As credit card companies continue to work hard to compete for the borrowed dollars of consumers, reward programs and cash back incentives become increasingly lucrative for consumers. Cash back credit cards and other reward programs are incentives designed to motive credit card users to spend more and spend frequently.

Cash back credit cards vary in terms of the amount of incentives and the set up for the programs. Some cards simply offer a percentage of cash back for each dollar spent. While rewards do vary, most card companies offer cash back rewards in the range of 1-1.5 per cent. Some cards reward every purchase equally, while others reward users with bonus rewards for buying products from network companies. Card companies are partnering with retailers and other businesses and some cards pay rewards up to five per cent or so for in-network card purchases.

Points based cash back programs are also very popular. As opposed to offering a percentage of cash back for purchases, some card companies award points to card users for certain amounts and types of purchases. Users can then exchange points for cash back or other types of rewards.

Credit card companies reward users for various reasons. Sometimes card companies want consumers to spend money to carry higher interest-bearing balances. Others reward consumers more for frequent card uses as a way to increase revenue for transaction fees charged to merchants. Merchants typically pay transaction fees to card companies to process card purchases. Thus, a modest 1.5 per cent cash back payment to a card user is reasonable to the card company who gets significantly more in transaction fees from the merchants.

The biggest decision for consumers considering cash back and rewards programs is what types of benefits and perks are most preferred. Some credit card companies offer cash back only cards that pay the percentage rate in cash back. Others use the point based system but offer a wider selection of reward perks. Many companies rely on their partner relationships to offer higher value non-cash rewards to consumers. Additionally, there are combination rewards programs that allow consumers to choose between cash rewards and other product and service rewards at any point in time.

As with any type of credit card offer, borrowers need to consider their own spending habits, and optimal benefits when reviewing card options. Cash back incentives are most beneficial to users who use cards regularly and in the ways rewarded by the card company.