How to Calculate Cash Back

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There are plenty of rewards calculator apps and services, but understanding the nuts and bolts of cash back rewards doesn’t have to be daunting. Determining the effective cash back rate is as simple as applying a basic formula. Here is how to calculate the effective cash back rate with your credit cards:

How to Calculate the Effective Cash Back Rate

Understanding cash back rewards is essential to maximize your rewards when shopping. Most credit cards simplify the cash back process by providing a simple structure, like 1% cash back on all eligible purchases. These basic rewards cards are available for all credit profiles, including people looking for credit cards for bad credit.

But what if you want to calculate your cash back rate to see your full savings? Just how much are you leaving on the table? Fortunately, calculating cash back is as simple as plugging in the following formula:

R = P x C / 100

Here is the key:

  • R: Effective cash back
  • P: Purchase price
  • C: Advertised cash back rate

Understanding Cash Back in Real Life Terms

Let’s use the formula to calculate the cash back with a credit card that offers multiple cash back categories, like the Sam’s Club® Mastercard®. The Sam’s Card earns rewards on the following purchases:

  • 5% cash back on gas anywhere Mastercard is accepted (on the first $6,000 per year, then 1%)
  • 3% cash back on dining and takeout, plus Sam’s Club purchases for Plus members
  • 1% cash back on other purchases at Sam’s Club and wherever Mastercard is accepted

Because the card lacks any annual fee, calculating the effective cash back rate is simple. Plugging in the variables into the cash back rewards equation (with the purchase price set at $100) returns an effective rate of 5%, 3%, and 1%, as you would expect.

However, the equation becomes more challenging when annual fees are tacked-on. Here are a few things to consider before calculating the effective cash back rate:

  • How much do you need to spend to recoup the annual fee?
  • Are there any bonus offers or deals?
  • Are there any sign-up bonuses or cardmember anniversary bonuses?

To calculate the effective cash back rate for a card with an annual fee, here are the steps:

  • Figure out the annual fee
  • Calculate the value of and add any bonus offers you can apply. BestCards Membership has a huge selection of deals and offers to help you save (and earn) big.
  • From the total, subtract the annual fee, returning the cash value of the credit card

From this total, divide the net value by the purchase price of an item you want to buy.

The Capital One® Savor®, for example, earns up to 4% cash back on purchases – but comes with an annual fee of $95, not waived for the first year. This means that the card only makes sense if you earn enough cash back rewards to offset that yearly charge.

The Savor Rewards Card earns enhanced cash back in the following categories:

Here is how much you would need to spend to offset the annual fee with the Savor:

  • Dining & Entertainment (4% cash back) = $2,375 per year / $197.91 a month
  • Grocery Stores (3% cash back) = $3205 per year / $266.83 a month
  • Everything Else (1% cash back) = $9,500 per year / $791.66


Cash back credit cards are the most popular kind of rewards card available, and it is easy to see why. These cards provide exceptional value for money and often lack an annual fee. However, when cards do have a fee, the cash back rewards might not be worth the yearly charge. Fortunately, calculating the effective cash back rate is simple. It can help you better understand the costs associated with a rewards credit card before you reach the rewards.

Related Article: The Best Cash Back Credit Cards of 2022

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About: Cory Santos
Cory Santos

Cory is the senior credit card editor at BestCards, specializing in everything credit card-related. He’s worked extensively with credit cards and other personal finance topics, including nearly five years at BestCards. Cory’s extensive knowledge is an essential part of the BestCards experience, helping readers to live their best financial lives with up-to-date insights and comprehensive coverage of all facets of the credit card space, including market trends, rewards guides, credit advice, and comprehensive credit card reviews.

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