|This article does not cite any references or sources. (June 2007)|
When accepting payment by credit card, merchants typically pay a percentage of the transaction amount in commission to their bank or merchant services provider. Many credit card issuers, particularly those in the United Kingdom and United States, share the commission with the card holder by giving the card holder points, air miles or a monetary amount. This last benefit, a monetary amount, is usually known as cashback, although it is often separated into two words (cash back) in the United States. Where a card issuer operates such a cashback scheme, card holders typically receive between 0.5% and 2% of their net expenditure (purchases minus refunds) as an annual rebate, which is either credited to the credit card account or paid to the card holder separately, for example by cheque.
Recently, major card issuers have raised the cash-back percentage up to 5%. The 5% cash back rate usually applies only to purchases made at grocery stores, pharmacies, and gas stations for 6 months. This high rate of cash back was set to grab the attention of potential applicants for them to consider applying for the card. Typically the cash back rate for all other purchases is around 1%.
Rewards based credit card products like cash back are more beneficial to consumers who pay their credit card statement off every month. Rewards based products generally have higher APR. If you don't pay your balance in full every month the extra interest you would be paying will eclipse any rewards you earned.
In the United States, due to increased gasoline (gas) prices, gas cash back cards or gas rebate credit cards became very popular among the consumers. Companies provide an average of 3% APR on new gas credit cards. The main idea behind gasoline discount cards is that cardholders obtain a sure percent of the sum they consume on gasoline each month in the form of a rebate check at the end of the year. It works similarly to a cashback discount recognition card with one noteworthy exception: the gasoline discount is frequently applied each month, whereas most cashback cards ship away discount checks formerly a year. This makes the savings easier to view for most consumers.
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