What the reward is actually worth
Cash back is quoted as a percentage of the purchase, which makes it look like a discount. It is not quite one: the discount arrives later, sometimes much later, and only if you pay the balance in full.
This calculator gives you both figures — the reward earned and the effective price after it — so you can compare a cash back card against a straight discount elsewhere.
The formula
Worked example: $500 at 2%
- Reward: $10
- Effective cost: $490
Where the reward disappears
The 2% is only real if the balance is cleared each month. Carry it and the interest overwhelms the reward almost immediately:
| Balance carried | Cash back at 2% | Interest at 22% APR | Net |
|---|---|---|---|
| Paid in full | +$10.00 | $0.00 | +$10.00 |
| 1 month | +$10.00 | −$9.17 | +$0.83 |
| 2 months | +$10.00 | −$18.33 | −$8.33 |
| 6 months | +$10.00 | −$55.00 | −$45.00 |
Roughly five weeks of carried balance wipes out a year of 2% rewards on the same amount. Cash back is a benefit for people who never revolve and a disguised cost for everyone else.
Tiered rates and caps
Cards advertising 5% usually mean 5% in rotating categories up to a quarterly cap, and 1% on everything else. Enter the cap in the calculator and it shows the spending at which the cap is reached and how much of the advertised reward never arrives.
A card paying 5% capped at $30 a month, on $3,000 of monthly spending, returns $30 rather than $150: the cap is hit at $600 of spending, $120 of the headline reward is lost, and the effective rate is 1%. Work out that effective figure across your actual spending before comparing cards. The headline number almost never applies to the whole balance.
What this calculator leaves out
Annual fees, foreign transaction charges, and the well-documented tendency to spend more on a rewards card than on cash. A $95 annual fee needs $4,750 of 2% spending just to break even.
Cash back against points
Points cards quote earning in points per dollar rather than a percentage, which makes direct comparison hard. Convert first: a card earning 2 points per dollar where points redeem at 1 cent each is a 2% card.
Redemption value is where points cards diverge. The same point can be worth 0.6 cents against a statement credit and 1.8 cents against a specific flight. Cash back has no such spread — a dollar is a dollar — which is worth something in itself if you do not want to manage redemptions.
When the reward arrives
Most issuers post cash back at statement close, some only once a threshold is reached, and a few forfeit accrued rewards if the account is closed before redemption.
On $30,000 of annual spending at 2%, that is $600 sitting unredeemed at any point in the cycle. It is real money and it is the issuer's until you claim it, so redeem on a schedule rather than letting it accumulate against a future purchase you may not make.
Related calculators
- Credit card interest calculator — what a carried balance actually costs
- Discount calculator — a real reduction at the till, for comparison
- Credit utilisation calculator — the other side of putting spending on a card