Cashback is a percentage of what you spend that Discover pays back to you

When you use a Discover card to buy something, Discover takes a small cut from the merchant who sold it to you. Discover then returns a portion of that cut to you as cashback. The percentage varies—typically between 1% and 5% depending on what you bought and which Discover card you have—but the basic mechanic is the same: you spend money, and some of it comes back to your account.

The cashback lands in your Discover account as a credit. You can use it to pay down your balance, request it as a check, or let it sit there. Unlike rewards points that expire or require redemption at a specific store, Discover cashback never expires and you decide when and how to use it.

Key Takeaways

  • Discover cashback is a percentage of your purchase amount that Discover credits back to your account, ranging from 1% to 5% depending on the card and category.
  • Different Discover cards earn different cashback rates on different categories—groceries, gas, restaurants, travel—so the rate you earn depends on where you shop.
  • Cashback never expires and you can redeem it as a statement credit, check, or deposit to a bank account whenever you want.
  • Some Discover cards offer bonus cashback in rotating categories each quarter, which you must activate to earn the higher rate.
  • You only earn cashback on purchases you make; balance transfers, cash advances, and fees do not earn cashback.

How cashback rates differ by card and category

Discover offers several different cards, and each one earns cashback at different rates depending on what you buy. The Discover it card, for example, earns 1% cashback on all purchases, but 5% cashback on rotating categories that change every three months—such as groceries, gas stations, or restaurants. The Discover it Student card works the same way. Other Discover cards may have different base rates or different category structures.

The category matters because it determines which rate applies. If you have a card that earns 5% on gas but you use it at a grocery store, you earn 1% at the grocery store, not 5%. Discover's website and your card's terms will list which merchants fall into which category. A gas station is usually clear, but some merchants—like warehouse clubs or online retailers—may not be obvious, so you can check before you shop.

Rotating categories and how to activate them

Several Discover cards offer rotating categories, which are spending categories that earn a higher cashback rate for three months at a time, then rotate to a different category. For example, a quarter might offer 5% cashback on groceries, the next quarter might offer 5% on gas, and so on. The rotation happens automatically, but earning the higher rate does not.

You must activate the category each quarter to earn the bonus rate. Activation is free and takes less than a minute—you log into your Discover account online or through the app, find the activation button for that quarter's category, and click it. If you do not activate, you earn only the base rate (usually 1%) on that category for that quarter. Discover sends notifications when a new quarter begins and a new category is available to activate.

When cashback does not earn

Cashback only applies to regular purchases. Balance transfers—moving debt from another card to your Discover card—do not earn cashback. Cash advances—using your card to withdraw cash from an ATM—do not earn cashback either. Annual fees, late fees, and other charges on your account also do not earn cashback.

Some cards have a cap on how much cashback you can earn in a category per quarter. For example, a card might earn 5% cashback on the first $1,500 spent in a rotating category each quarter, then 1% on anything above that. Check your card's terms to see if a cap applies to you.

How to redeem your cashback

Your cashback balance appears in your Discover account and you can see it online or in the app. You have three main ways to use it. First, you can apply it as a statement credit, which reduces your card balance dollar-for-dollar. Second, you can request a check mailed to your address. Third, you can deposit it directly into a linked bank account.

There is no minimum amount you must have before you redeem, and you can redeem as often as you want. Some people redeem monthly, others wait until they have accumulated a larger amount. Since cashback never expires, there is no rush—you can let it build up in your account for as long as you want.

Cashback and your credit score

Earning cashback does not affect your credit score. What does affect your score is whether you pay your bill on time and how much of your available credit you use. Cashback is simply a reward for spending; it does not change the mechanics of how your account reports to credit bureaus.

However, the way you use the card to earn cashback can indirectly affect your score. If you spend more than you normally would just to chase cashback, and then carry a balance and pay interest, you will lose money overall. Cashback works best when you spend money you were going to spend anyway and pay off the full balance each month.

Comparing cashback across different Discover cards

Discover offers several cards with different cashback structures. The Discover it card earns 1% on all purchases and 5% on rotating categories. The Discover it Student card has the same structure but is designed for students and may have different approval terms. The Discover it Secured Card is for people building credit and earns 2% cashback on restaurants and gas, 1% on all other purchases.

If you are considering which card to open, think about where you spend the most money. If you spend heavily on groceries and gas, a card with 5% rotating categories might earn you more than a flat-rate card. If you spend across many categories evenly, a flat-rate card might be simpler. Discover's website lets you compare the cards side by side.

Frequently Asked Questions

Do I have to pay an annual fee to earn cashback?

Most Discover cards with cashback have no annual fee. The Discover it Secured Card also has no annual fee. Check the specific card's terms before you open it, but Discover's main cashback cards are free to use.

What happens to my cashback if I close my card?

Your cashback balance remains in your account even after you close the card. You can still redeem it as a statement credit, check, or bank deposit. Once you redeem it, you no longer have access to that account, so redeem before you close if you want to keep the balance.

Can I earn cashback on purchases made by an authorized user?

Yes. Any purchase made with your card or an authorized user's card earns cashback at the same rate. The cashback goes into your primary account, not the authorized user's account.

Does cashback count as income for taxes?

Cashback from a credit card is generally not considered taxable income by the IRS because it is treated as a rebate or discount on your purchase, not as income. However, tax law can be complex and depends on your situation. If you have questions about your specific case, consult a tax professional.

What if I return something I bought with my Discover card?

When you return an item, the cashback you earned on that purchase is reversed. If you earned 5% cashback on a $100 grocery purchase and then returned it, the $5 cashback credit is removed from your account. You only keep cashback on purchases you keep.