CASH BACK CARDS: CARDHOLDER INVESTMENT THROUGH CREDIT CARD SPENDING

2007-06-20 15:49:53

( Financial )



WHAT IS A CASH BACK CARD?

A cash back credit card provides you an opportunity to earn income while spending on your credit cards, as a portion of the amount you have spent will come back to you on a yearly basis depending on the amount you spent. Depending on the credit card issuer, the cash back rate ranges from 0.5% to 2%. However, the monthly billing should be paid in full so that the cash back card will become advantageous to you.

HOW THE CARD WORKS

When credit card payments are accepted by a merchant, they usually pay a certain portion of the amount of transaction in the form of commission to their banks or service provider. In the United Kingdom or United States, in particular, the commission is shared by the card issuer and cardholder in the form of points, airmails or a sum of money. This is known as cash back benefit. Card companies offering the cash back option pay you back between 0.5% to 2% of your net expenses as a yearly rebate which you can credit to your account or paid to you separately by check.

Even though your earnings will be slightly lower, you will find out that your earnings are being consumed by the interest rates, which is usually higher than your APR.

When you are not getting the charges on the interest, you will realize that your expenses are giving you investments on every transaction you make. If your monthly credit card balance is paid in full, then a cash back card may be worth trying out.

However, extreme caution should be made if you decide to transfer a certain amount of your balance from your current card issuer in order to avail of a cash back card. Payments made on your credit card will only cover the transferred amount and the interests will pile up on any purchases made on the card. As a result, you will not be able to reap the benefits of a cash back card.


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