Here's What Happens When You Redeem Cash Back Rewards

Sure, travel rewards cards get a lot of hype. But according to a recent Ascent survey, cash back cards are actually the most popular option.

One of the biggest reasons many people prefer cash back cards is simply their ease of use. To get the best value from points, you often need to do a bit of math and jump through some hoops.

Cash back rewards, on the other hand, don't require any of that. Most redemption options are simple (and math free). Here's a look at what happens when you redeem cash back.

Redeeming for statement credit

Arguably the best -- and easiest -- way to use your cash back rewards is to redeem them for statement credit. This means you'll turn your cash back rewards into a credit that appears on your credit card statement.

For example, say you have $20 in cash back. When you redeem it for statement credit, you'll see a $20 credit added to your credit card transactions. If you have a balance, this will reduce your balance by $20. If you have a $0 balance when you redeem your cash back, your balance will be ($20).

Some issuers will let you use redeemed cash back to cover all or part of your minimum payment, but others may not. Check your card's terms and conditions to see what is allowed.

Redeeming as an electronic deposit

Another option for some cardholders is to redeem your cash back as an electronic deposit into a connected checking or savings account. This is most often an option if you have a bank account with the same bank that issues your credit card.

For example, say you have a Chase bank account and a Chase credit card. You could redeem the cash back from your credit card into your Chase bank account. So, if you redeem $20 in cash back as an electronic deposit, you'll see a $20 credit added to your bank account balance.

This can be a nice way to redeem cash back if you don't think you'll use your card anytime soon. The downside to this redemption method is that it can take several days for your cash back to show up in your bank account.

Redeeming at checkout

One increasingly common redemption option for many types of rewards cards, cash back included, is to redeem your rewards at checkout with popular retailers.

For example, if you connect your rewards card to your Amazon account, you may have the option to redeem cash back to cover your Amazon purchase. The option will show up as a payment method on the Amazon checkout screen.

While this might be convenient, I strongly suggest against it. Instead, I prefer to redeem my rewards for statement credit, and use my credit card at checkout. Why? Because then I earn purchase rewards on the purchase, rather than missing out on rewards by using the cash back directly.

Other redemption options

Depending on your card company, you could have additional options for redeeming your cash back. One of the most common options is for digital gift cards. Many issuers have gift card portals where you can choose to turn cash back into a gift card for a variety of retailers.

My opinion on the gift card option is the same as the redeeming at checkout option: It should be avoided in most cases. Occasionally, you'll see an offer to get more than $0.01 per point on gift cards redemptions. In this case, it could make sense. But often, you'll be missing out on purchase rewards by using a gift card instead.

One option offered by some issuers that might be good to explore is redeeming cash back toward a charitable donation. Which organizations you can donate to will vary by issuer, but if you're short on cash and want to give to a good cause, this could be a workable option.

All in all, every redemption option will have its pros and cons. But if you want to keep it as easy as possible, it's hard to go wrong with statement credits.