How credit card cashback really works

Cashback sounds simple: spend, earn, save. In practice, the value depends on where you pay, how the bank labels the transaction and whether you have reached a cap.

Start with the eligible spend

A card can advertise a headline rate and still exclude particular categories, merchants or payment methods. Cashback may depend on the merchant category code attached to a purchase, the bank’s app, a monthly or statement-cycle limit, or a minimum transaction amount. Check the issuer’s current card terms rather than assuming every online purchase qualifies.

Count the cap

Suppose a card earns 5% on eligible purchases and caps cashback at ₹2,000 in a statement cycle. The cap is reached at ₹40,000 of eligible spend in that cycle. Spending above that amount may earn no additional cashback at the headline rate. A card with a lower reward rate and no relevant cap could be better for a different spending pattern.

Deduct fees

Estimate rewards over a full year, then subtract the annual fee and tax. Do not let a welcome benefit make a card look valuable forever: compare the first year with later renewal years too.

Pay the full statement balance

Credit card rewards do not make carrying a balance a good deal. Interest and other charges can easily outweigh cashback. Treat rewards as a small discount on purchases you already planned and can pay off in full.

A quick comparison checklist

• Which spends qualify, and which are excluded?
• Does the cap reset monthly, by calendar month or by statement cycle?
• How is cashback credited, and when?
• What is the renewal fee after the first year?
• Has the issuer changed the terms recently?

Issuer terms are the final authority. This guide is general information, not a recommendation to borrow or apply for a particular card.