. For tailored credit card suggestions, visit our Find My Card page, or browse our latest reviews on the FinWitty blog. Make every purchase work harder for you!