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Cash back offers are a type of
rewards program where the cardholder receives
a cash rebate equal to a specified percentage of
the amount charged to the card on an annual basis.
Cash back reward programs started appearing in
1990 when the
Discover Card made their industry-shattering
1%
cash back offer. Other cards soon followed.
Cash back programs typically come with higher
interest rates than cards that do not offer a
cash back incentive. If the cardholder does not
pay their balance in full every month, that higher
interest rate can offset the value of the cash
back incentive.
A recent survey by BankRate.com revealed that four
out of five cardholders preferred to receive lower
interest rates rather than cash back. Nonetheless,
cash back rewards can make sense for people and
organizations that make large purchases regularly
and pay the balance in full.
The original Discover Card cash back offer was
pegged at 1% of annual purchases. This means that
a cardholder who charged $10,000 over a 12-month
period could expect to receive a check for
$100.00.
As cash back reward programs spread throughout the
charge card industry, and consumers began to
take advantage of them in large numbers, charge
card issuers began to adjust the payment
percentages to offset the sums they were obligated
to pay out each year.
Most card issuers established a tiered level of
rebates that were tied to amounts charged to the
card. Scenarios such as 1/10th of 1% for monthly
purchase below some high dollar amount, such as
$2,500, became common. Today there are a number of
different payment programs in effect and it can be
a full-time job just selecting the card with the
best offer.
In recent years some charge card issuers have been
partnering with large corporations to establish
attractive cash back offers tied to purchases of
specific products or services. Citibank, for
example, launched their Dividend Rewards
MasterCard which offers a 5% rebate on
gasoline and grocery store purchases, along with
drug store purchases, and 1% on all other types of
purchases. General Motors issued a MasterCard
which offered cash credits that could be used to
purchase GM vehicles.
Charge card companies offer cash rewards to
stimulate usage of their particular card. The
amount that they pay in cash back to the consumer
is offset by the fees that merchants pay to accept
the card. They also hope that the consumer will
build up a balance greater than they can pay in
full which brings the card issuer additional
revenue in the way of interest charges.
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