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Some things in life sound too good to be true, and getting cash back for purchases may seem like one of those deals. But an increasing number of credit cards, called cashback cards, offer clients money back when they charge what they buy.

Many people are familiar with the concept of credit card rewards, when lenders give clients a little something back—points, airline miles—as an incentive for using their card.

In the case of cashback cards, that reward is, well, cash.

How Does a Cash Back Credit Card Program Work?

Cashback credit cards reward clients based on their spending, providing a credit that is a small percentage of the total purchase.

If a cashback card provides 1% back, for instance, the cardholder would generally earn 1 cent on every dollar spent, or $1 for every $100 they charge to their card. If, over the course of the year, a person charges $10,000 in purchases to their cashback credit card, they’d earn $100 in cash back for that time period.

Unlike sale items, when an item is discounted at the time of purchase—meaning, of course, the shopper pays a cheaper price—cashback cards work more like a rebate. The customer buys something at the posted rate and gets money back at a later date.

The average American had a credit card balance of $5,315 in 2020, according to Experian. Assuming that full balance is eligible for cash back, it would earn $53.15 with a credit card providing 1% cash back and $106.30 for one giving 2% cash back.

Do All Cashback Credit Cards Work the Same Way?

Yes and no. While all cashback cards typically use the same model—money back based on a percentage of total purchases—the differences are typically in the details.

Things like the rate of cashback earnings, interest rate, the process for redeeming cash back, and so on vary by card and lender. Some lenders may even offer several cashback credit card products with different rates and benefits.

As such, before signing up for a cashback credit card, it’s smart to spend some time researching and comparing cashback cards to find the one that best suits your needs.

What to Look for in a Cashback Card

There are a number of considerations when choosing a cashback credit card that will determine just how profitable the card will be for a specific person.

Because people have different spending habits and financial preferences, the best type of credit card will ultimately depend on the individual. Here are some things to consider.

Rate of Cash Back

Not all cashback credit cards offer the same rate of return, so it’s best to comparison-shop. Though differences in percentages may sound negligible, getting 2% instead of 1% means double the cash back—and those small amounts can add up over time.

Some credit cards also provide different rates of cash back depending on the spending category or how much money the cardholder charges in a year. For example, some credit cards may provide a higher percentage on expenditures such as gas, travel, or groceries and a different rate for other types of purchases.

Tiered cashback cards may provide a higher (or even lower) rate when annual purchases exceed various thresholds.

Some credit cards also offer higher introductory cashback rates.

How a person chooses to redeem cash back may also determine the final payout. A travel rewards card, for example, may provide a higher rate of return for cardholders who redeem the money they earn on flights, and a lesser amount for those who redeem their rewards on statement credits or other purchases.

It can be difficult to tell at a glance how much the cashback percentage rate may actually net an individual, especially when considering categorized and tiered rewards. But when comparison-shopping for a cashback credit card, it is worth crunching some numbers to get an idea.

One way to estimate how much in cashback rewards a card will actually end up earning is to apply the posted cashback rates to previous credit card statements or to the spending allocations within an individual’s annual budget.

Annual Fees

Though some cashback credit cards have no annual fee, others do. It’s a good idea to factor in any annual fee when estimating the cashback rewards based on your spending habits. Calculating the returns on fee vs. no-fee cards can help to assess whether it’s worth shelling out extra.

If a bank charges $99 for a cashback card earning 2%, the bank fees would essentially cancel out the $100 in cash back earned on the first $5,000 in annual spending.

Someone who charged $7,500 annually would net $51 with the 2% cashback card, and $75 with a no-fee 1% cashback card. But if they charged $20,000 annually, the $99/2% cashback credit card would net $301, while the no-fee card would only earn $200 in cash back.

APR

The nearly half of Americans who carry a balance on their credit cards each month will want to pay close attention to a credit card’s annual percentage rate. This is the amount of interest cardholders will have to pay if they do not pay off their credit card balance in full each month.

The average credit card APR was 14.65% in late 2020, according to the Federal Reserve—a rate that can quickly cancel out any cashback benefits.

Recommended: What is a Good APR?

Redemption Terms

A good question to ask a lender before signing up for a cashback credit card is “Where can I get cash back?” The terms of redemption can vary across credit card products.

In some cases, cardholders may see an annual one-time credit for the full amount earned. Other cards allow cardholders to redeem their cash back at any time.

Tips for Getting the Most Out of a Cashback Card

While signing up for—and using—a cashback credit card is the first step to getting money back on everyday purchases, there are some ways to optimize the returns.

Pay Off Your (Whole) Credit Card Bill on Time

With few exceptions, credit card charges are not subject to interest until after the statement payment due date. But after that payment becomes due, extra interest and fees can quickly add up—erasing any cashback benefits.

Optimize Redemptions

When it comes to redeeming cash back, it’s worth seeking the biggest bang for your buck.

If a card offers different rates of cash back depending on how rewards are redeemed, being strategic when cashing out can result in a greater windfall.

Consider Extra Fees

Though a cashback credit card can make it tempting to charge everything you buy, that’s not always the most cost-effective strategy.

Though it’s generally an exception, some merchants impose surcharges for using a credit card or may provide discounts for paying in cash. In such cases, it’s a good idea to crunch the numbers to ensure the extra fees don’t actually cost more than the cashback reward.

The Takeaway

Free money may be hard to come by—but not if you use a cashback credit card. When choosing a card, It’s best to look at the rate of cash back, any annual fee a card may charge, and the APR if you carry a balance.

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¹See Rewards Details at SoFi.com/card/rewards.


*See Pricing, Terms & Conditions at SoFi.com/card/terms
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Some good news about budgeting: According to a 2020 Debt.com survey, as many as 80 percent of Americans are now doing some form of budgeting. The top reasons for using a budget, according to the survey, include increasing wealth and savings and managing debt.

While not everyone loves the idea of budgeting, taking a moment to assess and prioritize your spending can yield some real rewards. Even a basic monthly budget can help you reach your financial goals, whether it’s to have a financial cushion, put a downpayment on a new home, go on your dream vacation, or all of the above.

The most common reason cited for not budgeting in Debt.com’s survey was making too little money. But the truth is that you don’t have to make a lot to benefit from having a budget. Indeed, budgeting can be particularly helpful when money is tight.

Whether you’re brand new to budgeting or looking to improve your budgeting skills, read on. Below are some simple steps that can help you keep better tabs on your cash flow and improve your financial life.

Gathering All of Your Financial Information

While estimating your income and monthly costs can work in a pinch, to make your budget as complete (and accurate) as possible, you’ll want to start by gathering up at least three months worth of financial documents and receipts.

Here are some documents that may be helpful:

•   Pay stubs
•   Bank statements
•   Credit card statements
•   Rent/Mortgage bill
•   HOA
•   Electricity bill
•   Water bill
•   Internet bill
•   Cable bill
•   Childcare/School Tuition statements
•   Monthly public transportation passes
•   Recurring healthcare costs like deductibles or prescriptions
•   Student loan statements
•   Insurance statements

Figuring Out Your Monthly Take-Home Income

Although you may be able to rattle off your annual income without thinking, when creating a budget you’ll want to look more closely at your pay stub to determine your take-home pay. That’s how much is left after all of the deductions (such as federal, state, and local taxes, retirement savings, and insurance) are taken out.

If you’re self-employed, you’ll need to subtract your self-employment income tax before calculating your net monthly income.

Determining your take-home pay is important because if you use your annual income to make your budget, you might end up thinking that you have more money available to you every month than actually shows up in your checking account.

If you’re budgeting with another person, you’ll also want to tally up that person’s take-home pay as well. It’s a good idea to also include any additional household income, such as that from investments or social security.
All together, these will give you a good idea of how much actual cash you have to budget with each month.

Tallying Up Monthly Expenses

Once you’ve nailed down how much money you’re bringing in each month, it’s time to look at how much money you’re sending out into the world each month. This is where all the paperwork you gathered can really come in handy.

A simple way to start is to write down how much you’re paying for all your fixed (or recurring) monthly bills, such as rent/mortgage, car payments, insurance, health care expenses, utilities, subscriptions.

Once you’ve got your regular bills accounted for, you can look at variable expenses, such as groceries, entertainment, and other discretionary expenses. With variable expenses, it’s helpful to look back at your bank statement, as well as receipts from the previous few weeks or months, and calculate an average.

If you tend not to save receipts, it can be useful to actually track your spending (by carrying a notebook, using a app, or collecting receipts and recording them later) for a week or more in order to better assess your daily spending.

Below are some sample budget categories and expenses that you may want to include:

Housing
•   Rent
•   Utilities
•   HOA
•   Maintenance costs
•   Home/renter’s insurance

Transportation
•   Gas
•   Tolls
•   Maintenance costs
•   Car Loan
•   Public transportation tickets or passes
•   Taxis or ride shares
•   Parking pass
•   Insurance payments

Children
•   Childcare expenses
•   After-school care costs
•   Tuition
•   Tutoring
•   Babysitting

Education
•   Tuition
•   Books
•   Student loans
•   Student fees

Food
•   Groceries
•   Take-out
•   Eating out

Financial
•   Bank fees
•   Service fees
•   Credit card payments
•   Life insurance
•   Disability insurance
•   Retirement fund
•   Investments
•   Emergency fund

Healthcare
•   Doctor appointment co-pays
•   Prescription costs
•   Over-the-counter medication costs

Entertainment
•   Movie tickets
•   Special events
•   Concerts
•   Streaming media services
•   Books
•   Nonbusiness travel

Pets
•   Pet insurance
•   Food and treats
•   Flea and tick preventative
•   Medications
•   Vet bills

Shopping/Personal Care
•   Clothing
•   Shoes
•   Accessories
•   Toiletries/Cosmetics
•   Haircuts/styling
•   Shaves/Manicures
•   Gym membership

When it comes to expenses that only occur in certain months, such as tuition for summer camp, you can divide the total by 12 in order to figure out how much you should be saving each month to cover these seasonal costs.

Once you have a list of all your monthly expenses, you may be alerted to trends you might not have noticed before (like $75 a month on morning coffees).

You’ll also be able to add it all up to see what your overall average monthly spending is. Ideally, this number is less than the amount of take-home pay you calculated above.

Planning and Creating a Budget

Now that you’ve got a grip on how much money you have coming in, and how much is going out, it’s time to actually create a plan for how you want to spend your money–in other words a budget–rather than spending haphazardly.

You can create a budget using pen and paper or a spreadsheet on your computer. There are also a number of budgeting apps, such as SoFi Relay, that can simplify the process.

There are several different ways to approach spending targets and savings goals in your budget.

One commonly recommended guideline it the 50/20/30 budget, which breaks up your spending and saving like this:

•  50 percent on “needs” or essential expenses (such as housing, utilities, auto payments, insurance, repairs, healthcare, childcare, minimum payments on debts, and education).
•  30 percent on “wants” or discretionary expenses (e.g., shopping, entertainment, personal care, travel).
•  20 percent towards savings (such as an emergency fund, paying more than the minimum on debts, retirement, and other savings).

These percentages are guidelines, however, and you may decide to re-jigger them based on your financial situation, current expenses, and goals.

If the cost of housing is high in your area, for example, you may need to allot more to the “needs” bucket. Or, if you have a big expense or a trip you want to take in six months, you may want to bump up savings, at least temporarily.

If you find that your spending is currently higher than your income, or doesn’t allow for monthly savings or debt reduction, you may need to find places where you can cut back.

It’s often simplest to do this in the “wants” category. For example, you might decide you can cook more and eat out less often, ditch that pricy cable bill, use the library instead of buying digital and audio books, or cut back on clothing purchases.

Once you’ve set up your spending and saving targets, you’ll want to track your progress, either by manually tracking your spending or using an app. Along the way, you may find that you have to adjust your spending to stay better aligned with your budget, or you might find that you need to adjust your budget to make it work better for you.

The Takeaway

A budget can help you achieve your financial goals, whether it’s knocking down debt, saving up for something fun, or funding your retirement.

While the process may sound intimidating, budgeting is really just a matter of figuring out what your current income and expenses are, seeing how they line up (or don’t), and then deciding how you may want to shift your spending in order to reach your goals.

It can also be helpful to remember that even if you have a budget, it will only be useful if you periodically track and update it to reflect any changes in your income, expenses, or financial goals.

If you need help tracking your spending, a checking and savings account with SoFi might be a great choice for you. With SoFi Checking and Savings, you can easily see your weekly spending (and make sure you’re on track with your budget) in your dashboard in the app.

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.

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